Is Toyota Losing Sales As More Buyers Choose SUVs?

By Markets

U.S. sales of Toyota's Corolla were up last month. But all of the brand's other car models posted declines as more buyers switched to SUVs. Image source: Toyota.

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What's happening: Toyota said on Tuesday that its U.S. sales in February rose 4.1%, as strong SUV sales offset continued weakness in sales of Toyota's core sedan lines.

Sales at Toyota's Lexus luxury brand were roughly flat year over year.

What Toyota said: Sales of Toyota-brand SUVs (including the Sienna minivan) were up 11.1%. All models (save the discontinued Venza and FJ Cruiser) posted solid sales gains. Sales of the compact RAV4 were up 16.3%, while the midsize Highlander crossover posted a 10.7% year-over-year gain.

Those gains helped offset slumping car sales. Sales of Toyota-brand cars as a group were up just 1.2%, as a 5.4% increase for the compact Corolla was offset by declines for nearly all other models. Camry sales fell 1.6% to 32,405. That's still an impressive total, but the trend continues to be worrisome. Toyota has been boosting incentives on its sedan models to keep sales strong, but those incentives cut into Toyota's profits last quarter.

"Light trucks continue to drive strong demand in 2016," said Toyota U.S. sales chief Bill Fay in a statement. "The Toyota division had back-to-back, best-ever light truck monthly records,supported by another best-ever month in February for RAV4."

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Lexus SUV sales jumped almost 18%, a little more than enough to offset a 16% drop in the luxury brand's car sales. But the company tried to spin it as an across-the-board win.

"As leaders in luxury crossover vehicles, it's no surprise to us that our SUV lineup continues to propel our sales performance," said the brand's U.S. sales chief, Jeff Bracken, in a statement. "It wasn't just a good month for SUVs, however -- IS, CT and RC have exceeded our sales expectations for the month of February, validating the appeal of these models to the next generation of luxury consumer."

What it means: Like many of its rivals, Toyota is watching SUV sales rise at the expense of sedan sales. But unlike many of its rivals, Toyota probably doesn't see that trend as good news.

For a company like Ford , a shift away from sedans to SUVs isn't a bad thing. Ford has a full lineup of strong-selling SUVs, and they probably generate more profits per sale than the Blue Oval's sedans. Ford is selling all of the Escapes and Explorers it can make and reaping fat profits.

But Toyota's biggest sellers in the United States are still its Corolla and Camry sedans. It does have some popular crossovers like the RAV4 and Highlander, and its Sienna minivan does well. But it lacks the depth of Ford's lineup, and it may lack the production capacity to increase RAV4 supplies in the U.S. without a major investment.

The takeaway for Toyota investors
Long story short, the trends we saw in February's numbers aren't bad news for Toyota, exactly. It's capturing some of the movement away from sedans and toward SUVs with its own competitive entries. But it's likely losing some profitable SUV sales to competitors like Ford, if only because it can't easily increase supplies of the RAV4 and Highlander. As we saw last quarter, that will tend to squeeze its profit margins in North America, even if Toyota's overall sales numbers stay strong.

The article Is Toyota Losing Sales As More Buyers Choose SUVs? originally appeared on

John Rosevear owns shares of Ford. The Motley Fool owns shares of and recommends Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.