Toyota Yairs, and the lack thereof

[Zaphod]

Originally Posted by BailOut

You're onto something but I think that there's a larger picture.

Over the last 15 years, but especially over the last 10 years, auto manufacturers have found that they can pull much larger profit margins from larger and larger vehicles. During this time they became addicted to the profits these margins bring them, as did their shareholders.

Now they find themselves in the kind of trap that only greed can produce. People are starting to shift to a desire for smaller and more fuel efficient vehicles but if the manufacturers can't keep producing larger and larger profits each quarter their stock value begins to decline. This inevitably results in action from the shareholders via the board members in the form of replaced executives and upper management.

Every executive and upper manager is desperate to hold on to what they have today and have little to no regard for the future beyond a few quarters, so they do everything they can to keep the Tundra and Expedition and Yukon sales going even as they watch the market for them begin to wither.

It's not that the companies would go broke by selling only smaller vehicles with smaller profit margins. This is important to understand. They still make a profit - just not as much of it. However, this presents a problem for every publicly traded company.

Once a company goes public they simply must produce higher profits each and every quarter or suffer a lower market capitalization. Too many downward quarters and you find your company isn't worth enough to muscle your way around, or to demand credit, or to ease investor's fears, and this is when you're in deep trouble.

So the question is, with the inevitable shift to smaller and more efficient vehicles, how can a public company convince everyone that some profit is better than no profit even if each share's value is cut in half?

I don't think it's as big of a deal for a company like Toyota.

You just have to consider that as demand shifts, so does market share. Companies that offer competitive economy cars will gain market share and investors will always want to balance their portfolios. Of course, down the road the market will be saturated with every major auto manufacturer's low profit margin offering. Supply will have caught up to demand and it will start to get really cut throat like any other industry.

That's where things like reputation and reliability become more important, and that's why I think it's a huge deal to get your name out there early. When product differentiation starts getting heavy, it's nice to have a reliable brand name with a good history.

Well, Toyota obviously saw that coming with the years of development they put into hybrid technology in the Prius. And then there's the Yaris, an entry level economy car that everyone can afford.

If I were trying to sell advertising to Toyota, I'd put that spin on it. You want to sell the Yaris because it's what kids graduating from college can afford, and if it's a good product like you know it is, it'll sell future Toyota products.

And so long as car rentals continue to lend out those PoS Aveos, the quality comparison for the common man will be measured in light years.