Jeremy Cato: What's wrong with Toyota and Honda?
Unsold 2007 RAV4 sports-utility vehicles are shown on the lot of a Toyota agency in the east Denver suburb of Aurora, Colo., Nov. 26, 2006. (AP / David Zalubowski)
Published Saturday, October 20, 2012 7:00AM EDT
During the last month, Toyota Motor and Honda Motor have recalled more than 9.0 million vehicles around the world. Now The Wall Street Journal is suggesting that later this month, Consumer Reports could very well report that the quality gap between Detroit’s auto makers and their Japanese rivals has narrowed in a big way.
Joe White in The Journal reports that CR’s upcoming Auto Reliability Survey promises “significant changes for the domestic auto makers.” As White writes, “Given Consumer Reports long record of criticizing the Detroit brands, another report showing that they lag behind their Japanese rivals wouldn’t merit a hint that there’s surprising news.”
So, Toyota and Honda could see their quality advantage erode in the latest reliability news from CR -- on top of yet another recall involving millions and millions of Toyotas and Honda. Combined, these latest developments could prove to be an unwelcome setback for Toyota and Honda -- that at a time when both have seen their sales explode for 2012.
Remember, Honda brand sales in Canada are up 26.1 per cent on the year in Canada, just barely ahead of Toyota brand sales which have jumped 25.6 per cent this year. Toyota and Honda have bounced back dramatically this year after the troubles of 2011, when sales were hammered by the fallout from natural disasters and self-inflicted wounds.
“A lot of consumers sat on their hands last year as supply of Japanese products was very tight due to the tsunami and floods which cut vehicle production and availability of critical components,” says Dennis DesRosiers of DesRosiers Automotive Consultants. “We don’t know how many, but a lot of consumers will only buy a Japanese product after decades of disappointment with a non-Japanese product. And even though Detroit vehicles are much better built and many are as good as any Japanese product in the market, it is very difficult to bring a consumer back into your fold once you have disappointed them not just once but maybe three, four or even five times.”
My question is, is there a point at which Toyota and Honda loyalists grow disillusioned and grudgingly become willing to give the Detroit’s makers a chance? I mean, Automotive News is reporting that a series of filings with the U.S. safety agency the National Highway Traffic Safety Administration “show how Toyota officials continue to grapple with identifying and responding to potential safety issues.”
As White points out in The Journal, “None of this does any good for Toyota and Honda’s reputations for building extraordinarily durable, well-engineered vehicles -- hard won brand images which are the foundations of their success, particularly in the U.S. market.”
The Toyota and Honda brands so far have been only slightly damaged much, if you believe the latest 2012 list of the top 100 most valuable brands, according to rankings from BrandZ. While BMW is the world’s most valuable automotive brand and No. 23 overall on a list where Apple is No. 1, Toyota is the second-ranked car brand (No. 28 overall) and Honda is the No. 4 car brand (behind Mercedes-Benz) and No. 65 overall. Still, Toyota’s brand value has slipped 10 per cent in the last year (to just under $22 billion U.S.) and Honda is down 11 per cent (to just under $13 billion (U.S.). (For the record, the BMW brand, says BrandZ, is worth $24.6 billion U.S.)
DesRosiers believes that during the last couple of years, a significant number of buyers who would normally buy a Japanese-based product have simply stayed out of the market. “Their current vehicle was meeting their needs and although it would have been nice to move to a new vehicle, they could wait for the problems with Japanese product availability to subside,” notes DesRosiers.
Eventually, though, these “intenders” -- these Japanese brand loyalists -- will find it necessary to replace their aging vehicles. What impact will this latest round of recalls have on the overall perception of high quality enjoyed by both Toyota and Honda? If Consumer Reports does conclude that the quality gap has narrowed dramatically between the best from Japan and Detroit, will that have an impact in the marketplace? If so, how?
Simply put, what will it take for a Toyota owner to consider a Ford? Will a Honda driver ever give Chrysler or General Motors a chance if there’s evidence to bolster the argument that on quality, Detroit and Japan are virtually tied? Or that at least the quality gap is so narrow, it’s simply irrelevant?
So far, the sales numbers suggest otherwise. As DesRosiers has pointed out, Toyota and Honda have so far gained market share at the expense of Detroit’s auto makers. Detroit dug itself a big hole over decades with buyers, and it won’t be refilled quickly, even if Toyota and Honda are struggling with this latest difficult news.
But eventually one would expect to see recalls and a narrowing quality gap have some sort of long-term impact on customers. Toyota and Honda should be concerned.