As the US and world economy struggles the auto industry continues to get hammered. Sales have fallen to historic lows and the US government recently lent a $17.4 billion lifeline to GM and Chrysler to help those companies get through the first quarter of 2009. Even the so-called import brands are feeling the pain as Toyota recently announced its first ever annual operating loss. The company has forecast a $1.7 billion loss for the fiscal year ending March 31, 2009, driven by poor sales and the rising value of the yen. Standard & Poors is even considering downgrading the company’s debt for the first time.

So what’s driving the bad news at Toyota? Are they a victim of a poor worldwide economy or is it something more? Compete data show that Toyota’s pain comes from a drop in demand after a great first half of 2008. For context, Toyota Division has historically attracted about 20% of in-market shoppers market-wide. In the first half of 2008 the launches of Corolla, Matrix and Sequoia drove Toyota demand up; Toyota outperformed the market overall, as seen by its Share of Market Interest (SMI) approaching 30% (meaning nearly 30% of all in-market shoppers shopped a Toyota). That translated into 231,000 units sold in May ’08, Toyota’s 2nd best sales month in over 5 years. Of course, high gas prices and Toyota’s wealth of small and fuel efficient models helped. As gas prices hit record highs in June and July, demand for Prius, Corolla, Yaris and Camry increased dramatically—as did sales, with Prius reaching record heights.

But since then, Toyota demand has fallen to record lows. While demand for the entire market is at record lows, Toyota has actually underperformed the market, with SMI returning to pre-2008 levels. Demand for the hot models from the summer has cooled significantly, driving overall Toyota demand lower. Lower demand is at the core of Toyota’s lower sales, down to 114,000 units in November ’08. Lower demand can be partially offset with better conversion of shoppers to buyers—exactly why Toyota began its 0% financing efforts.

At the model level, results are somewhere between steady and soft relative to the market. Share of Market Interest for most Toyota models has dropped back to more traditional levels—with the exception of Corolla and Prius, the SMI of both is down year-over-year. SMIs for some of Toyota’s trucks are better, with RAV4 and Highlander up year-over-year. Even Tundra has a pulse, no doubt aided by lower gas prices and the recent launches of the Ford F-150 and Dodge Ram.

But while on a Share of Market Interest basis several Toyota models are steady or even up, the problem is the context: with overall market demand at all-time lows, a steady share means much lower demand, and hence sets the stage for much lower sales.

For Toyota (or any OEM) to regain footing in this market, it will need to boost Share of Market Interest not just maintain it—as the Toyota results show all too well. And since the global recession is likely to keep oil and gas prices below 2008 highs for a while, Toyota will need to boost SMI with cost-effective, targeted marketing and very successful launches of must-have products. For Toyota, those include the ’09 Venza, ’10 Highlander and ’10 Prius. And while Compete’s early demand results for Venza look promising, it is too early to say whether it will drive overall Toyota Share of Market Interest upwards. Stay tuned.

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