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Toyota President Serious About Cutting Costs

Tokyo May 26, 2008; Tamaki Aikyo and Hiroyuki Kato writing for YomiuriShimbun reported that Toyota Motor Corp. is considering how to reduce itscosts in response to the recent sharp rise in raw material prices, companyPresident Katsuaki Watanabe told The Yomiuri Shimbun in a recentinterview.

It is the first time Toyota has resorted to emergency cost-cuttingefforts since 1993, after the economic bubble burst.

In the interview, Watanabe also set out the company"s strategy fortackling environmental issues, including the introduction ofnext-generation plug-in hybrid electric vehicles, which people can rechargesimply by plugging in at home.

The Yomiuri Shimbun: Toyota recently announced that it was expecting itsfirst fall in revenue and profits in nine years this fiscal year [endingMarch 31, 2009]. What"s behind this?

Katsuaki Watanabe: The tide of the world economy has changed due tothree main factors.

One is the slowdown of the U.S. economy due to the subprime mortgagecrisis. The second is the rapid growth of emerging economies andresource-rich countries. The third is the environment and energy issue.

Toyota has continued growing in recent years, so the younger generationsof our employees have never experienced a profit decline.

But Toyota has experienced tough times before and I believe such periodsare a good opportunity to strengthen our business and develop humanresources capable of supporting a strong corporate culture.

The prices of steel products is to be raised by more than 20,000 yen perton. How will you deal with this?

We"ve almost completed talks [with steel manufacturers] over prices.We"re working on measures to reduce costs, but will also ask steelmanufacturers to do the same. We"ll work together with them, ifnecessary.

Japanese steel manufacturers are the world leaders in production ofsteel sheet products for cars. So we need their cooperation.

What will Toyota do to cut costs?

We"ve started what we call "emergency value analysis activities." We"veformed teams to review every single part and component over the next sixmonths to determine how to improve designs to reduce production costsfurther.

Some employees still lack awareness of these activities, but we plan towork on developing our human resources in tandem with this effort.

Do you plan to raise prices for your products in the domesticmarket?

Other automakers seem to be waiting for us to raise prices, but I don"tthink we"re in a market environment that will tolerate price hikes.

But if prices for raw materials rise above a level that we can absorb,then we may have to consider this.

How do you see the current market environment?

In developed countries, it isn"t good. The U.S. market for newautomobiles will shrink to about 15 million cars this year, down about 1million from last year.

However, the markets in emerging economies and resource-rich nationslook solid. It"s expected that about 10 million cars will be sold in Chinathis year and the market there will continue expanding next year, Ibelieve. But the growth in China"s exports to the United States seems to beslowing, so we have to be careful about assuming that current trends willcontinue.

Do you have any plan to increase production in emerging economies?

It"ll be necessary to raise production in China in future because weexpect our sales there to increase by 700,000 cars this year. It likelywill be necessary to beef up production capacity in India and Brazil,too.

In Russia, we have to raise our current production capacity of 20,000cars per year to 50,000 cars as quickly as possible.

Can you explain Toyota"s strategies for tackling environmentalissues?

Toyota has been regarded as strong in environmental technologies due toits hybrid vehicles. But hybrid vehicles are increasingly seen ascommonplace. So we have to develop more advanced products and introducethem to consumers.

We want to realize our goal to halve the size and cost of hybrid drivesystems as soon as possible.

Toyota plans to release a plug-in hybrid electric vehicle withlithium-ion batteries some time in the 2010s. As a full-range auto maker[manufacturing vehicles ranging from trucks to compact cars], Toyota won"tbe able to cater to the market in each country without developing vehiclesthat can use a variety of fuels, such as gasoline, diesel fuel, hydrogenand electricity.

How do you see the relationship between truck maker Isuzu Motors Inc.,with which Toyota has formed a capital alliance, and Toyota subsidiary HinoMotors Ltd.?

I think the two companies will develop their relationship, and benefitfrom it. So I don"t think the two should merge soon or be integrated intoone entity in the future.

However, Toyota has failed to expand its presence in the global marketfor commercial vehicles, so we may need Isuzu"s support in the future. Welikely will strengthen our capital alliance with Isuzu.

What qualities should the next Toyota president have? Will anyone fromthe founding Toyota family be named as the next president?

I don"t think about my successor at all. I have a lot of other things todo. I"ve dedicated all my energy to the company, always working as if everyyear was my last.