Trends Favoring SUV Sales Continue to Hurt Toyota

By Markets Fool.com

U.S. sales of Toyota's RAV4 jumped 15% last month, a much-needed bright spot as the brand's sedans continued to slump. Image source: Toyota.

Continue Reading Below

Toyota said that its U.S. sales fell 2.7% in March from a year ago, as a continued slump in sedan sales and the timing of the Easter holiday weekend hurt showroom traffic.

What Toyota said: U.S. sales of Toyota-brand car models fell 9% in March, the company said -- but sales of Toyota SUVs were up 9%, and its midsize Tacoma pickup posted an 11.3% year-over-year increase.

Sales at Toyota's luxury Lexus brand followed a similar pattern. U.S. sales of Lexus cars fell just over 14% last month, while Lexus' SUVs as a group posted a 9.5% year-over-year gain.

"Trucks hauled the industry to see the best March in over a decade," said Bill Fay, Toyota's U.S. brand chief, in a statement. "For the Toyota division, light trucks, mostly supported by record sales of RAV4 and Highlander, posted best-ever March and first quarter sales."

"Lexus continues to be well-positioned with our fresh LUV lineup to meet the increasing customer demand for crossover and utility vehicles in the luxury market," said Lexus U.S. brand chief Jeff Bracken in a statement. "Our NX posted its best-ever month, and the all new RX posted its best-month since launch. In addition, the new LX was up 45.7 percent."

Continue Reading Below

What the numbers said: The Toyota brand sold 94,794 cars in the U.S. last month. On the one hand, that's a lot. On the other hand, it's down from just over 104,000 a year ago.

The drop isn't just about one Toyota model: Sales of all of of Toyota's sedan entries were down year over year. It's a trend we're seeing at most other mass-market automakers in the U.S.: More buyers are choosing crossover SUVs over sedans.

For automakers with strong SUV lineups, that's often a win: SUV generally carry fatter profit margins than sedans. But Toyota's not winning enough SUV sales to offset its sedans' declines, in part because production of its two key models, the RAV4 and Highlander, is close to maxed out. It isn't alone: Rival Honda , which like Toyota has long been dependent on mainstream sedan sales, is facing similar struggles.

During a conference call for analysts and reporters, Fay said that Toyota is working to get more production of Highlanders, RAV4s, and "light trucks" for the U.S. market. It hasn't yet cut production of the slumping Corolla or Camry, but it's "trying to move around the mix a bit," Fay said.

A bright spot for Lexus: Lexus' U.S. sales may have been down in March, but so were those at its biggest rivals. Despite the year-over-year sales decline, Lexus outsold both BMW and Mercedes-Benz in the U.S. for the second month in a row, leading the luxury-vehicles market. BMW-brand sales were down 12%, while Mercedes-Benz's U.S. sales fell 5.9%.

As with mainstream models, sales of luxury sedans are slipping while crossover SUV sales have continued to post gains. Lexus' NX line posted a year-over-year sales gain of almost 25% in March, while RX sales rose 5.1% and sales of the big and expensive LX line jumped 46% to 424 units.

What's next for Toyota: Given that the shift in buyer preferences away from sedans is likely to be a long-term trend, I expect Toyota to work on boosting SUV production in the short term -- and possibly to add more SUV models over time.

We already know that the company is planning to introduce a new small crossover SUV to rival Honda's subcompact HR-V. I expect that will be just the first of several new Toyota SUV variants we'll see over the next few years.

The article Trends Favoring SUV Sales Continue to Hurt Toyota originally appeared on Fool.com.

John Rosevear has no position in any stocks mentioned. The Motley Fool recommends BMW. 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.