One-on-One With Toyota’s Jim Lentz

One-on-One With Toyota’s Jim Lentz

Jim Lentz, executive vice president for Toyota Motor Sales, discussed the opportunities and challenges of the auto industry during his speech to the Center for Automotive Research’s annual management meeting in Traverse City, Michigan, Wednesday. After his speech, he elaborated on those topics and others in an exclusive one-on-one interview with AutoObserver.

Are you spending more on incentives than you had anticipated on the Tundra?

Probably a little bit. But I think that’s a result of softness in the market. When we planned this launch, we had expected growth of the total market to be 200,000; instead, the market is 200,000 shy of last year. We also thought there would be growth in full-size trucks. We thought Chevy and Toyota bringing out new models and Ford introducing the Super Duty would stimulate the market. Instead, the segment is down.

What lessons did you learn from Tundra? Was it a tougher sell than you anticipated?

It hasn’t been tougher, but our biggest surprise was in dealing with conquest buyers. We didn’t realize they are really locked into a certain spec level and an exact vehicle.

Most import buyers have been trained over time that the dealer might not have exactly what they are looking for –- maybe the Camry they wanted was blue but they’ll take their second choice of white or their third choice of green. That doesn’t happen with the Tundra, especially with conquest buyers. They want exactly the spec package, the equipment levels, the color and the engine. That caught us by surprise.

How have you addressed that?

As production has matured at our plants, we’ve had more flexibility to change some of the specs. We have systems now that dealers can do virtual trades of production slots to get more exactly the model the customer wants. The regional offices doing a better job understanding what the buyer needs.

You mentioned in your talk that Scion spends virtually nothing on mass marketing and Toyota and Lexus are learning from Scion. Does that suggest they’ll be shifting away from mass marketing?

Toyota already has seen a fairly large shift away from mass television, primarily, to things like the Internet. Lexus has yet to make that shift, but they will be very shortly.

You were the first head of Scion. Can Scion get bigger and should it?

It can get bigger, but I don’t think it should. Scion was created as a laboratory for Toyota Motor Corp. in developing products and for Toyota Motor Sales in new ways of communicating with a different kind of customer. It was developed as a portal strategy -- a way for younger people to experience Toyota through the brand called Scion. Then as they moved through life stages, they would move into Toyota or Lexus. The strategy has not changed. Scion sold 165,000 vehicles last year and will sell about 175,000 this year. With one or two more products, it could grow to 250,000 sales a year, but I don’t think we want to be much more than that.

Some think it may already be too big and has lost its cultlike image.

That hasn’t happened yet. Scion is really about the community formed by the buyers, and the community can’t grow too large. The Scion buyer is a social animal. They want a relationship with the brand.

Toyota announced a plug-in hybrid, but no lithium-ion battery for it. Why?

It’s not ready. The vehicle we’re doing is a Prius going with double batteries that is today’s battery technology. It’ll go 7 to 10 miles (on all-electric) and 60 miles an hour. We’ll learn what we can and apply that learning when lithium-ion batteries become available.

Will you not offer the plug-in hybrid to consumers until the lithium-ion batteries are ready then?

That’s yet to be determined. A lot depends on the cost and benefit. Today conversion companies convert a Prius to a plug-in. But it adds a ton of weight and you lose the cargo area. We don’t think consumers are willing to spend $15,000 for the conversion and give up so much. It’s going to take a couple of generations of the lithium-ion battery to get the cost in line. We’re at the mercy of innovation on lithium ion.

You said in your speech that improving the retail image is one of the industry’s top challenges. How serious is Toyota about making real changes?

We’re real serious about it. If you look at the J. D. Power (Sales Satisfaction) survey in the past three to four years, we’ve made very slow but steady process. We’re now about six points to the non-luxury average, right behind Honda. Our next goal is to become the non-luxury leader.

Being only as good as Honda doesn’t sound very Toyota-like.

It is our typical kaizen way of stepping forward. It’s not because we want to be higher on the ranking. It means money to us and to our dealers. Today, Toyota is the No. 1 brand in overall loyalty with a 61-percent loyalty rate; loyalty to our dealers is roughly half that. So this is really an initiative for the dealer to improve the experience so they can improve their loyalty rates, which will result in their ability to sell more vehicles at a lower cost.

What specifically is being done?

Lexus and Toyota combined are spending $3 billion on new facilities during a four-year period. We have grown so quickly that we’ve outgrown those facilities. That adds to the poor customer experience. There aren’t enough service lanes, not enough F&I offices so dealers stepping up to that.

At Toyota, we’re taking a look at policies and procedures to make sure we’re not part of the problem. I’ve challenged our organization to look at everything we do that impacts retail to ensure it helps the dealers with customer service.

Our sense at Edmunds is that car buyers want a dealership to be a checkout lane –- and an express one at that. They don’t want to hang out a dealership.

They do and don’t. In the right environment, people may want to go to dealerships. Scion in Santa Monica has young people coming to the dealership to hang out. It’s part of the Scion experience. There are some who want an express lane experience, but others especially the younger generation  want a relationship with the dealer. Not a wham-bam in and out in 30 minutes.

So what are you doing about those customers who want an express service?

We’re working on the two main bottlenecks of a dealership –- the F&I department and the service department at peak periods. We’re experimenting with express maintenance. Some of our Toyota and Lexus dealers are experimenting with an assembly line approach to move through service faster. Some have “crunch teams” that at peak hours help with the glut of customers going through F&I or the service lanes.

With the ability to shop and obtain financing online, why can’t a buyer just come in, maybe take a test-drive and be out in 15 minutes?

There’s so much regulation and so many forms that have to be explained and filled out. It can be speeded up and dealers are working on it. Toyota Financial Services, with Scion playing a major role, is working on the concept of an express lane through F&I.

You didn’t mention the Internet. What’s its role?

The Internet is a facilitator. Younger buyers spend as much time in the buying process as boomers do but 90 percent is done online before they get to the dealership. That’s a big difference between the generations. So the Internet can speed things up. On the credit side, five years ago, few credit contracts were accepted online because they tended to be people with bad credit. Today, the acceptance rate online is actually slightly higher than at the dealership.

What’s your current outlook for industry sales in 2007?
We revised downward to 16.3 million from 16.5 million a few months ago.

Yet you see a rebound in total sales for 2008. Do you see a rebound in the truck market?

It’s hard to say. It depends on gas prices. The overall trend is still toward light trucks but more in crossovers. Still, the biggest segments are midsize SUVs and full-size trucks. Even though they may be down a couple tenths of a point, those are still massive markets.

You were quiet during your panel’s discussion of Corporate Average Fuel Economy (CAFE) today. What’s your take?

It’s tough to tell where things are landing with so many amendments floating around. We believe in higher CAFE standards. We believe manufacturers -- to gain competitive advantage -- are going to push as hard as they can no matter what the standards are to come up with vehicles that get better mileage. If you look at Toyota, the Prius came when gas was not expensive but it was something we believed would be a competitive advantage.

If we end up with CAFE legislation that is pushed upon the American consumer, we as the manufacturers will be stuck in the middle because consumers will push back. They probably won’t sit still for what being told what they can purchase vs. what they want to purchase and what it is going to cost.

If we push the standard to 35 miles per gallon, for example, there’s no solution for that today. The solution is going to be new powertrains, new transmissions and lightweight materials like carbon fiber and other exotics. They are all more expensive. The consumer will push back.

How does an automaker, developing vehicles three to four years out, do product planning then for higher but still unknown fuel economy standards?

It’s hard. We’re thinking about 2015. That will be the big crunch for all the companies. We could spend billions going after the new standards and consumers could rebel. Then the Congress could say, “just kidding” or “oops.” That would be problematic. I don’t think people understand the time frames we in the auto industry deal with to come up with great new advancements as well as create vehicles that are safe, durable and acceptable to our customers

So how do you do a product plan in this era of unknowns?

No company has all the resources to go after every segment, every powertrain and every possible solution. So we all make our best guess. If a company misses the market or the regulations change, there will be companies hurting.

About Jim Lentz

As executive vice president of Toyota Motor Sales, Jim Lentz has overall responsibility for sales, marketing and distribution for Toyota, Scion and Lexus products in the United States.

In 1982, Lentz joined Toyota as the merchandising manager for its Portland Region, where he later became the distribution manager and field operations manager. He held several positions at Toyota Motor Sales headquarters in Torrance, California, including field-training manager, sales administration manager and truck sales team member. Lentz also served as vice president of marketing services for Central Atlantic Toyota, a private distributorship based in Glen Burnie, Maryland.

In 1995, Lentz was promoted to general manager for Toyota's San Francisco Region, and he later became general manager of the Los Angeles Region.

As vice president of Scion, Lentz was responsible for the initial launch of a new line of vehicles for the next generation of new-car buyers. Lentz also served as group vice president of marketing, Toyota Division. Recently, he held the position of general manager of TMS's Toyota Division, where he oversaw all sales logistics and marketing activities for Toyota, Scion and Central Atlantic Toyota Distributors.

Lentz attended the University of Denver where he earned a bachelor's degree in marketing and economics and a Masters in Business Administration –- Finance.

He is married with two sons.

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.