Toyota, Helped by Prius, Emerges From 3-Year Funk (Update 1)

Updated with comments from Toyota on the Polk study of hybrid owners' new car purchases.

NEW YORK (TheStreet) -- At the New York Auto Show, Toyota ( TM) focused on its new Avalon as well as its new Venza crossover and its new Lexus sedan.

But some of the biggest news for Toyota came the day before the show's press preview, when March U.S. sales figures showed the Prius hybrid as the third best-selling car and the sixth-best selling light vehicle, with sales of 28,711 units. March was the best month ever for Prius, topping sales of 24,009 in May 2007.

Toyota had a tough year in 2011 as a result of inventory shortages resulting from the March earthquake and tsunami in Japan. It had a tough year in 2010 because, in late 2009 and 2010, it recalled 7.5 million vehicles, damaging its image for extreme reliability. It had a tough year in 2009 because U.S. auto sales fell to their lowest level in 27 years. At least the 2009 problems weren't unique; they were shared with the rest of the industry.

In any case, perhaps the first quarter of 2012 marked a turning point, not only because the automaker began an aggressive program to launch 19 new vehicles during the year, but also because those launches included the Prius C hatchback, targeted to the subcompact market.

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To Bob Carter, Toyota group vice president and general manager, the timing for the launch of the Prius C in March was "impeccable."

"We were launching a new family of Priuses in a quarter when fuel prices were going up," Carter said, in an interview. The Prius family now includes the Prius v wagon, introduced in November, which has a larger cargo area and the less-expensive C compact, which starts at $18,959 and gets up to 53 miles per gallon.

The C and the V should each account for 15% to 18% of Prius sales this year, which Carter estimates at about 220,000, while a plug-in hybrid should account for 5% of sales and the original hatchback model should account for more than half of sales.

Carter noted that a dozen years after its first sale outside Japan, Prius still has "no viable competitor" in the hybrid category. Edmunds.com analyst Jessica Caldwell said Prius is the world's "most important hybrid vehicle," one that "regularly comprises more than half of the hybrid market in any given month." Global sales to date total more than 2.5 million, with nearly half of those in the U.S. Meanwhile, "the Prius C has exploded on our website, traffic-wise (and) was one of the top five most considered vehicles on our site last week," Caldwell said.

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In fact, in March, three of the top four hybrids were Toyota products. After Prius, the Camry Hybrid was second with sales of 5,404; third was Hyundai Sonata Hybrid at 4,656; and fourth was Lexus CT at 2,223.

Unfortunately, this success comes with a caveat because U.S. car buyers have not exactly fallen in love with hybrids. The sector accounted for just 2.4% of U.S. sales in 2011, down from a high of 2.8% in 2008.

Furthermore, a study released Monday by Polk indicated that hybrid owners aren't big on loyalty. In 2011, only 35% of hybrid owners chose to buy another hybrid when purchasing a new car.

Sure, fuel prices are high, but Brad Smith, director of Polk's Loyalty Management Practice, said "there are a lot of solutions out there for people deciding how to save money on fuel costs, alternative fuel technologies like diesels, plug-ins, and higher miles per gallon for conventional (engines). There is no clear-cut choice, even though there are more hybrids in the marketplace, so we're not seeing people repurchase (hybrids) at a high rate." Also, he said, hybrids cost more than conventional vehicles.

Polk studied 2011 new vehicle registration data. It found that 75,000 hybrid owners bought new vehicles in 2011, and the rate at which they bought new hybrids was relatively low, even surprisingly in "traditional eco-friendly markets" like Los Angeles, San Diego, Seattle and Portland, Ore.

Normally, among major brands, the percentage of car buyers who buy the same brand again, averages 48%, Smith said. Ford ( F) is highest at 62%, after steadily increasing from 51% in 2006. Toyota brand loyalty is also above average at 53%.

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Loyalty to a specific model is a different matter, averaging 22%. Ford F Series, the country's most popular vehicle, averages 39%. For Lincoln MKZ, 44% of owners who bought a new car in 2011 bought another MKZ, making it first in model loyalty.

Prius was at 31% in 2011, when it was plagued by inventory shortages. In the two preceding years, 2009 and 2010, fully 38% of Prius buyers in the new car market bought another Prius.

"Prius owners are loyal to Prius," Smith said. But if Prius buyers are left out, hybrid owners' loyalty to the sector dips below 25%, he said. So the car is a strong seller in a weak sector.

Toyota has challenged the Polk study, saying that it reviewed purchases by residents of households where someone owned a hybrid, rather than the more specific category of purchases by hybrid owners for themselves. In other words, if a hybrid owner purchased a new, non-hybrid vehicle for a son or daughter, the Polk study would indicate that the hybrid owner didn't purchase another hybrid.

"While Polk's findings may be true of the industry's loyalty to hybrid based on their own methodology, our internal research shows about 50% of Toyota's hybrids being replaced with another hybrid," Toyota said, in a prepared statement.

"For Prius, which has the highest owner loyalty in its class and among all hybrids, we see a much higher hybrid loyalty rate of over 58% of those replacing a Prius purchased another hybrid," the company said, adding that 51% of Prius owners purchased another Prius.

Another sensitive topic involving the Prius is that alone within the Toyota family it is the only significant vehicle that isn't made in the U.S., so that every car is imported from Japan even though Toyota now has 14 U.S. plants. Carter said the distinction is bound to end. The question, he said, "is not if -- it's when." -- Written by Ted Reed in Charlotte

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