Camry arrives to a crisis

THIS week Toyota launched the Hybrid Camry, the first petrol-electric car to be built in Australia. It should have been a triumph but it could hardly have come at a worse time.

Toyota is buckling under a global recall involving more than 8.5 million cars which on Tuesday embraced its hybrid flagship, the Prius.

A string of problems overseas, beginning with something as seemingly trivial as loose floor mats in the US last year, has escalated into a crisis over Toyota's quality that threatens to cost it billions.

Complaints about brakes in the Prius gave the crisis another dimension. The brakes, which harvest energy under deceleration, are a key component of Toyota's hybrid system.

The Japanese giant was suddenly vulnerable on its core future technology at the very moment its Australian operation needed it to shine.

At the launch of the Hybrid Camry this week, Toyota executives stuck to their message about running costs and sales targets, and gave up nothing on the technology. Prius brakes don't actually fail, they said, and no consideration was given to delaying the Hybrid Camry roll-out, which constitutes a "revolution for the local industry".

What's clear is that notwithstanding its recent problems, there are winners and losers from Toyota's move into hybrid production here.

First among the winners is Toyota's Melbourne factory at Altona, which builds up to 150,000 Camrys and Aurions a year, the majority for export to the Middle East.

Only four sites within the Toyota empire are trusted to make hybrids. Assembling them is more complex and the standards are more exacting.

Unusually, Australia has embarked on this venture late in the model cycle of this Camry, which will be replaced in 2012. In the climate of uncertainty that continues to surround the Australian car industry, very little can be taken for granted.

But the hybrid decision means the factory is certain to build the next generation Camry, and its hybrid variant, until 2018, when that model cycle ends. The engine plant will probably get upgraded to build a new four-cylinder as well.

This should inform the politics surrounding the industry. Any doubts encouraged by Japan that it might depart Australia before then -- as happened a couple of years ago at the Tokyo motor show -- amount to empty posturing. For Toyota, it's unthinkable that it could endorse its Melbourne outfit in this way, only to quit.

However, for Toyota Australia this is less like a revolution and more like a promotion. Its small group of engineers and designers are not involved with hybrid development and that isn't going to change. Adding hybrids to existing petrol car assembly lines complicates production, but the engines, transmissions and special battery packs arrive ready to be bolted in.

Toyota's suppliers won't experience a revolution either. That's because recouping the investment needed to make special parts is impossible on the numbers being built. There are no export markets for the Hybrid Camry (beyond a few hundred to New Zealand) so production will be limited to local demand. Toyota believes this will amount to 20,000 cars before the Camry is changed for the next generation. On that volume, there's no business case. Over the six-year run of the next generation the numbers will be more attractive. But history suggests the core technology will stay in the hands of Toyota and its affiliates. The US has been making this car since 2006, at much higher volumes than Australia, and its drivelines still come from Japan.

The benefits for Australian suppliers will come from the extra demand for Camrys due to the hybrid. The bits they'll supply -- wheels, seats, glass and so on -- will be the same as those for the standard car. The boost is expected inject $90 million into the parts industry.

It comes at a cost to the taxpayer of $70m -- $35m from Canberra's green car fund and another $35m from the Victorian government -- and effectively means a $3500 subsidy on each car. The winner is Toyota's bottom line.

There's little doubt, though, that it will result in a rapid increase in the number of hybrids on our roads. Since the Prius and quirky Honda Insight first arrived in 2001, relatively few have been sold. If the Hybrid Camry hits its target of 10,000 buyers per annum, the number of petrol-electric cars on our roads will double in 2 1/2 years.

If it hits its targets. The way things look for Toyota at the moment, that's a big "if".

From a global perspective, Toyota has undoubtedly dropped the ball on quality in its push to be the No.1 vehicle maker.

In the US and Europe, an issue with sticking throttle pedals was allowed to simmer for too long before it boiled over with disastrous consequences.

Anger has been fuelled by high-profile casualties, especially that of California highway patrolman Mark Saylor. He and his family were in a borrowed Lexus last August when the car kept accelerating. A recording of the 911 call he made can be found on the internet. It ends with a scream and the deaths of all four aboard.

Toyota hasn't helped its own cause at all. On key exchanges with regulators in the US, it played down problems to the point of denial before it gradually emerged that executives knew all along there were issues. It was accused of stubbornly sticking to a peculiarly Japanese business culture and an excessive fondness for secrecy.

When doubts were raised about brakes in Prius it confirmed Toyota's problems could be traced all the way back to Japan, where the hybrid is built for all world markets. Toyota had fobbed off customer complaints but quietly applied a software fix.

The Prius recall was the first to affect Australia and by comparison with the US or Europe, we are a long way from the centre of the storm. Untouched by the throttle problem, the local outfit can expect the fallout to be smaller. It will hope to rebound quickly thanks to a reputation unmatched outside Japan and years of market domination.

Reception for the Hybrid Camry by fleet buyers -- easily its biggest market -- will depend more on their history of dealings with the brand and how it responds to the crisis locally than events overseas. Many have experience with the Prius and are comfortable with hybrid technology. They will be forced to examine the option by the corporate need to be green and persuaded by the cost of ownership equation.

Toyota says it already has a healthy order bank for the car and its sales target assumes that half of all buyers would have bought a Camry anyway, so only 5000 are incremental.

Private buyers are firmly in Toyota's sights for this car, although for average drivers the economy argument is less compelling. Even Toyota admits its large car could be more exciting, and adding a more efficient driveline doesn't alter the nature of the beast.

And there's the rub. A locally built Hybrid Camry does nothing to change the Australian industry's reliance on large cars, and they're a vehicle segment in inexorable decline. An extra 5000 buyers this year would be just a blip on a long-term downward slide in large car demand.

But of course it won't happen like that. Many Hybrid Camry buyers will be defectors from either Ford or GM Holden, and they are in more precarious positions than Toyota. A bit more security for Toyota means a bit less for Ford or Holden.

Soon both will respond with more efficient engines of their own. As with Toyota, it will be a case of move or die standing still.

But none of these initiatives can remove the question mark over how long they can stay here at all.