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(Toyota)

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Two car companies that pay for their 'green halo' with truck profits Add to ...

Toyota has a truck problem, one borne of the staggering success this global automotive powerhouse has had positioning itself as the greenest of auto makers.

Make no mistake, Toyota is perceived the world over as a green brand. Just ask Interbrand, which rates Toyota as the world’s No. 2 “green” brand, right behind Ford, and ahead of Honda.

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Toyota’s green image has much to do with the Prius hybrid, with more than six million sold over the past 17 years. Indeed, earlier this year, Kelley Blue Book named the Prius one of the 10 Best Green Cars for 2014. Then there is Toyota’s extensive hybrid lineup and the thriftiness of its smallest cars – the Corolla (history’s best-selling car) and the Yaris, to name two.

Here’s the “green” problem: the company continues to ride its truck lineup to record earnings. Last month, Toyota Canada recorded a third straight record month for truck sales. Sales of the Tundra 4x4 pickup were up 74.8 per cent. Sales of three key SUVs were up, too – 20.5 per cent for the Highlander, 11.6 per cent for the RAV4 and 42.2 per cent for the 4Runner.

Toyota truck sales in the United States also hummed along nicely. Through the first six months of this year, Toyota sold nearly 500,000 trucks in the U.S. alone.

Surging truck sales spurred Toyota to massive profits during the recent April-to-June period: $5.7-billion, versus $4.4-billion for Volkswagen. Indeed, Toyota earned more, notes Automotive News, than General Motors, Ford, Nissan Motor, and Honda Motor combined (figures in U.S. dollars).

"They sell an awful lot of high-end SUVs," Mark Yockey, a New York-based managing director at Artisan Partners, told the industry publication. "There's a waiting line to buy Highlanders in the U.S., and those sell at much higher margins than if you're just selling Corollas."

How much more? Reports suggest margins of about a $1,000 more for a RAV4 or a Tundra versus a Prius. Worse, Prius sales have slumped globally, primarily because the current design is ancient. The Prius will get a badly-needed update perhaps as early as next year.

Now in fairness, Ford Motor, named by Interbrand as the world’s No. 1 green brand, has a similar problem. It continues to ride sales of the F-Series pickup and its extensive SUV lineup to very, very healthy profits. And Ford, too, has worked tirelessly to position itself as a green brand.

Still, no company is more conscious than Toyota when it comes to its image as a green technology leader. Which explains why Toyota has made it clear that going forward, it plans for hybrids like the Prius to be as profitable as a Tundra or a RAV4. Toyota also has been very, very clear on its plans for vehicles powered by “clean” hydrogen fuel cells. Toyota officials have said publicly that fuel cells are the sensible green endgame in personal transportation, not battery cars the Nissan’s Leaf or the Tesla Model S or X.

For now and the near future, Toyota is introducing a slew of new engines globally with the goal of increasing fuel economy by up to 30 per cent. This means vehicles such as the Camry that currently have V-6 engines might end up with turbocharged four-bangers. Hyundai and Kia, to name two rivals, made this move several years ago with the Sonata and Optima, respectively.

Meantime, the reinvented Prius will be the harbinger of wider advances in hybrids and next year Toyota also will begin selling a fuel cell car in selected markets.

Toyota needn’t worry about funding its latest green technology blitz, either. It is deliciously ironic that the company can tap into a $40-billion cash pile built up in large part by the success of its gas-guzzling trucks.

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