Toyota: Japan's unstoppable juggernaut - Asia Report - Brief Article

Automotive Industries, June, 2002

When Toyota Motor Corp. announced its fiscal 2001 earnings in mid-May, it reported record $4.8 billion ([yen]600 billion) net profit. Equally important, the company continues to hold more than a 40 percent share in the Japanese market and 10 percent worldwide on sales of 6.5 million vehicles. And it has achieved this without foreign mergers and acquisitions.

Can the Toyota juggernaut continue? The short answer is yes. Here's why:

The Pros

* The company possesses the industry's strongest balance sheet with an estimated $23-$31 billion ([yen]3-4 trillion) in cash reserves, giving it sufficient resources to enter into almost any business it desires. Toyota also continues to be the industry's quality leader, finishing first in seven of 16 segments in the 2001 J.D. Power "initial quality" survey. In the same survey, the world's top two assembly plants were Toyota's Kyushu and Tahara plants, while the automaker's Cambridge, Ontario, and Georgetown, KY, plants finished first and tied for second in North America.

* Toyota, (together with Honda) is arguably the technological leader in powertrains, particularly in alternative powertrains. In 2001, the automaker sold 36,850 hybrid vehicles. Management intends to boost sales to 300,000 in 2005, fueled by the planned introduction of as many as 10 new models in 2003. In the fuel cell field, Toyota, like Honda, will market its first model next year, a compressed hydrogen-powered Kluger V SUV.

* The company boasts the industry's strongest supplier group led by affiliates Denso Corp. and Aisin Seiki Co. Denso, one of the world's leading producers of onboard electronics, is spearheading Toyota's move into preventive safety and telematics.

The Cons

Toyota is not without weaknesses, though analysts feel that most of the problems are manageable and not serious enough to sap the company's fundamental strength or undermine its long-term strategic plans. Its rough spots include:

* The automaker remains weak in the young adult market where its share among drivers in their 20s is estimated to be as low as 20 percent.

* Toyota continues to struggle in Europe and has been slow to gain a foothold in China and India. Its losses in Europe since 1999 have grown to $353 million. Analysts do not expect the company to register a profit until 2003 -- and only after another $44 million in red ink.

* Toyota still holds too many "non-core" businesses that underperform -- such things as hotel management, marina development and housing.

The Future

Driven by the desire to stay cost competitive with China, Toyota is taking no chances with the future. Over the next three years it will cut die and tooling costs by 50%. Currently, Toyota can engineer and manufacture dies for large body panels in 3.0-3.5 months. The company's target is 1.5 months.

In procurement, the automaker aims to trim $8 billion ([yen]1 trillion) from its parts bill by 2004. These cuts will result from a 33 percent reduction of platforms, aggressive value-engineering of ALL components and systems and a comprehensive benchmarking of the global parts industry that will force Toyota's domestic suppliers to match - and beat - the world's best in price and quality.

"There are no sacred cows; nothing is taboo," declares Toyota EVP Akio Watanabe, who is in charge of corporate planning and purchasing. "We are preparing ourselves to have viable operations in Japan even if production falls to 3 million," he says. Toyota produced 3.6 million units last year (6.5 million worldwide), while its sales share (excluding minis) held steady at a hardy 42 percent. Margins, however, were small compared to those in North America.

Analysts say Toyota is also attempting to triple its downstream business through the establishment of subsidiaries in financial services and automotive parts and accessories. "Although it is true that Toyota has lost some of its cost competitiveness," concludes Merrill Lynch Japan analyst Takaki Nakanishi, "it is also true that Toyota is the most profitable auto company in the world. And it's going to get stronger."

This is part of a comprehensive study of Toyota by J-Reports. If you would like to receive the full report, please email j-reports@attglobal.net.

This article was provided exclusively to Automotive Industries by J-Reports, a new information service offering in-depth coverage of automotive technology developments and trends in Japan and Asia from industry experts based in Tokyo. For additional information about this and other studies and prices, contact j-reports@attglobal.net.