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RENEE MONTAGNE, host:

This is MORNING EDITION from NPR News. Good morning. I'm Renee Montagne. Struggling U.S. automakers have gotten most of the attention lately, but the collapse of the market for new cars has hit Toyota too. Its American sales fell by more than 30 percent in June, and for the third month in a row Ford sold more vehicles here than Toyota did.

The decline is just one of the many issues facing the world's largest automaker. NPR's Wendy Kaufman reports.

WENDY KAUFMAN: The challenges facing Toyota require strong leadership, and the company has a new man at the top. He's Akio Toyoda, the grandson of the automaker's founder. At 53 he's young by Japanese standards, and his appointment — sooner than expected — is intended to convey that the company plans to be aggressive in addressing its problems.

So far, Toyota's redesigned Prius hybrid is selling well both in Japan and in the United States.

Unidentified Man #1: This vehicle has smart key.

KAUFMAN: Toyota officials Kevin Kauford(ph) and Jeremy Shone(ph) hand me the keys to a bright red 2010 Prius.

Unidentified Man #1: What you do is walk up to the vehicle. To unlock you touch the two little lines on the door handle there. Beeps twice…

(Soundbite of beeping)

Unidentified Man #1: …unlocks it. There you can go ahead and get in.

(Soundbite of door shutting)

KAUFMAN: When the hybrid first entered the U.S. market a decade ago, its appeal was somewhat limited. But today it's deliberately marketed as a mainstream American car that gets 50 miles to the gallon.

Unidentified Man #2: To start it, just touch it and you'll see the ready light come on, and that means we are ready to rock and roll.

KAUFMAN: After a test-drive, I can report that it's roomier, more powerful and has more gadgets than the earlier models.

Over the past few years, Toyota's overall sales in the U.S. have grown dramatically — from about 9 percent of the market a decade ago, to nearly 17 percent last year.

But Jeff Schuster, a senior forecaster at J.D. Power, notes that Toyota is not immune to the industry's overall woes. The number of cars sold here is down sharply, and the automaker's share of the U.S. market actually declined in recent months.

Mr. JEFF SCHUSTER (J.D. Power and Associates): Toyota is not used to dealing with sales declines. This is new territory. I think that's why we're seeing the management changes that have taken place. That's why we're seeing talk of refocusing.

KAUFMAN: The growth and expansion mentality that served Toyota well may no longer be the right approach for the American market.

Mr. SCHUSTER: I think it's going to be, let's slow things down. let's put the breaks on a little bit.

KAUFMAN: Right now there's excess production capacity here. What's more - and this is a company-wide problem, quality has suffered a bit on some models. And quality is something Toyota is known for. John Paul MacDuffie, an auto industry expert at the University of Pennsylvania's Wharton School, says Toyota's product development cycle had been sped up and was moving too fast.

Professor JOHN PAUL MACDUFFIE (University of Pennsylvania's Wharton School): Toyota has been a leader in reducing the lead time for new vehicles. It was four years, it was three years, it was two years, it was rumored to be down to 18 months. In some ways that's an advantage. You can bring new models to market more quickly. But if you get quality problems from it, it's probably not worth it.

KAUFMAN: Toyota, he continues, recently announced it will build more physical prototypes during the development process and not rely so heavily on digital models.

Prof. MACDUFFIE: You know, I think they do take quality issue and generally the improvement process very seriously. In the J.D. Power quality numbers, which just came out, Toyota was back on top.

KAUFMAN: The survey ranks initial vehicle quality. Toyota and its sister brand Lexus had more segment awards than any other automaker. But Toyota has yet to gain back the automatic recommended rating it used to get from Consumer Reports.

Toyota, of course, faces other hurdles. Running a big global company of any kind is tough. Competition from Korean carmakers and others is getting stiffer. And as the number one automaker, everyone is gunning for you.

(Soundbite of music)

KAUFMAN: In this ad, two neighbors are outside watering. A Prius is parked in one driveway, a VW Jetta in the other.

(Soundbite of ad)

Unidentified Man #3: Hey, Max. New car, huh?

Unidentified Man #4: Yeah, the Jetta TDI clean diesel.

Unidentified Man #3: I got a hybrid so, you know…

Unidentified Man #4: TDI set a Guinness world record 58 miles per gallon.

Unidentified Man #3: Fifty-eight miles per gallon?

Unidentified Man #4: But this baby hauls. It's like - (makes engine sound) -what's your hybrid sound like?

KAUFMAN: But Toyota may well have the last laugh. Experts believe the Japanese giant — with its fuel-efficient technology, new leadership team and loyal customers — remains well-positioned to stay on top of the automotive world.

Wendy Kaufman, NPR News, Seattle.

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