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Why Toyota Replaced GM as the Largest Auto Maker in the World



(Credit: Bill Pugliano/Getty Images)

Toyota Beat GM to Become World's Largest Automaker in 2007:

In Q1 2007, Toyota beat GM to become the world’s leading auto maker, selling 2.35 million vehicles to GM’s 2.26 million. Although GM beat Toyota’s sales in 2006, (9.1 vs. 8.8 million vehicles), Toyota’s sales in the first quarter were 9.2% greater than last year, while GM’s was only 3% more. (Source: Bloomberg, April 24, 2007)

What Was Toyota's Strategy?:

Demand for smaller cars in the U.S. and Europe drove sales of Japan’s auto makers. Toyota’s strategy was to build plants, especially in the U.S., to meet surging demand. Part of the demand was from perceived scarcity. Toyota never made quite enough cars, so that people saw them as slightly hard to get, and therefore more desirable.

Toyota also made smaller trucks, that were more fuel-efficient than U.S. made trucks. Toyota's development of the hybrid Prius started 10 years ago. It became hugely successful during the high gas prices during the summer of 2008.

What Was GM's Strategy?:

GM, on the other hand, depended for much of its strategy on discounting their vehicles because it had made too many. GM also had to reduce its North American manufacturing capacity by 1 million units by 2008 to reduce overhead. This led to many job losses, creating a protectionist feeling among displaced auto workers. If GM had developed hybrid and electric vehicles, and smaller cars, it would have been able to compete more effectively against Toyota, leading to fewer layoffs.

Toyota Beat Ford in 2006:

In July 2006, Toyota beat Ford for the first time in U.S. sales, selling 241,826 vehicles vs. Ford's 240,011 vehicles. At that time, the number one place still belonged to GM, which sold 406,298 vehicles.

As gas prices rose, consumers preferred fuel efficient vehicles over trucks. Ford’s sedans -- Ford Fusion, Mercury Milan, and Lincoln Zephyr -- sold a record 19,440 in July, up 18% from June, while its truck sales declined 44%.

Toyota promoted its fuel efficient and hybrid vehicles. Ford, on the other hand, had to discount its vehicles because it had made too many, and were behind in developing hybrid vehicles.

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