Toyota’s Distributors – Do They Cost You?

In doing some research on the passing of Carroll Shelby, an interesting side note came about. Shelby was approached to be the first Toyota distributor in the U.S. The question that came up is why did Toyota need distributors and how does this affect your truck price today?

In the 1960s Toyota was working hard to get its product into the U.S. However, without an established line of importers, car dealers and storage facilities, it was becoming very difficult. So, they decided to contract with distributors who already had some of the infrastructure needed. Shelby was one of those individuals. He regretfully turned them down.

Shelby explains in an Autonews.com story:

Instead Shelby, now 84, turned his good racer buddy, Tom Friedkin, on to the deal. And it was Friedkin who in 1969 acquired Gulf States Toyota Inc., an independent distributor that has annual revenue of more than $4 billion and is getting stronger each year.

Says Shelby: “I turned it down because I went to Lee Iacocca, and he told me not to take it because the domestic makers were going to push the Japanese back into the ocean. But I’m happy for my friend. At least a friend made the money.”

As the story goes Toyota eventually handled some of the distribution itself, especially on the West coast, but used five other distributors to handle the rest of the country. A side note that in 1966, the first year of U.S. distribution, Toyota sold only 20,908 vehicles, in 2009 it sold 2.09 million. Eventually though, Toyota decided it would be better not to use distributors and has bought back or canceled all of them except Gulf States Toyota and Southeast Toyota.

Toyota’s Distributors
Southeast Toyota is the world’s largest distributor and works in the five states of Florida, Georgia, Alabama, North Carolina and South Carolina that account for 20% of Toyota sales in the United States. Gulf States Toyota is the world’s second largest distributor of Toyota vehicles and works in five states: Arkansas, Louisiana, Mississippi, Oklahoma and Texas which account for 13 percent of U.S. Toyota sales. Toyota Motor Sales U.S.A., Inc., headquartered in Torrance, California, is the corporate distributor and handles all the rest of the distribution in the U.S.

Distributor Pros and Cons
If there are positives to the Gulf States and Southeast Toyota distribution deals, it’s that:

1. Many dealers seem to appreciate the distributors for being more dealer oriented. One store manager states that Toyota’s dealership services don’t compare to the services offered by Gulf States. Gulf States has in-store training, better sales and support staff, and a better approach than Toyota USA.
2. Over the last 40+ years, both distributors have helped Toyota USA become a better sales organization. Many staples of Toyota’s current marketing (Toyotathon, Toyota extended service plans) were developed with help from the distributors.

The problem is that both of these distribution companies are able to exercise a surprising amount of control over the Toyota’s they sell. As distributors, Gulf States Toyota and Southeast Toyota are allowed to:

• change vehicle pricing and adjust sales incentives
• “load up” new Toyota’s with accessories that the distributors install themselves, thus denying Toyota a small amount of profit while simultaneously forcing consumers in their region to buy accessories they might not otherwise want
• increase the cost of replacement parts, change sales and service processes, etc.

Essentially, Gulf States Toyota and Southeast Toyota are the very definition of “middle men.” They don’t manufacture the vehicles, nor do they sell them (franchised dealers still hold that responsibility). These distributors just add on equipment, monkey with pricing and incentives, and then sit back and collect their checks.

According to those in the know, Toyota has tried numerous times to buyout the Gulf States and Southeast distribution deals, using every possible combination of carrot and stick to convince these distributors to leave. At every turn, the distributors have resisted. Because the legal agreements between Toyota and these distributors is essentially air tight (Toyota can’t pull the deals unless these distributors royally screw up their customer service scores or sales figures), Toyota has no recourse – they’re stuck.

Still, it’s not as if Toyota couldn’t have developed the sales and marketing skills needed to compete with Ford ,GM, etc. in the USA. These distribution deals were a great way to get going in the 1960’s, but they’re an anachronism in the here and now.

One thing remains clear, it would cost Toyota millions if not billions to buy out these distributors. What do you think, should they? Have you noticed a price difference between new Toyota vehicles in different parts of the country?

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• Shelby Racing And Toyota 2000GT
• Why You Really Can’t Special Order a Toyota
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