Toyota's Back in the Fast Lane

The Japanese giant has regained ground lost after a pair of disasters.

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It was an automotive morality tale when Toyota hit the skids in 2010.

[PHOTOS: The Washington Auto Show]

For years, the Japanese automaker could do no wrong, with a string of hybrids and other hits that made it the fastest-growing nameplate in America. Toyota surpassed Chrysler's market share in 2006 and Ford's in 2007, raising the possibility it could displace General Motors as the biggest U.S. automaker. Then came a pair of disasters that sent Toyota reeling, widening the gap with GM even as Detroit's biggest automaker was plunging into bankruptcy.

A frenzy of unintended acceleration incidents in 2009 and 2010 raised questions about Toyota's famed quality. Many of those incidents turned out to be the fault of drivers, but Toyota also dismissed legitimate complaints until it had no choice but to recall millions of vehicles and make changes to accelerator pedals and other components. The scandal cost Toyota more than $1.5 billion in fines, compensation claims and legal settlements, plus a lot more in lost sales. It also revealed a streak of arrogance in a company once known for humility.

The 2011 earthquake and tsunami in Japan struck an industrial region heavy with automotive suppliers just as Toyota was recovering from the 2010 scandal. That left the U.S. dealerships of all Japanese automakers short of vehicles for most of the year. Toyota's U.S. market share fell by four percentage points from 2009 to 2011, according to Ward's Automotive—the sharpest drop of any big automaker, by far.

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Toyota is now roaring back, with a strong performance in 2012 that could lead to an even better year in 2013. Toyota has been updating an aging lineup, with new versions of the popular RAV4 crossover and the dependable Corolla subcompact coming this year. It has also expanded the Prius hybrid from a single model into a brand of its own, with four different variants. The new Scion FR-S sports car has earned plaudits for affordable excitement, the kind of praise rarely earned by Toyota's sedate family of vehicles. And the Lexus luxury division is recovering ground lost to BMW and Mercedes after the 2011 tsunami.

That newfound momentum is showing up in the numbers. Toyota's U.S. sales rose 27 percent in 2012—twice the industry average, according to Ward's. Its market share jumped from 12.7 percent in 2011 to 14.1 percent last year, the biggest gain of any automaker. Toyota also regained the top spot in global sales from GM, a position it first grabbed in 2008, then lost in 2011. "They've come back very strongly," says Jessica Caldwell of car-research site Edmunds.com. "Toyota is definitely on a roll."

All automakers are benefiting from a recovering economy that's lifting car sales well above the dismal lows of 2009, but Toyota has a couple of particular advantages. A depreciating yen, which seems to be part of a deliberate new strategy adopted by Japan's central bank, will disproportionally benefit Toyota and the other Japanese automakers, making Japanese exports cheaper in other countries. At the same time, Toyota, Honda and Nissan have all established a large manufacturing footprint in North America, to guard against exchange-rate fluctuations and be closer to customers.

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Toyota vehicles still rank highly for quality, meanwhile, with the Scion, Toyota and Lexus nameplates taking the top three spots in Consumer Reports' latest reliability rankings. And Toyota still enjoys a lead in hybrids, which has helped build the company's image as one of the greenest automakers. "Prius sales still account for more than half of the entire hybrid market," says Caldwell. "The word Prius is almost synonymous with 'hybrid.'"

Toyota's competition is tougher than it was five years ago, with Honda and Nissan always nipping at its heels, the U.S. domestics resurgent, and Volkswagen on a quest to gain more of the U.S. market share. But Toyota has shown a knack in the past for nabbing sales from most of its competitors and forcing them to benchmark themselves against the Japanese giant.

One target of opportunity for Toyota may be Korean automakers, Hyundai and Kia, which gained thousands of new customers during the recession with feature-packed, well-priced vehicles and promotions such as the ability to return your car if you lost your job. The Korean twins were also lucky to be rolling out a lot of new models at the same time the 2011 tsunami put the Japanese automakers on the ropes.

But Toyota and its Japanese counterparts are now back to full production, with timely new models of their own coming out just as the Koreans' new-product pipeline is thinning out. That could put Toyota in the pole position once again. You can almost hear the engines revving as competitors aim for their once and future target.

Rick Newman's latest book is Rebounders: How Winners Pivot From Setback to Success. Follow him on Twitter: @rickjnewman.