This is the original Toyota Crown from 1955. To see the all-new 2023 Toyota Crown, please go to Toyota.com Junko Kimura/Getty Images News
Now that the “free money” decade is coming to an end, companies of all stripes have to adopt the kind of cost-conscious product development discipline that Toyota Motor Corporation (NYSE:TM) didn’t surrender during the easy-money bubble era. So how does Toyota do it? How does Toyota keep a tight lid on product development expenses, as part of a hard-nosed overall economic equation that will deliver for shareholders under almost all macroeconomic conditions — not only in the good times, let alone an “easy money” bubble?
It turns out that in the second half of 2022, we were presented with Toyota’s latest example of how it runs a tight ship in the form of reducing product development expenses. The example is in examining how the all-new 2023 Toyota Crown was born.
The Toyota Crown nameplate goes back to 1995 in Japan, and the model was briefly sold in the U.S. up until around 50 years ago. Many years later, the Crown’s role as Toyota’s “large-midsize” sedan was taken over in the U.S. by the Avalon.
U.S. decline of the Avalon
The Avalon resided ever-so-slightly above the Camry in Toyota’s U.S. product portfolio, during its 1994-2022 product life. In the form of such a large sedan, it became squeezed in the last decade by two forces:
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For the buyer who wanted something more premium than the Toyota Camry, the Lexus ES was a mechanically identical but otherwise more distinguished alternative.
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Sedans overall yielded market share to SUVs, and Toyota Avalon buyers bought anything from the RAV4 to Highlander, or the corresponding Lexus models instead.
As a result, U.S. unit sales of The Avalon, which had briefly reached 100,000 per year in 2000, struggled to reach 30,000 per year at various points during the last decade:
Looking at the matter from a hard-nosed business case standpoint, that would not have left a big budget for a replacement in this corner of the market, which is “barely premium” as opposed to “luxury.”
The Toyota Avalon was a U.S.-built product with only tiny exports. In other words, it was an island from a product development standpoint.
Japan’s decline of the Crown
The Toyota Crown had a similar development in recent years in Japan. As late as 2000-2004, the Crown was briefly able to reach 100,000 annualized sales per year:
Then, just like the Avalon in the U.S., sales fell like a rock and were unable to reach 30,000 annual sales in many recent years. The budget for a replacement had suddenly become hard to justify.
Part of the story here is the factory in which the Crown has been built: Motomachi. This plant assembled the Crown plus a variety of low-volume Toyota specialty vehicles in recent years and decades:
Over the last three decades, the annual automobile unit volumes produced in this factory declined by approximately one decimal point: From over 400,000 per year to barely around 40,000. This is a sad situation for Toyota, because this was one of the early Toyota factories, in operation since at least 1959. It has sentimental value and is part of the corporate institutional memory, including the CEO, Mr. Toyoda:
Toyota envisions a high-end line of Crown models to appeal worldwide
The joint solution to the Avalon + Crown problem
What does a company do when it has two separate product lines that are similar in nature and both have seen a precipitous decline in sales volume over the last two decades? You combine them, in order to cut the combined cost by half. This was a decision Toyota likely took in 2017, but did not reach the public surface until July 2022.
By combining these two product developments, Toyota would not have to spend an estimated $1 billion + $1 billion (=$2 billion), but rather just $1 billion in total, all other things equal (A new car development program typically costs around $1 billion, all-in). That would greatly reduce the breakeven point for making Toyota’s large sedan participation profitable.
More than just combining two product lines
Combining the two programs — Crown and Avalon — was the bare minimum Toyota could have done in this situation. However, this was a natural opportunity to rethink the positioning of the products in other dimensions too.
Before the 2023 model year, the Crown and Avalon nameplates had been almost comically conservative. They defined the type of vehicles driven by the 70+ retirement community crowd to and from the golf country club. Basically, the trunk had as its central function to fit as many golf bags as possible.
One central problem in the last decade or two is that these types of older customers, having grown taller and stiffer, had shifted their product preferences away from traditional sedans to SUVs and crossovers. Toyota and Lexus had cashed in on this transformation with nameplates such as RAV4, Highlander, and RX.
Yet, Toyota owns a minority equity stake in Subaru, which had been extremely successful with slightly taller vehicles that were not necessarily outright SUVs. Two good examples there include the Subaru Outback and its sedan sister, the Legacy.
In order to shake up the traditional (1955-2022) sedan formula, Toyota, therefore, chose to look to SUV/crossovers in general and perhaps to the Subaru Outback in particular, in terms of how to evolve the traditional sedan and station wagon formula. As a result, the first part of the formula was to make the new Crown four inches (10cm) taller than the Avalon. However, this was also not paired with a meaningfully higher ground clearance, which stayed about the same. Yet, the wheels offered are now much larger on the Crown than on the Avalon, making for a new set of improved design proportions.
Beyond the numbers: The shape
The evolution into the new 2023 Crown design can partially be described in numbers, but that only tells half the story. Toyota also saw fit to completely change the Crown’s design, compared to any previous Toyota, let alone the outgoing Crown or Avalon.
No longer does the Crown look like it perfectly fits with the 70+ crowd at the golf country club. Rather, the all-new 2023 Crown has the deceiving look of a hatchback, while adding an entirely new two-tone color scheme and a far more aerodynamic and sporty design. That sounds nice, but all that really matters is the execution of the design, as any “idea” could be executed poorly and therefore be a failure.
In my opinion, the Crown managed this transformation extremely well, as I believe most people will look at this vehicle and ask who is making it — in a positive sense. They will ask not just because it is beautiful, but because it does not look like any previous Toyota, or for that matter any other brand of car. It is *that* unique and well-executed in its design.
Under the skin: What you would expect
The 2023 Crown comes to the U.S. market with two powertrains: The tried-and-true hybrid system that has graced a long list of Toyota and Lexus models for many years already. It is a paragon of near-40 MPG efficiency and reliability.
The other powertrain option is what had just been introduced in the Lexus RX: A far more powerful hybrid, which includes a much more powerful electric motor on the rear axle. When you drive these two hybrid systems back-to-back, there is no confusion about which is which. One is clearly a lot more powerful than the other — at the expense of fuel economy, of course.
Production, timing, and pricing
Toyota is centralizing all 2023 Crown production in the Motomachi plant in Japan. There will be no production replacement for the Avalon on the U.S. side. One reason for this is that Toyota is keeping expectations low in terms of U.S. sales. In the press preview presentation, Toyota said that it expects only 20,000 units per year in the U.S.
Where is the sales optimism, you may ask? It would come from two dimensions. First, Toyota said in its press preview that the Crown is expected to be sold in many countries — about 40 — as opposed to only in a handful, with the U.S. and Japan being the main ones, for the old Crown. Therefore, a 40-country footprint should yield a higher sales number on a global basis.
In addition, Toyota already showed three additional Crown concepts that build on the initial version. The Crown would therefore become Toyota’s “premium family” residing below the Lexus brand. Those additional Crown versions would not see production until late 2023 at the earliest, possibly sometime well into 2024. No U.S. availability has been confirmed either, but there is plenty of time for that to happen in the next year and beyond.
The U.S. was supposed to see its first Crown units in dealerships for delivery around Thanksgiving, but there has been a delay of at least 1-2 months and we are now expecting the first U.S. deliveries of the Crown in the first quarter of 2023. Prices will start around $41,000 but reach over $53,000 for the high-output powertrain version.
Shareholder-friendly development
The 2023 Crown shows how Toyota thought, already approximately five years ago, to combine two development programs into one, and to adopt a new design language that it intends to extend into a product family that will be distributed across a long list of countries than just be focused on the U.S. and Japan. This is exactly what will help the 2023 Crown squeeze out the most amount of shareholder value for Toyota: Lower cost, and higher revenue and margins, all other things equal.
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