Toyota Hybrid

Toyota: Driving the Mainstream Market to Purchase Hybrid Electric Vehicles

In 1957 Toyota introduced its first vehicle to the American market, the Toyopet Crown. The small, fuel efficient vehicle had seen much success in Japan, but did not fare as well in the U.S. market. With relatively inexpensive gas available in the United States, the American consumer saw no need for a reliable, fuel efficient vehicle manufactured by a foreign auto company. In its first venture into the U.S. market Toyota learned some valuable lessons; auto manufacturers must align their vehicles with customer needs and a high quality product does not always succeed in the market.

Toyota found an opportunity to re-enter the U.S. marketplace during the fuel shortage of the 1970's. For the first time, American consumers were looking for fuel efficient vehicles and Toyota had the answer. In 1965 foreign auto groups held just 5% of the U.S. auto market. This share has steadily been increasing with foreign auto manufacturers currently holding 40% of the market. With its foot in the door of the U.S. market, Toyota developed a reputation for designing simple, fuel efficient, reliable, affordable vehicles.

In April 2003, with a solid reputation, low cost flexible production, and more than $134 billion in cash and assets, Toyota set its sights on becoming the largest auto manufacturer in the world. The auto industry and the environment in the U.S. had changed dramatically since Toyota hit the U.S. scene almost 50 years ago. In the 1950's there were 50 million vehicles on the roadways, this number had increased to just under 500 million (a 90% increase!) before the new millennium. Carbon dioxide emitted from the traditional combustion engines in automobiles was linked to global warming, rising sea levels, and increasing smog. The negative environmental effects, coupled with the United States' dependence on foreign oil, and the increasingly volatile relations between the U.S. and oil producing nations led the American government to regulate and restrict vehicle emissions. Toyota forecasted correctly and had predicted that government would become more critical of auto manufacturers and set strict emissions guidelines.

The change in environmental legislation and consumers' desire for more environmentally friendly vehicles created a new demand in the U.S. auto market. Toyota took a pro-active stance, taking the early leadership position in the environmentally friendly hybrid market. They hoped this early action would intern propel them to the number one auto manufacturer in sales and market share. Learning a lesson from the flop of the Toyopet Crown, Toyota realized they needed to stay in tune with consumer needs and they also needed more than a quality product. Toyota understood their consumers would not compromise certain requirements and conveniences. Toyota invested fiercely in their hybrid electric vehicle technology and they were positioned to take the lead in creating cars that were reliable, environmentally friendly, and stylish while maintaining the performance consumers' demanded.

As the auto market transformed most auto manufacturers invested research in hybrid technology; Ford planned to sell the first hybrid SUV and GMC planned to introduce a Saturn SUV hybrid. Honda was the strongest competitor in the hybrid market, but chose not to pursue HEV technology aggressively, selling two hybrid models in the US market. GM directed its efforts and finances to the development of fuel cell technology.

Fuel cell technology created an engine that ran on hydrogen and emitted only water. Most in the industry agreed that in the long term fuel cell technology would be the cleanest, and hopefully, most viable vehicle. However, scientists also agreed that fuel cell technology had a long way to go before it reached the marketplace (most estimated 10-15 years). Fuel cell vehicles also had major concerns regarding reliability, durability, power output, cost efficiency, mass production manufacturing, and infrastructure. The United States government committed $1.2 billion (about .24% of the federal budget) to research fuel cell technology vehicles. Toyota continued their progressive work in creating a hybrid electric vehicle with a combination electric/gas engine that had 30% lower emissions, higher fuel economy (50-55 mpg), and did not face the colossal concerns of fuel cell vehicles when bringing it to market. At the same time Toyota was preparing to introduce hybrid vehicles, they were also looking to the future and researching and investing in fuel cell technology.

Due to Toyota's aggressive stance in adapting to new environmentally friendly vehicles, its HEV (hybrid electric vehicle) commanded an astounding 90% of the U.S. hybrid auto market from 1997-2002. Unfortunately this only represented .02% of total vehicle sales in the United States. The challenge facing Toyota was how to turn this "cash cow" into a "star" as it moved to the growth phase of the product life cycle. Hybrids had carved a spot in a niche auto market and tree-huggers across the country were lining up to purchase the environmentally friendly cars, but how can this success be transitioned from "innovators" and be accepted by "early adopters"/"early majority"?

Toyota's competitor's hoped that HEV's would stay a niche market and not catch on with the mass market. They viewed the hybrid as a band-aid that could assist with aiding environmental impacts in the short term, but still relied on gasoline and did not provide the answer for the bigger picture. Toyota, on the other hand, saw demand for these vehicles in the current marketplace. With 90% of a sample audience saying they would consider buying a hybrid version of their current vehicle, Toyota decided that by 2012 all of their vehicles would be available with a hybrid electric engine.

With this announcement Toyota set a precedent in the category by manufacturing all of their vehicles with hybrid technology. They also had plans to sustain this leadership position by advancing their product development process and reducing the time it takes to bring new hybrids to the market. This allows them to determine the needs and wants of the consumer market and alter the vehicles based on the demanded specifications. The Toyota production system uses just-in-time inventory which allows greater flexibility and reduces operating costs. These cost savings can be passed on to the consumer making the hybrid even more comparable financially to gasoline vehicles MSRP. When you combine Toyota's reduced costs and fuel savings the hybrid becomes even more appealing.

Toyota now has a high quality product that will be available