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If Toyota Canada Inc. president Yoichi Tomihara is correct when he says adversity should make companies stronger, the auto maker has a golden opportunity to improve.

"I strongly believe the best organizations embrace challenge, learn from the past and emerge better for the experience," Mr. Tomihara said in an interview Monday, commenting on a year when virtually everything that could go wrong for Toyota did.

The company's reputation in Canada and globally for producing the industry's highest-quality vehicles was hammered by a series of recalls and a firestorm of negative publicity; sales – as of the end of November – slid 13 per cent from year-earlier levels compared with a 7-per-cent rise in the overall Canadian market; an incentive war helped slash market share; and stable gasoline prices limited the advantages Toyota enjoyed as the company with the biggest stable of hybrid vehicles.

"It has been a very tough and challenging year for Toyota," Mr. Tomihara acknowledged, speaking in the company's boardroom overlooking Highway 401 in suburban east Toronto.

The second straight annual sales decline puts an emphatic end to the Toyota juggernaut, which had moved from strength to strength in Canada and rose to second spot in the sales rankings, behind only General Motors of Canada Ltd. As of November, Toyota had tumbled to fourth in the sales race, on a pace to sell about 178,000 vehicles this year. GM still leads, followed by Ford Motor Co. of Canada Ltd. and Chrysler Canada Inc.

The recalls, a shift in the market out of subcompact and compact cars, a decline in fleet sales and heavy discounting have all contributed to the slump, Mr. Tomihara said.

"This heavy discount war – as far as I know from 30 years' experience in the rest of the world – is one of the heaviest in the developed countries," he said.

But that "buy the market" attitude, as he called it, would damage Toyota's brand, the residual values of its vehicles and customer trust, so Toyota won't participate.

He pointed to such deals as a $9,999 Accent subcompact and $11,995 Elantra compact from Hyundai Auto Canada Corp. as deals Toyota will not match.

The decline in sales of Toyota vehicles shows up mostly as an increase in Hyundai's deliveries this year, said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc.

Mr. DesRosiers believes Toyota is issuing more recalls than necessary after the problems earlier this year, which included hearings by a House of Commons committee and in the U.S. Congress, and several class-action lawsuits in the United States.

There was another recall Monday. Toyota recalled 12,600 Sienna minivans in Canada to replace brake light brackets, a problem that might eventually lead to reduced braking effectiveness.

Instead of battling in the discount wars, Toyota plans to bounce back to 2009 sales levels of 205,115 next year, or within 15 months, by offering 12 new vehicles. Another tactic will be to emphasize its Star Safety System, which includes brake override, anti-lock brakes, traction control and vehicle stability control. These features will be standard equipment on all models.

The new vehicles for the 2011 model year include three introduced when Toyota's youth-oriented Scion brand opened in Canada this fall; a redesigned Highlander crossover utility vehicle; and enhancements to its best-selling vehicle in Canada, the Corolla.

Sales of the compact Corolla and the subcompact Yaris are the heart of the market for Toyota Canada. Corolla sales have slumped 26 per cent and Yaris 41 per cent. Both those declines are larger than the overall declines in the subcompact and compact segments.

Toyota will also adjust its marketing message to emphasize quality, safety and sustainability, Mr. Tomihara said. It will increase its marketing budget by 20 per cent or more, he said, although he would not reveal how much Toyota spends annually on marketing.