Okuda proposed that r&d spending be set at more than 5 percent of parent-company revenues, indeed at close to 6 percent. And he wanted most of the boost to go to powertrains.
Okuda's proposal faced some resistance, of course. But Toyota insiders say the naysayers were few.
"Some finance guys may have objected, but that's the nature of their job in the company. Almost everybody supported it," Akihiro Wada recalled, speaking in Japanese. He was Toyota's executive vice president in charge of r&d at the time.
A consensus soon built around the proposal. "We all knew that safety and environmental issues were growing," said Wada, 73. "The trend of the r&d budget was one of gradual increases due to safety and environmental problems, plus the costs of all the new systems that were being added to cars. So we knew we were going to have a lot more work to do."
An extra 1 percent of sales doesn't sound like much. But given Toyota's size, it was huge.
The proposal was approved, starting in the fiscal year that began April 1, 1995. That year Toyota's parent-company revenues were 6.74 trillion, or $62.81 billion at the then-current exchange rate of 107 to the dollar.
Toyota's r&d spending that year was $3.61 billion. That represented 5.7 percent of revenues. Had Toyota stuck with the ratio it spent in the previous fiscal year, 4.8 percent of revenues, its r&d spending would have been $3.00 billion.
Accepting Okuda's proposal gave Toyota an extra $610 million to invest in alternative powertrain r&d in that year alone. That was huge compared with what others were spending on alternative powerplants at the time.
The U.S. Department of Energy's 1996 budget for electric vehicles, including battery research, was $26.2 million. And by 1996, General Motors had spent upward of $350 million on its EV1 electric-car project — but over several years.
Toyota soon began to see a payoff from the budget boost.
The city of Osaka hosted the 1996 Electric Vehicle Symposium, an event held every two years in a different country. Toyota took center stage with a vehicle powered by a fuel cell that ran on hydrogen. Toyota had produced two of the vehicles at a cost of $1 million each. Both were converted RAV4 compact SUVs.
Fitting the fuel cells and hydrogen tanks into a RAV4 was an eye-popping achievement. Until then, the most compact fuel cell vehicle had been built by Mercedes-Benz. Mercedes filled the inside of a full-sized panel van with the fuel cells. With no room left inside, Mercedes had to put the hydrogen tanks, shaped like two massive torpedoes, on the roof.
In addition, Toyota that year began selling electric RAV4s powered by nickel-metal hydride batteries in Japan. The vehicles then went on sale in California in 1997.
Dave Hermance, who in the late 1990s was general manager of powertrain development for the Toyota Technical Center in Los Angeles, said the quick development time for the electric RAV4 — one year — was tangible evidence of Toyota's new spending priorities.
"Toyota is spending money on alternative-fuel research like it's water," he said in 1996. Hermance, later executive engineer for advanced technology vehicles at the Toyota Technical Center, died in a private airplane crash in November 2006.
Even as it spent big money to develop future alternatives to the gasoline engine, Toyota Motor Corp. was remaking its existing lineup of powerplants.
Toyota was working "to carry out a far-reaching revamping of our powertrains, and develop a more simple, high-performance engine and transmission," said Ryuji Araki, Toyota's director of finance, in 1996.