How Toyota Plans to Survive $4—Make That $5—Gas

"Toyota is a small-car leader," says David Magee, author of How Toyota Became #1. "Anybody who knows Toyota knows they're going to plow everything they've got into the areas where they're strongest."

Like its competitors, Toyota is also investing in more research into diesel engines, turbocharging, direct injection fuel systems, and other ways of improving a car's efficiency. Such technologies tend to be expensive—but they make more sense as gas prices rise. Combining direct injection with a turbocharger, for instance, is one way to get more power from a smaller engine—and improve fuel economy without asking buyers to cram themselves into a smaller car. And it could accelerate a trend toward smaller engines. "I can easily imagine deleting the V-6 from the Camry lineup," O'Brien says.

Looking down the road, Toyota scientists sound less optimistic than others about ethanol and other biofuels, pointing to a host of unresolved problems, such as the arable land required to produce feedstocks and the cost of technology for converting other material to fuel. Hydrogen may offer more promise, but it will still take years to perfect the technology and build a nationwide network of fueling stations.

By the time that happens, the typical Toyota may be a very different machine than it is today—but if you notice, something probably went wrong. "Customers are going to have to take a little medicine here," O'Brien says. "The successful carmakers will be the ones with the best-tasting medicine."