The 2014 Toyota Tundra 1794 Edition. Source; Toyota.
The 2014 Tundra will also include backup cameras as a standard feature, with a blind spot monitoring system as an additional option. Early reviewers have stated that these enhancements make the 2014 Tundra better equipped to challenge the segment leaders. Even if Tundra doesn’t make much of a dent in Detroit Three pickup volumes, it could still cause them major headaches if it takes a disproportionate share of the high-margin luxury market.
The biggest threat to Detroit
As big an upgrade as the new Tundra is over the second-generation models currently on dealer lots, that alone won’t make it a success in the U.S. market. Even U.S. truck owners who like the Tundra aren’t willing to switch unless Toyota offers a clear value proposition vis-a-vis the Detroit Three. However, the yen’s precipitous decline in the past six months may allow Toyota to do just that.
While Tundra is assembled in the U.S. and uses primarily domestic parts, U.S. sales are still much more profitable for Toyota today than they were six months ago. The more favorable exchange rate means that repatriated dollar profits are worth 30% more in yen than they were last year. Toyota thus has strong reasons to chase sales in the U.S. through heavier use of incentives, particularly in the ultra-profitable pickup market.
If the yen-dollar exchange rate remains where it is today (or the yen weakens even further), I expect Toyota to ramp up incentive spending for the new Tundra to drive big volume increases. Toyota’s ability to increase incentive spending without compromising profitability is its biggest weapon in the pickup market. Favorable pricing is one way Toyota could differentiate Tundra from the other very worthy pickup models on the market today, and potentially eat into Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM)’s segment-leading market shares.
Foolish bottom line
Toyota’s new Tundra looks as if it will provide some much-needed improvements over the previous generation. Improving sales, particularly in the high-margin luxury segment, could give Toyota’s profitability a nice boost beginning in the fall. Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) shareholders should keep an eye out for how Toyota prices the new Tundra. The strong loyalty of most pickup owners should keep the threat to Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) relatively modest, but a Toyota-instigated price war could nevertheless cause problems for the current pickup segment leaders.
The article Can Toyota’s New Tundra Challenge the Ford F-150 and Chevy Silverado? originally appeared on Fool.com.
Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors and owns shares of Ford.
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