Toyota and Honda: Resale Value Leaders Amidst Change

Toyota and Honda excel in resale value and customer loyalty due to their focus on quality and efficient production.

### The Resilience of Toyota and Honda in a Changing Automotive Landscape
* 🚗 Toyota and Honda, while often labeled as "**boring**" by critics, dominate the used car market due to their **strong resale values and reliability**.
* 📊 Toyota has topped Kelley Blue Book's best resale value list **eight times since 2014**, with Lexus winning the luxury category **five times**, showcasing their **consistent performance in maintaining vehicle value**.
* 💪 Both companies maintain lower levels of incentives and fleet sales compared to competitors, which helps protect their resale values; Toyota's fleet sales account for **only 14% of its total sales**, while Honda's are at **just 1.8%**.
* 🔧 The Toyota Production System emphasizes **efficiency and quality**, allowing the company to avoid the pitfalls of **overproduction and brand-destroying sales tactics**, which has solidified its **market position**.
* 🏆 Despite their successes, both brands face challenges, including a transition to electric vehicles (EVs) where Toyota has been criticized for **lagging behind competitors**.
* ⚠ Recent scandals involving safety checks and recalls, such as Honda's recall of **750,000 vehicles for faulty airbags**, highlight that **no automaker is without flaws**.
* 🔮 The future remains uncertain as younger consumers show **less brand loyalty**, and new entrants like Chinese manufacturers and software-defined vehicles disrupt the **traditional automotive landscape**.
* 💡 "We have cars that are **fun, cool, and interesting**," emphasizes the need for Toyota and Honda to **adapt and innovate** to maintain their **competitive edge** in an evolving market.

Toyota and Honda, two of the world's biggest automakers, aren't known for making flashy cars or high-end exotics. Quite the opposite. More often, they've been called boring. Even Honda's own designers have said so. Akio Toyoda, that company's chairman and scion of its founding family, was so frustrated with this, he once demanded no more boring cars. The word boring and the word Lexus would never be used in the same sentence again. You know, we are always seeing a sort of pedestrian, right? Like you buy a Camry, but you know it's not cool. Despite the image, Toyota and Honda rule the used car lot. What do you feel about 500 bucks? Let's do this. These two brands and their luxury divisions hold their values better than any other. It matters a lot. And it is not something that Honda has been able to

achieve overnight. We want to make sure that they've maintained their value above the rest of the competition. This relentless pursuit of making sure that we're producing what customers want and that they're durable, we stay hyper-focused on that, and we don't take that for granted. But their records aren't perfect. And on top of it, it's a chaotic time in automotive history - with EVs, software, upstart brands, and looming Chinese competition. So why do Toyota and Honda hold their value so well? And can they stay on top? Toyota has topped Kelley Blue Book's best resale value list eight times since 2014, including the last four consecutive years. Lexus has won the group's award five times. 2024 is its third consecutive. Lexus won the luxury category on J.D. Power's residual awards list. The market tends to have much greater demand than

Toyota supplies up front, which keeps resale high, which keeps consumers happy, and the cycle continues on and on. Honda is another big winner. Among mainstream brands, it bested its Japanese rival in J.D. Power's ranking. Edmunds data shows, overall, Toyota and Honda are neck and neck, as are their higher-end Acura and Lexus brands. Honda's numbers are impressive, but Toyota's stand apart. It's the biggest automaker in the world, sells many more cars than Honda, and has a greater selection. For example, Honda doesn't have a full line of pickup trucks. Those typically have lackluster resale values, as they tend to be heavily incentivized and get beat up by owners. In addition, the higher volume means more supply that should drive down prices. Not in Toyota's case. Toyota is the number one selling nameplate in the United States automotive industry.

Chevy, Ford kind of go back and forth between who's number two. Toyota is 40% bigger than them. Toyota, and in a slightly different way, rival Honda have managed to get to this position without relying on some of the strategies other automakers resort to in order to sell cars, which can hurt a brand and drive down resale value. Automakers do three things to push volume when times are tough: incentives, fleet sales, and leasing. Take incentives. If you've ever heard that a car loses 10% in value as soon as you drive it off the lot, it's because most cars are sold with incentives and the market factors that in when determining what your car is worth. When you do trade in your car at the dealership, the dealer is going to give you a price for it. That assumes you got some kind of incentive. Because chances are you have.

Toyota offers very little in incentives. Honda says it spends about 23% less than rivals. From a sales and production planning to manufacturing, we work very closely to make sure that we have enough inventory on dealer lots to sell, but not too much. We don't spend a lot of incentive dollars relative to the industry. Then you're going to have higher resale value because the demand that drives the new car side, it's going to drive the used car side. Fleet sales is essentially bulk sales, like to rental companies or the government. About 14% of Toyota's sales are fleet. Honda's are just 1.8. That's far lower than Ford, Chevrolet, and Chrysler. Bulk sales usually come with discounts. It's kind of like the incentive, but not quite the same. It lowers the transaction price overall of that. A lot of fleet cars tend to have fewer bells and

whistles, and their presence in the used market drives the brand's overall resale value down also. Your buyer could decide to unload its whole fleet at once. Well, that's one of the reasons Tesla's retention values are as low as they are. They can't control that aspect of it because they've sold a big chunk of vehicles into the marketplace. And finally, leasing. Toyota is among the companies with the lowest level of it. That hasn't always been the case. Honda, on the other hand, is among the highest. Leases usually have lower payments than purchases. It's another tool automakers use to sell more cars. But if you over-rely on it, you add more vehicles to the used market when the lease is up. It's simple supply and demand. Interesting thing with Toyota is we perhaps don't know how big Toyota could actually be because they are not really doing the sorts of activities to stoke

demand artificially in the form of unnatural levels of incentives, or pushing out production to the fleet channel. Toyota tends to avoid a lot of these brand-destroying activities, even as their number one. This is days supply, a way of measuring how much inventory a dealer has. You want that number to be low. Lower day supply means cars are selling faster. The three brands with the lowest numbers: Lexus, Toyota, and Honda. Frankly, it's probably lower than I'm comfortable with. I'd like to have a few more days supply in stock, but managing that, not overbuilding, also impacts the long-term resale value of the products. Our target is to make sure that the dealers have enough supply on dealer lots to sell in one month, and they're turning their inventory every month, and that will also go into how we're able to maintain our residual values because we're able to maintain the

right mix of inventory, which is not an easy thing to do. And it's a constant challenge that we work on. Here's days to turn - the number of days it takes to sell a car - for a handful of mainstream US brands. Toyota is by far the lowest. Honda is third, barely edged out by Subaru. In addition to all this, these companies, especially Toyota, have strong reputations for quality, durability, and reliability. These three words even form a slogan at Toyota, often abbreviated as QDR. The culture here is completely different at Toyota, and I think that's a huge competitive advantage. QDR is the cornerstone. Customer satisfaction and focus is the cornerstone. And we just relentlessly kaizen...you know the term kaizen. It's always trying to improve. Quality and reliability helped it overcome early failures in the US market and win over a skeptical

public. We came to the US, we built cars that weren't exactly what the US market wanted, and we had to go back and re-engineer our vehicles to make sure that they appeal to consumer tastes here. Lexus and Toyota top Consumer Reports reliability ranking with Mini in third place and Honda and Acura in fourth and fifth. In 2024, the group began ranking 5 to 10 year old used cars, and Toyota and Lexus topped that list, too. The Honda brands don't fare nearly as well in J.D. Power's dependability study, but Toyota and Lexus top it. A lot of consumers are willing to pay more, both for the perception and the reality that a Toyota vehicle is not going to break down. There's examples of people driving their Lexuses and Toyotas well past a million miles. It is rare, but those vehicles can certainly go the distance.

These automakers are also the number one and number two sellers of hybrids in a market that can't get enough of them. It takes just 26 days for a dealer to sell a hybrid, compared with 58 days for the industry overall. Same with resale. Three-year-old used EVs hold 44% of their value. Plain gas cars 65%. Hybrids 72. Automaker profits usually hover in the high single digits to low double digits range. Every automaker is tempted to build and sell just a few more units. But carmakers' costs are high and mostly fixed. About 70% of the price of a vehicle goes to the direct cost of producing it, building the engine, stamping the sheet metal, keeping the factory lights on. Two-thirds of what's left is eaten up by marketing, product development, and everything else, so about 10% profit. If a company makes a million cars, profits don't

flow until they've sold about 900,000. You want to build one more; you want to sell one more because that's closer. You get to Nirvana, where the profits just start flowing in. But the challenge is if the demand isn't there. That's where fleet comes in. Incentivizing comes in. All kinds of things come into play. What sets Toyota and Honda apart is they tend not to build cars they aren't sure they can sell. So it's a tightrope walk in manufacturing, and nobody walks that better than Toyota. The renowned Toyota Production System especially is credited with introducing revolutionary manufacturing principles, including, among other things, concepts sometimes called lean manufacturing or just-in-time production. The idea is to reduce waste of all kinds and improve efficiency as much as possible. Nothing is made until there is a need for it; that holds true through the entire chain.

Toyota Production System is probably the closest thing we have to a pull system still in the auto industry. It's called a pull system because production is pulled by demand. The reputation for quality and durability also goes back to manufacturing on a Toyota factory floor. For example, any employee can stop the assembly line by pulling a cord if they notice a defect that allows the company to catch things early. They're making big investments in training every worker or every maintenance worker, every engineer, and how to solve problems. They also standardize designs. Even something as simple as the hood of a car will be designed similarly across models. And when you standardize, you're making a larger volume, which reduces cost, but also you can fine-tune and work out any quality issues over years of practice. They will work on testing and retesting and retesting and fine-tuning the standards until it's almost perfect.

The company also moves slowly and thoroughly, even when it takes big leaps. It considered 80 different potential technologies for its hybrid powertrain on the original Prius. It doesn't stuff cars with features customers aren't asking for, so there is less pressure to include the latest and greatest. This is also true of Honda. We've had a relentless focus on cost controls. Some brands may put a piece of equipment on a car because it's more profitable. Right. And that just doesn't enter our mentality. It's what is what the customer wants and at what price. You do risk losing customers to the latest and greatest, but by going with tried and true technology, it's really enabled them to say like, look, you might miss out on a few gadgets here and there, but we're going to build a vehicle that, you know is going to go forever. But that also means it rolls out new technology much

later than competitors. Toyota has been criticized for this in the past. Even Honda that they're not jumping right into, you know, full EV. Toyota and Honda buyers are the most loyal. That said, their records do have a few blemishes. They're not perfect. No one is. There has been a widening scandal over falsified safety check data in Japan. Toyota and Honda have been swept up into it. Honda said in February it will have to recall 750,000 vehicles over faulty airbags. Toyota will replace engines in over 100,000 Tundra and Lexus LX SUVs. Tacoma the most legendary resale values durability where you just run into a rock. It'll be fine. Transmission recall complete replacement. Toyota's V6 twin turbo recalling the engines, right? So we're talking about major component failures. And this is where you start to see maybe some

consumers might start to break. But the transition to EVs, while rocky, won't stop, and Toyota's reputation for moving slowly has earned it criticism. Toyota was long the leader known for alternative powertrains, a more or less invented the hybrid industry as we know it today, bringing the original Prius to market and continuing to iterate on that technology. And yet a new technology came around and they're a laggard in EV transition. The brand has only two EVs, the Bz4x and the Lexus RZ. The Bz4x's rollout was, by many accounts, a disaster. They literally had the wheels falling off. They had a stop sale on the bz4x's, and that was kind of like of all brands. Younger buyers are a bit less brand loyal than previous generations, and right now, many say the future is basically anyone's game. Any incumbent, no matter how well-run or beloved,

faces threats. The variation now in ideas and innovation that has come to the auto industry is, I think, on a scale we haven't seen before. And with that means the winners and losers are not always guaranteed. One of the strengths of Chinese manufacturers, for example, is their ability to move very quickly. They can release new versions of vehicles within a year or two of the previous model. A fraction of the typical time it takes automakers in developed markets, even new non-Chinese automakers such as Tesla and Rivian have an advantage. The rise of the software-defined vehicle, which allows automakers to update features remotely. We have cars that are fun, that are cool, that are interesting. And I think that's been a huge benefit to us, particularly over the last 15 years. You know, I have full faith and confidence in our company that we'll figure it out and make sure that we

stay focused on the customer, and the rest of it will work itself out. But it's going to be a big challenge.

Why Used Toyotas And Hondas Are So Expensive

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Toyota and Honda, often criticized for making "boring" cars, excel in holding their value, with Toyota topping Kelley Blue Book's best resale value list eight times since 2014.

The two automakers have maintained high resale values through consistent customer demand and a focus on durability.

Despite their success, they face challenges from EVs, software, and competition, but their unique strategies have set them apart in the automotive industry.

Toyota offers minimal incentives and has a lower percentage of fleet sales compared to Honda, resulting in higher resale values.

Both companies maintain low inventory levels and quick car turnover, contributing to their strong residual values.

Toyota's focus on quality, durability, and customer satisfaction, along with its unique culture and continuous improvement efforts, gives it a competitive advantage in the market.

Toyota and Lexus: Masters of Reliability and Efficiency

Toyota and Lexus consistently top reliability and dependability rankings, with a strong track record of producing vehicles that can last over a million miles.

The automakers are also leaders in the hybrid market, with quick sales and high resale values.

Toyota's renowned Production System and lean manufacturing principles play a crucial role in reducing waste and improving efficiency in vehicle production.

Toyota's Pull System and Focus on Quality

Toyota's Production System operates as a pull system, driven by demand, and emphasizes quality and durability through employee empowerment and standardized designs.

The company invests in training and problem-solving, aiming for perfection through testing and fine-tuning.

While Toyota and Honda's cautious approach to new technology has garnered customer loyalty, they have faced criticism and scandals related to safety data and vehicle recalls.

Toyota, once a leader in alternative powertrains, is now lagging in the transition to electric vehicles (EVs) with only two models, the Bz4x and Lexus RZ.

The Bz4x's rollout was problematic, leading to a stop sale and damaging the brand's reputation.

The auto industry is experiencing unprecedented variation in ideas and innovation, with Chinese manufacturers and new players like Tesla and Rivian gaining an advantage through rapid vehicle updates and software-defined features.