Toyota's production problems persist. Sales are down 23%, prices are up (2023)

Toyota inventories have never been lower than they are now. Drive to your local Toyota dealership and you will see some new cars in the parking lot. we noticed lessToyota listings on CarEdge Car Search. Production challenges have plagued Toyota in 2022, and its dealership currently has 36HourProvision of available inventory. To illustrate, in 2019, Toyota had a score of 60Taginventory. To say that Toyota's production challenges are severe is an understatement.

Having weathered the initial chip shortage in 2021 better than its peers, the world's largest automaker has officially fallen behind. Toyota is struggling to keep its dealers stocked, and as a result sales in the fiscal first quarter (April through June) fell 23% while average transaction prices hit an all-time high; $37,336.

It's easy to forget how far the auto industry has fallen below normal pre-pandemic levels. In July, automakers had a 38-day supply of new vehicles that were available and on the road. That might not sound too bad compared to recent history, but consider this: In 2019, automakers had 86 days of stock.

Inventory levels at Toyota are falling and delivery times are getting longer

This week, Toyota Motor North America executive vice president of sales Jack Hollis revealed a few thingsSo Toyota expects next year. In short, Toyota doesn't expect inventories to ever return to pre-pandemic levels. This is the new normal. Crystal ball aside, Hollis provided key takeaways on what car buyers should expect in 2023.

Jack Hollis, who has worked extensively with Ford's Jim Farley, shared his candid perspective at an Automotive Press Association event. In an interview that might as well have been a boring interview full of written answers, the world learned startling new details about how bad inventory shortages have gotten for Toyota at times.

Hollis said Toyota's demand continues to exceed automakers' production capacity.We've heard that before. However, it's the details that grab the headlines. Hollis said Toyota dealerships were recently reduced to a 36-hour delivery of new vehicles. This has led to high markups, accessories and add-ons from retailers. If a consumer wants to buy a new Toyota from a dealer, they are likely to pay more than the MSRP.

To find Toyota dealers that charge no more than MSRP, visit the community forum or markups.org.

We know that from our researchWaiting times when ordering a new ToyotaToyota's electrified line extended by more than a year. For Toyota hybrids and plug-in hybrids, factory order lead times are typically around a year. For the Toyota RAV4 Prime and Prius Prime, the waiting times are now 18 months to two years in the worst case. Keep this in mind if you are looking for a Toyota plug-in hybrid.

Why is Toyota in so much trouble when other automakers seem to be weathering the storm better? It seems that Toyota's domestic production in Japan is where the company has suffered the most damage. Japan is struggling with its own problems (COVID and an earthquake to name a few), yet the entire Japanese automotive industry is closely linked to suppliers and factories in China.

Toyota relies heavily on Chinese suppliers and the recent round of COVID shutdowns has done them a disservice. In August, a new round of Chinese factory closures, this time due to weather conditions, disrupts Toyota's Asian supply chains.

Automotive News reports this week that Toyota's biggest domestic competitor is looking for a way to break its reliance on supply chains from China. Honda Motor Co. is looking at ways to decouple its supply chains from dependence on China, according to Japanese publication Sankei. Last year nearly 40 percent of Honda's manufacturing capacity was in China.

With the recent heat wave causing Toyota's third major supply disruption in two years, we'd bet Toyota is reviewing its options going forward.

Inventory will never be “normal” again

By the first half of 2022, even the analysts at AutoForecast Solutions praised itseems to have underestimatedHow severe and protracted is the lack of chips and the resulting lack of cars? Now one of Toyota's top executives predicts an equally bad situation for 2023.

"We're going to be dealing with this for another year," Hollis said. "I don't think dealer inventories will build up for another year."

He also expressed his doubts that an automaker would return to pre-pandemic stock levels. "They just won't do it," Hollis said. It also highlighted a relevant question of how car buyer behavior has changed. Hollis noted that customers today rely on buying cars online, and that will impact vehicle inventory in the future. Today, retailers no longer need to hold stock to make sales.

Consumers are partly to blame for the persistently high prices at retailers. Hollis noted that people don't seem to mind forgoing manufacturer incentives and holiday discounts from previous years. "It currently has some of the highest customer satisfaction ratings in the industry and everyone buys a vehicle at MSRP," he said.

Toyota cuts incentives

Due to the drop in supplyToyota has drastically reduced incentives for consumers. For the first time since 2017, Toyota's incentives are below $1,000. In the April-June quarter, Toyota's average incentive per vehicle was $772, down 66% year over year.

The Toyota brand's incentives were even lower, at just $672 per vehicle. Lexus premiums fell 71% to an average of $1,474 per vehicle. From 2019 to 2021, Lexus incentives averaged more than $5,000 per vehicle.

This means buyers are more likely to pay MSRP or more. As Hollis candidly noted, car buyers are not afraid to pay higher prices. Toyota dealers have no problem selling any vehicle they receive from the factory. There's just no reason to incentivize purchases.

In the fiscal first quarter, the average transaction price for Toyota (Toyota + Lexus) was nearly $40,000. Just two years ago, that figure was less than $35,000.

Hollis defends Toyota's EV strategy

At the Automotive Press Association event, Hollis also addressed the long-term prospects for Toyota's long-delayed entry into all-electric vehicles. Hollis reiterated Toyota's belief in offering a wide range of electrified vehicles, and not just BEVs, as the best way to reduce overall CO2 emissions. He's unabashedly skeptical that American motorists will adopt electric vehicles anywhere near as quickly as government targets suggest.

Given that the average EV transaction is $10,000 above the overall industry average, I think Hollis is right. Add to that battery and raw material shortages, poor charging infrastructure and simply a lack of inventory, and Toyota's roadmap looks a lot smarter.