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.

It’s not any real news that full-size pickup trucks are taking a beating in today’s economy. With gas prices over $4 per gallon and the housing market still in a funk, pickup sales are getting worse with each passing month. Here at Compete we’ve been studying the situation and have seen demand for large pickups (F-Series, Silverado, Tundra, etc.) fall to record lows over the past few months. So the question becomes, are large pickup consumers changing their shopping preferences? Are they shopping cars now that pickups are becoming too expensive to own? Are they shopping smaller vehicles like the rest of us?

Let’s be clear on one thing: there are still people out there who need a truck. They are the people who need them for work or who tow 10,000 lb. trailers and boats. But there are also a lot of people who owned a pickup not so much for the need but rather because they wanted at truck. Oh sure, that annual trip to Home Depot justified having a pickup, but the economy has had a way of separating the wheat from the chaff.

A good portion of pickup shoppers still only shop a full-size pickup. Those are the people who need a truck, but that number, not surprisingly, has been declining. That suggests pickup loyalty is not as strong as it was in the past. The rest are looking at other alternatives and shopping other vehicles in other segments. To be sure, they are looking at compact pickups, smaller SUVs as well as at some of the new crossovers on the market. You would expect that of someone who’s been in a truck.

But, in what is a perhaps a bit of a surprise, we’re also seeing a good number of truckers turning serious attention to compact and mid-size cars. In May those two segments were shopped twice as much as they where in November and continue to be among the vehicle segments most shopped by full-size pickup prospects. That’s a change from the past when they weren’t even on a trucker’s radar. That’s right, people who’ve motored around town with bed-liners and trailer hitches they rarely used are now looking to buy an Accord or a Malibu or even a Civic, a Corolla or a Focus. That’s a big change for someone who’s used to 8 cylinders and sitting high enough to look down on the cars they’re now thinking of buying. But then again, are you really a trucker if you’re not getting it dirty and hosing it out when you’re finished using it?

On May 5 the UAW struck GM’s Fairfax assembly plant in Kansas City, which makes the hot-selling Chevrolet Malibu sedan. The strike comes at a particularly inopportune time as a prolonged work stoppage could severely hurt the tremendous momentum Malibu has built up since its launch in October.

Since launching in Q4, Malibu demand has soared to new highs, surpassing all other models market-wide in January. Record demand has also driven sales to new highs, reaching 16,879 units in April, putting constraints on inventory as supplies remained tight at 36 days. While demand has declined over the past two months it has remained 3 times higher compared to its level last year and it continues to be one of the most shopped models market-wide.

In April, Malibu conversion, defined as the ratio of sales to demand, hit 22%, more than double that of its peak launch demand in January. Malibu conversion has not been this strong since its incentive-laden sell down in Q3 2007. This improvement can be attributed to increased supplies of the new model. It also makes Malibu conversion competitive with segment leaders Camry and Accord.

Maintaining launch momentum in the face of a strike is critical and requires informed decision making. A prolonged strike may further constrain inventory at a time when supplies need to fall in line with vehicle demand. On top of that, the new Malibu continues to attract significant interest from import shoppers who have increasingly put Malibu on their list of vehicles to shop. Even the slightest hiccup could jeopardize Malibu’s momentum and put to the brakes on what has been one of GM’s most successful launches.

What can GM do? The strike will test GM’s mettle and ability to keep the momentum rolling. Chevrolet must continue its marketing support of Malibu to ensure robust demand once the strike is settled and supplies return to more acceptable levels. If demand falls when inventories return, heavy incentives will be a part of any solution to drive sales.

In the short term, Chevrolet can redirect some Malibu shoppers into Impala. The number of people shopping both models has increased to record highs in 2008. To keep these prospects from defecting to import rivals, Chevrolet should develop programs that incentivize dealers to redirect Malibu shoppers into Impala if the prospect is a defection risk. Better to keep them in the family than to lose them altogether.