Image: Toyota Corolla
Ben Margot  /  AP
Toyota Corollas sit on a lot at a dealership in Hayward, Calif. The world’s most popular car risks falling behind a pack of new small cars.
By
updated 2/27/2011 1:51:10 PM ET 2011-02-27T18:51:10

When Doug Hacker of Milford, Ohio, began shopping for a small car recently, he figured the model he'd end up buying was a foregone conclusion. A self-described "Toyota guy," Hacker was inclined to go with Toyota Motor's workhorse Corolla. The venerable compact is the Japanese automaker's No. 1 model as well as the world's best-selling car of all time, with cumulative sales from 1966 through last year surpassing 37 million units.

Well, the spell has been broken, at least in Hacker's case. After testing the Corolla, he was disappointed by the car's old-fashioned four-speed automatic transmission and the absence of a gas-sipping direct-injection fuel system. He decided to buy Ford Motor's 2012 Focus instead. "I could not believe how outdated everything is," on the Corolla, he says.

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Toyota has commanded headlines for much of the past year due to voluntary recalls of more than 8 million vehicles for everything from faulty fuel pumps to floor mats that could make accelerator pedals stick. Yet the world's largest carmaker faces another less noticed challenge: the aging of its biggest-selling model. Last updated in 2008, the current Corolla, which starts at $16,360, is the 10th generation of a model introduced more than 44 years ago. It isn't scheduled for a makeover until at least 2012, say industry analysts; the company is mum on a date. Meanwhile, a new crop of feature-laden small cars from Ford, Honda Motor, General Motors, and Hyundai Motor is arriving. Unlike the Corolla, these compacts offer popular features such as voice-activated controls, high-tech transmissions, and connections to computer networks.

BusinessWeek: A fleet of small-car choices

While Corolla (including Matrix hatchbacks built on the same platform) managed to retain the top spot among U.S. small cars in 2010, sales fell 10 percent, to 266,082. The brand ended the year just 5,864 units ahead of Honda's Civic. Analysts expect a more challenging environment this year, thanks to Hyundai's hot-selling 2011 Elantra and a revamped Civic that's due out in May.

"Corolla has always had a tough place in the market. It's never been a style leader," says David Champion, director of automotive testing for Consumer Reports magazine. "The new cars coming out offer more style and content. They're really going to give Corolla a run for its money."

While the Civic remains Corolla's biggest rival, the 2011 Elantra is drawing attention for its flashy design, better fuel economy, and lower base price ($15,500) than the Corolla or the Civic. Meanwhile, Ford's new Focus compact, Kia Motors' Forte, and Mazda Motor's Mazda3 are catering to U.S. buyers' interest in more stylishly designed small cars. The Focus seeks to attract buyers who want more European handling than the Toyota offers. Even GM, never a leader in small cars, is grabbing sales with its new Chevrolet Cruze, which boasts superior fuel economy and power relative to Corolla. "It's a small-car tsunami this year," says Jessica Caldwell, director of industry analysis at researcher Edmunds.com. "The only thing Toyota can count on is loyalty to the Corolla name."

BusinessWeek: Toyota: The media owe you an apology

Toyota's small-car leadership is at risk as competitors add technology and features to small cars, where sales have long been fueled by price and fuel efficiency alone, says James Bell, an analyst at industry forecaster Kelley Blue Book. "With Elantra, Focus, [and] even the Chevy Cruze, people are going to see what the standard is, and see that a compact car is no longer a penalty box," Bell says.

Bob Carter, group vice-president for Toyota brand sales in the U.S., recognizes the challenge. "The market is getting more competitive," he says. "I have a deep respect for Cruze, Focus, and Elantra." Still, he says rivals have their work cut out for them. "When you come to Corolla and the heritage and loyalty behind it, that's a lot for a competitor to overcome," says Carter.

The Civic, the top U.S. small car until Corolla toppled it in 2003, poses the toughest challenge. The version of the Civic shown at the Detroit Auto Show in January featured more aggressive body styling, with the company promising improved fuel economy and performance. (Final details are being kept secret until closer to the model's May debut.) Honda officials aren't gloating, at least publicly. Having Civic outsell Corolla "is not something we're chasing," says Christina Ra, a spokeswoman for Honda's U.S. unit. "There was a day when that was a goal," says Ra, but no longer.

BusinessWeek: Toyota plans higher output as VW targets top spot

To further the Civic's appeal to buyers seeking fuel economy, Honda is adding a conventional model that will deliver more than 40 miles per gallon in highway driving and is replacing the car's current hybrid version with a model using a lithium-ion battery pack.

Automakers facing such stiff competition typically maintain sales volumes by ramping up production and rolling out marketing incentives. Toyota can't easily do either. Last year, its joint venture factory with GM in California—the biggest source of Corolla production in North America—closed. A new plant in Mississippi won't start building Corollas until late this year. Until then, Toyota is getting cars from Canada and "importing some Corollas [from Japan], just filling in gaps," Carter says. That's an expensive proposition, given the yen's high exchange rate. Such are the dilemmas facing Toyota with a model that's showing its age.

The bottom line: Toyota may lose market share because its aging compact, the world's top-selling car, hasn't kept up with rivals.

Corolla's rivals are competing on price and features:

Toyota Corolla
Price: $16,360
MPG: 28/35*
Features: Air conditioning, dual folding power mirrors, ABS brakes, 8 cup holders

Chevrolet Cruze
Price: $16,995
MPG: 26/36*
Features: Power windows, seat-back storage, OnStar subscription available

Ford Focus
Price: $18,790
MPG: 28/38**
Features: Air conditioning, keyless entry, seat-back storage, Sync hands-free calling available

Honda Civic
Price: $16,555
MPG: 26/34*
Features: Power windows, telescopic steering column

Hyundai Elantra
Price: $15,550
MPG: 29/40*
Features: Automatic headlights, heated mirror, keyless entry, power windows, ABS brakes

* city/highway
** expected city/highway
Data: R.L. Polk

Copyright © 2012 Bloomberg L.P.All rights reserved.

Explainer: Ten leaps forward in car technology

  • Image: Three-point seatbelt
    Volvo
    Volvo’s Nils Bohlin invented the three-point seatbelt in 1959.

    English physicist, mathematician and astronomer Sir Isaac Newton once famously wrote — with perhaps a touch of false modesty — that “If I have seen a little further it is by standing on the shoulders of giants.”

    Thus has the car industry incrementally improved from its primordial horseless carriage beginnings to the magic carpet ride of today’s almost incomprehensibly complex machines with their raft of safety, environmental and convenience devices adding to the basic transportation function.

    Here are 10 of the car industry’s most important technological changes.

  • 1886 Benz

    Daimler AG

    It all began with Karl Benz and his construction of a self-propelled, three-wheel vehicle powered by a single-cylinder 0.75-horsepower engine using a leather belt and two bicycle chains to transmit power to the rear wheels.

    However modest this beginning, with its exposed engine parts and whirling bits menacing anyone who examines it too closely, the 1886 Benz launched the industry and was the foundation of today esteemed Mercedes-Benz brand. (Maybe the leather upholstery was an early clue to the company’s luxury intent?)

  • 1912 Cadillac with electric starter

    Image:
    GM

    The electric starter — invented by Charles Kettering at his Dayton Engineering Laboratories Co. (Delco) in 1911 — became standard equipment on Cadillacs in 1912, paving the way for all cars to feature electric starters. This accelerated the industry standardization of gasoline internal combustion engines over steam and electric designs. It also put more women behind the wheels of cars because prior to the electric starter they tended to avoid using difficult-to-start, hand-cranked cars.

  • 1914 Ford Model T

    Ford  /  Wieck

    Introduced in 1908, the Model T was just another low-end car from the multitude of regional manufacturers in this country. In 1914 Ford separated itself from its rivals and became (for a while) the world’s largest industrial concern as the result of the Model T’s assembly switching from small teams of craftsmen assembling each car to a moving assembly line of unskilled workers each contributing the same small bit to every car on the line. Construction time to build each car plunged from 12 hours and 30 minutes to 93 minutes, and the car’s price fell from $690 to $360, while annual sales mushroomed almost ten-fold and Ford doubled workers’ salaries to $5 a day.

  • 1930 Motorola car radio

    Motorola

    Next time a boom car rattles your windows at a stop light, think back to the days before Paul and Joseph Galvin developed the first commercially available car radio in 1930.

    The Motorola car radio overcame a host of challenges, including electrical interference, finding space in the car for the bulky radio components and making the radio durable enough to survive the pounding of primitive roads. The popular 5T71 radio debuted at the Radio Manufacturers Association convention in Atlantic City, N.J., following a demonstration drive from Chicago to prove its durability.

  • 1940 Oldsmobile Hydra-Matic transmission

    GM

    Today few new cars are sold in the U.S. with a manual transmission and a dwindling portion of the population even knows how to use one. We can credit this dismal state of affairs to the invention of the automatic transmission and its debut in the 1940 Oldsmobile.

    The original Hydra-Matic automatic transmission offered benefits in terms of efficiency that surpassed subsequent designs, but that approach was abandoned in pursuit of smoother gear changes, which were more important to drivers. The company touted the ability to navigate stop and go traffic and to park without stalling the engine as the automatic’s primary benefits, and those features continue to drive the technology’s appeal today.

  • 1946 Michelin radial tire

    Michelin

    Until Michelin developed the radial, tire design had evolved little from the dawn of the car industry. The radial moniker refers to the direction of the reinforcing belts, which are turned perpendicular rather than running parallel to the direction of travel as in bias-ply designs.

    The benefits include a more stable footprint, reduced fuel consumption, longer tread life and better handling. The near-absence of any kind of maintenance or attention required led the government to mandate tire pressure monitors in cars because drivers had long since stopped checking the condition of their tires.

  • 1959 Volvo three-point seat belt

    Volvo

    Volvo engineer Nils Bohlin invented the three-point seatbelt in 1959. The belt appeared in the automaker’s cars that year, and within a decade the belts were mandatory equipment in all cars sold in the United States.

    Bohlin’s background was in aviation, where he developed ejection seats, so he understood the necessity of securing the torso and not just the pelvis as the lap belt had done. The elegant simplicity of his solution is confirmed by the inability of newer seat belt designs to displace the three-point seatbelt 50 years on.

  • 1972 General Motors air bag

    GM

    While air bags didn’t become commonplace in cars until the 1990s, GM conducted a large field test of 1,000 1972 Chevrolet Impalas equipped with experimental air bags. Between 1974 and 1976, the company offered the world’s first production air bags in its cars, with the first appearing in a 1974 Oldsmobile Toronado. Though the company was prepared to build 100,000 air bag-equipped cars a year, only 10,321 were sold over three years despite a reasonable price of between $180 and $300 for the option.

    The Insurance Institute for Highway Safety confirmed the robust construction of the early system by testing two of the old cars in the 1990s. Neither car ran and even the radio and clock didn’t work in one, but the air bags still deployed perfectly in the institute’s crash lab.

    “What’s important to remember at this point is that the air bags GM put into those early cars worked fine,” wrote IIHS president Brian O’Neill in a 1993 letter to the New York Times.

  • 1995 BMW and Mercedes-Benz electronic stability control

    Mercedes-Benz USA

    These premium carmakers battled to be the first to introduce an electronic stability control system that automatically stabilizes a car in the event of a slide. Though these expensive V-12 models were the first to feature stability control, they quickly verified the technology’s value with significant reductions in crashes. Subsequent studies showed that stability control-equipped cars are about one-third less likely to suffer a fatal crash, a result that encouraged the U.S. government to mandate stability control for all cars starting in model year 2012. The real safety advantage of stability control is that in contrast to seat belts and air bags, which mitigate the damage that occurs in a crash, stability control prevents many crashes from happening in the first place.

  • 1996 OnStar telematics

    GM  /  Wieck

    In our increasingly connected wireless world, the notion that the car should connect to a network over which it can share information may seem like an obvious development. But it was less obvious in 1996 when GM’s OnStar division was launched, using analog cellular telephone technology to send information to drivers and to automatically report crashes.

    Today other carmakers have their own telematics services and each month OnStar is now responding to 2,300 crashes, 10,000 requests for emergency assistance and nearly 30,000 requests for roadside assistance.

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