253-The Japanese Pay the Price

The figures are in for U.S. auto sales in 2010. The biggest winners in percentage growth were Hyundai, at 24%, and Ford at 20%. Toyota lost .4% and Honda grew a mediocre 7%. The Japanese struggled in 2010.

Earlier we wrote a blog about Ford’s ascendency and Toyota’s problems (see Blog HERE). Toyota is paying the price for failing its customers. Honda appears to be getting painted with the “failure” brush, though I doubt its punishment is deserved.

I am actually using the word “fail” to mean something specific here. A company fails its customers when it is unable or unwilling to do something that at least half of its competitors can, or will, do for customers. Toyota’s troubles with accelerators, floor mats, and so forth, received extensive media coverage. This coverage clearly has had a negative impact on Toyota this year.

Toyota’s struggles illustrate the win and fail dynamic. In our terms, a “win” occurs when a company is able to do something that the majority of its competitors either can not or will not do. Wins account for a good deal of market share growth in a fast-growing market, but are less important in more mature markets. In a more mature Stable market and, especially, in all Hostile markets, failure moves a significant amount of market share.

Here is what this means. The decision to change a supplier is really two decisions. The first is the decision to leave a current supplier and the second is the decision on which new supplier to take on in your relationship. In the average Stable and Hostile marketplace, more market share moves on failure than on wins. This means that before an established customer will change suppliers, its current incumbent supplier must “fail” the relationship in some way. This failure, then, opens up the customer’s relationship to competition among other potential suppliers. Whichever supplier gains this customer’s volume really did so only after the incumbent failed. We call this gain a “weak win.” The “weak win” would not have happened on a straight-up comparison of performance and price of the new supplier versus the old. The gain only happened after the incumbent clearly failed the customer and then opened the relationship to someone new.

Toyota’s failure was largely a failure of Reliability. It clearly lost share. The companies that gained this share from Toyota, Ford and Hyundai among them, enjoyed some degree of a “weak win” in the domestic automobile market. They may have “won” market share as well, but my guess is that most of their share gains from Toyota fell to them from Toyota’s “failure.”

Posted 2/28/11

Update:

The results in the US domestic automobile industry suggest that it is harder to recover share once you have acquired a reputation for mediocre quality than it is to gain share as you move up from a low end, Price Leader, product offering. After years of relatively poor reputations for quality, the US manufacturers have improved their products. Still, they struggle to compete with the growing quality reputation of Kia and Hyundai who entered the US market at the low-end of the product range. Furthermore a company has to maintain its quality level in order to be in line for either a “win” or a “weak win”.

A significant change in Reliability as measured by durability in the automobile industry has influenced Toyota’s market performance.  The US producers have improved their quality but this improvement is only slowly working through market share statistics. On the other hand, Korean manufacturers, with their growing quality reputation, seem to be having a significant impact, especially on the market share of Toyota.

In the 2022 JD power ranking, the top 5 mass-market brands are Kia, Buick, Hyundai, Toyota and Dodge.  In the premium segment, Genesis, Lexus, Porsche, Cadillac and Lincoln are the top 5 brands.  Overall General Motors and Toyota each received 5 segment awards for models with the fewest reported problems in their respective segments.

As other competitors, particularly the Koreans, have grown their market shares with high quality products, Toyota’s US market share has stagnated.  In 2008, Toyota’s US market share was 14%.  By the end of 2021 its market share was 12.75%.  In 2020, Toyota led the global market with a share of 8.5%.  Volkswagen followed at 7.8%.  Hyundai was 3^rd at 5.4%.  Ford was 4^th at 5.1% and Honda was 5^th at 4.8%.

Over the 5 years leading to 2020, General Motors and Ford both have lost US market share slowly.

We have found that there are three fundamental ways to improve a product for customer. Each of these ways seeks to reduce some form of customer cost. HERE is a description of those three approaches. Reliability innovations improve the customer’s experience with the product and usually are the most difficult to implement over time but also the most effective.

12/22

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