Toyota Lowers US Tundra Production

I maintain that the shift from pickups and SUVs to more fuel efficient vehicles is an inexorable long term trend. But many in the car industry disagree, preferring to see any down turn in this highest-margin cash-cow segment as merely cyclical.

Toyota recently entered the full-size truck market, challenging the dominance of Detroit iron with the massive and powerful Tundra. Toyota calls the new Tundra its most important US vehicle in 50 years in the North American market.

A new plant San Antonio was evidence of Toyota's commitment.

The move into trucks may make sense as an effort by deep-pockets Toyota to undermine the near-bankrupt US competition, but considered purely as a new model introduction I think Toyota may have just made its first big mistake.

Tundra has taken some market share, but quality concerns in San Antonio and incentives haunt the new truck launch.

The new pickup arrived just as falling demand for trucks, which is housing-starts sensitive, downsized the sector.

GM has a 150-day inventory of Chevy Silverado/GMC Sierra pickups, double the recent 60-day average. Ford has 91 days supply of F-Series pickups, and Dodge sits on 120-days worth of unsold Rams.

Toyota Tundra has a very unusual 76 days, as Toyota plants are designed to build-to-order.

GM, Ford, and Chrysler have announced short term shutdowns of their pick-up assembly lines.

So Toyota has followed the Detroit three, slashing production of its flagship Tundra.

This means big T will fall a bit short of its goal of selling 200,000 Tundra pickups in the first year. 177,336 Tundras sold through November.

Toyota built about 18,300 of the 4,800 pound pick-ups in Texas and Indiana during November, selling only about 15,000 of those.

While this is up 43 percent from last November, demand has fallen short of combined capacity of the two plants.

Sales have fallen from a July peak of 23,150.

Taking a page from the Detroit play book, Toyota is offering low-interest financing or cash rebates of $2,000 on brand new 2008 Tundras. 2007 Tundras had $3K.

Industry average pickup incentive is over $4K. Current incentives rob future sales and undercut resale value.

2008 is setting up as the softest pickup market ever, with optimists predicting an upturn in housing in the second half.

I remain a skeptic on the future for heavy pickups and SUVs in 2008 and beyond. Every Federal Reserve rate cut to save housing prompts a new wave of selling in the dollar.

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