When Fujio Cho became Toyota Motor Corp. president on June 25, he brought a little bit of bluegrass into a shamisen world.
Cho, 62, spent six years, from 1988-94, as head of Toyota's Georgetown, Ky., assembly complex. He is a disciple of the legendary Taiichi Ohno, considered the creator of the Toyota Production System. The affable, soft-spoken Cho oversees a company that is expanding in North America and Europe, while holding steady in the stagnant Japanese market.
Cho met last week with Asia Editor James B. Treece. Edited excerpts:
Toyota is forecasting that its exports in the current fiscal year to March 2000 will rise 7 percent to 1.55 million. Earlier, you were forecasting a 2 percent sales drop in exports. Why did you change your forecast?
The reason is twofold. One is the very good situation for sales in North America. Also, the recovery in Southeast Asia was significant. Both of these started to become very prominent from May this year.
The revised numbers show exports to North America of 90,000 vehicles and exports to Southeast Asia of 31,000 vehicles.
This month you will announce your plans to increase production capacity in North America. In the first 10 months of this year, combined U.S. sales of Toyota/Lexus were up 10 percent, more than the market's 7 percent rise. Do you think an additional 150,000 units will be enough?
It's true that we said we would have a decision with regards to production in the United States by the end of this calendar year, but we have not made a decision yet.
You quoted a number of 150,000, but this number hasn't been determined yet. We have a concern as to whether the current sales volume in the United States and North America is going to be maintained or not. Maybe it will shrink slightly to 15 million, and we have to be ready for such a decline as well. Considering all that, we're still in the midst of discussions and have not reached a decision yet.
The sales people are saying that because we're selling so well, let's manufacture some more, but we need to be prudent.
How soon do you expect Toyota sales in North America, including Lexus, to reach 2 million?
We have not reached 1.5 million yet. So it is rather difficult to make a prediction as to when we'll be at 2 million.
The sales network in North America is pretty well established, and our current market share is 8 percent. So I think we're already in a pretty good position. Therefore, 2 million from 1.5 million is an additional one-third, meaning this is a significant step. We don't have any clear plan or projection for when, but hopefully, some time in the early part of the 21st century.
Of course, we'd like to do our best to achieve that.
Are you concerned about the percentage of Toyota's total profits that are coming from the North American market?
We are taking various measures and policies to increase the profit from Japan, because I think we need a better economy in Japan and we need to get a higher profit out of Japan as our base. If that is not achieved, we will be susceptible to the ups and downs of the exchange rate, the strong yen and weak yen. The exchange rate then will make us vulnerable with regards to our profitability.
Of course, we are taking measures already to protect us from the impact of exchange-rate fluctuations, such as local production overseas. However, the Japanese economy is so sluggish that we are still pretty much dependent on profits from North America, and we are still susceptible to exchange-rate fluctuations. This is a concern for me. I think further measures need to be taken so that we will have a solid profit from the Japanese market.
What is your forecast for the Japanese car market for 2000 and 2001?
As you know, this year's number, including minivehicles, will be slightly less than 6 million vehicles. The number is almost the same as the previous year. We had expected that it would increase a little bit more than it actually has, and we hope that in the latter half of next year, it will start to grow.
If you don't include minivehicles, the number is not growing. Compared to the previous year, the number is actually going down.
There are two reasons why I said I assume the number will start to grow from the latter half of next year. First, in regards to fleet vehicles, as the economy starts to pick up after this recession, corporate vehicle sales will start to grow.
Second, for larger-size vehicles, not including minivehicles, there are many older vehicles on the road, say up to around seven years. In the past, the replacement was every four years. At some point, people will have to replace their larger vehicles.
And you see that continuing to 2001?
That's so - at least incremental growth. That's my wishful thinking. But we have a strong-yen situation in the exchange market, which is a headache. The strong yen is likely to prevent the Japanese economy from taking off.
So far in 1999, minivehicles have accounted for about 32 percent of all vehicle sales in Japan. How high will their share of the market go?
Generally, I think this will be the peak.
When you look around the world, what car markets do you worry about the most?
Each has its own concerns. But there's no dominant one.
Starting with the North American market, annual sales are 16 million to 17 million. I wonder how long this sort of volume can continue. Although I don't have a major concern that it will burst, as a bubble economy, the continuation of such a significant level of sales is a concern.
In Europe, Toyota's share is so small - only 2.5 percent or so, some months 3 percent - that it's not a major share. So even if the market shrank, it would not cause any significant impact to Toyota sales. And we are not projecting such a major shrinkage. If the market were to shrink slightly, then I think Toyota's efforts on sales and marketing and producing good new products will be able to offset such shrinkage.
In Japan, excluding minivehicles, sales in August slightly exceeded the level of August a year earlier, and we thought that the economy was starting to recover. However, the number in September was rather disappointing, going down, and in October, it went up once again. Now the orders in November are not very promising. So it's been up and down. Sales of new models are very good, whereas sales of older models are not going very well. So from that standpoint, I cannot say that the Japanese economy is at full speed yet.
Here in Japan, there seems to be a dichotomy. Nissan and Mazda are cutting their ties to their keiretsu suppliers and pushing them to be more independent. But Toyota seems to be doing the opposite - increasing the equity ties and reasserting its authority over the Toyota Group. Is that a fair assessment?
I think that interpretation is slightly wrong.
For the past decade, Toyota also has been taking the initiative in its so-called worldwide optimum procurement campaign, meaning that we are actively getting parts from American and European suppliers if they can provide the optimum supplies. So in that sense, we do have a cooperation or collaboration with the group keiretsu companies. But as far as just procurement relationships are concerned, that is sort of fading away.
Including our affiliated manufacturers like Hino and Daihatsu, altogether the Toyota Group builds 5.3 million vehicles a year. We have dual suppliers or triple suppliers for each component. So these multiple suppliers would compete on quality and cost, instead of just having a dominant single supplier for each part or supply. This system is well devised, with experience and history, so we do not have any intention to change it.