Toyota Motor Corp. TM -0.04% may drop some underperforming models in the U.S., its head of North American operations said.
“We are taking a hard look at all the segments we compete in, to make sure we are competing in profitable segments and that products that we sell have strategic value to the brand,” Jim Lentz said Tuesday.
Models under the microscope include fuel-sipping cars that have lost out to sport-utility vehicles, Mr. Lentz said—such as the subcompact Yaris, whose U.S. sales have plummeted this year. Also, Toyota could sell fewer variants of the Prius hybrid in the U.S., he said, and scale back niche products like sports coupes and convertibles.
“Maybe you need one of those, but maybe you don’t need two of them,” Mr. Lentz said.
The shift in U.S. tastes isn’t all that is driving Mr. Lentz: There’s also Toyota’s goal of an 8% operating margin in North America by the year ending in March 2021. A Toyota spokesman declined to specify the current figure, but indicated the target may be difficult to reach.
Chief Executive Akio Toyoda wants to boost the profitability of Toyota’s traditional business to allow investment in new technologies. Leading the cost-cutting charge is Chief Financial Officer Koji Kobayashi, whom Mr. Toyoda brought from supplier Denso Corp.
Mr. Kobayashi has pushed white-collar workers to find ways to save money, including searching desk drawers for extra pens and pencils. That netted quite a haul, he said: “We might not have to buy new pencils for five years.”
On Tuesday, Toyota said operating profit in the July-September quarter was up nearly 11% from a year earlier, to ¥579 billion ($5.1 billion). Unit sales in the U.S. fell, but more of the vehicles were higher-margin trucks and SUVs: In the first 10 months of the year they accounted for around 63% of U.S. unit sales, up from 58% last year.
Fiat Chrysler Automobiles NV killed several sedan models to make room for truck production, and has seen its profit margin in the U.S. surge as a result. Ford Motor Co. plans to abandon sedans almost entirely in the U.S.
Mr. Lentz said, “I think it’s a mistake to pull out of the passenger-car business,” but he said some individual models were under review.
U.S. sales of the $15,000 Yaris hatchback were down nearly 80% in the first 10 months of the year, and U.S. sales of the Prius C, a smaller version of the Prius hybrid vehicle, were down over 30%. Toyota has already stopped selling the larger Prius V in the U.S.
Mr. Lentz said he wants customers to think of hybrid technology—which combines an electric motor with a gasoline engine—as available in many models, not just those sold under the Prius name. Toyota hopes to increase hybrids’ share of its U.S. sales to 15% by 2020, from around 9% today, by expanding sales of hybrid versions of popular models such as the RAV4 and Highlander SUVs.
Hybrids account for about 3.5% of overall U.S. sales.
The Prius has established the technology as synonymous with economy, Mr. Lentz said. Toyota wants to broaden that.
“We’re going to have to rebrand hybrid,” he said, “to make sure people understand that it can be economical, but it can also be fun to drive.”