Glenn Mercer

Will Toyota Lose Its Edge?

Labor cost is of course important, but I would assert that you are looking at this through Detroit's lens, which is that "all problems are cost problems." If a Toyota has higher resale value than a Ford, then a Camry buyer will pay more for it upfront than for a Ford, as he or she gets the value back upon resale. The higher price allows Toyota to earn better profits or even pay its workers more. That is a simplistic point, but for decades Detroit ignored it. Look at the Sebring, with its cheap interior. Cheaping out the interior implies a belief that "Someone really wants a Sebring, so if we can cut $400 out of it, we'll sell more." The problem is, there is no huge untapped demand out there for a Sebring that costs $400 less. There MAY be untapped demand out there for a Sebring that is a nicer car. Thus Detroit may save $500 in labor costs on a car, but have to give up $2,000 in price cuts to sell it. Detroit has finally gotten the message and is now focusing on trying to raise value and thus price, not just keep squeezing costs. Toyota certainly has to watch its labor costs, but they will always do better to worry about price as long as Detroit is still fixated on costs.