Toyota may change focus to boost global auto sales

Southfield, Mich. April 18, 2002 Doron Levin for Bloomberg News: "Toyota Motor Corp. sees strong growth when it peers into its crystal ball --and that makes the Japanese automaker's rivals nervous.

Toyota plans to increase its worldwide market share to 15 percent from 10 percent in the next decade. The question is, at whose expense?

The No. 3 automaker was too discreet to say that such a big jump means it intends to overtake General Motors Corp. as the world's biggest auto company, not to mention Ford Motor Co., now in second place.

General Motors had 14.8 percent of new-vehicle sales in the world in 2001, Ford's share was 12.4 percent and Toyota's 10.2 percent, according to Automotive News data.

In the mid-1980s, Toyota's bold plans for a 10 percent share left its own executives wondering how they would get there. "We just didn't have the production capacity," recalled Irv Miller, Toyota's group vice president of external affairs.

Few doubt the automaker's ability to reach its ambitious goals. Toyota tripled North American production in the past decade to more than 1.1 million vehicles from 382,300 in 1990.

To hit its target of 50 percent growth, Toyota will review its custom of increasing capacity at its own plants and instead look at acquisition prospects. Toyota's famous production system involves steady quality improvement and cost cutting, a process that other automakers have openly copied.

Growing Markets

Toyota's biggest potential for growth may lie in undeveloped automotive markets like China and India. In Europe, where Toyota only has a 4 percent share, the automaker already has joined with France's PSA Peugeot Citroen to manufacture small cars in the Czech Republic, starting in 2005.

As for other acquisitions or cooperative ventures, "We are negotiating with several automakers, but have reached no conclusions," Fujio Cho, Toyota's president, told Japan's Kyodo News. "For now, we are prioritizing increasing our share through marketing."

Toyota could easily sell more vehicles in the U.S. if it had the factory capacity to build them. Domestic U.S. producers normally maintain a 60-to-70-day supply of cars on hand. (The figure involves unsold inventory divided by the daily selling rate to retail customers; Toyota's current 33-day supply means its dealers are short of vehicles.)

Toyota's Muscle

At present Toyota has only one assembly line dedicated to pickups, and its sales of full-size Tundra pickup trucks are a fraction of those sold by U.S. rivals. In the first quarter, Ford Motor sold 197,770 F150 pickups to Toyota's 23,657 Tundras.

Toyota is building a new factory near Huntsville, Alabama, that will supply Tundras with V8 engines that now are shipped from Japan. Next year, a second Tundra assembly line will open in Princeton, Indiana.

Another possibility for Toyota expansion in North America is through Mexico, which "has free trade agreements with 34 countries," said Jim Olson, Toyota's senior vice president for regulatory affairs. "It would be a logical base of production."

Toyota, the only automaker with a Standard & Poor's AAA credit rating and $20 billion in cash, has plenty of financial muscle to expand or buy a competitor.

The real test for the automaker -- and an early signal for its prospects -- is whether it will attract younger buyers, such as those it's trying to lure in the U.S. with its new Scion car.

Visibility Risk

"Can Toyota come up with exciting cars? If a product isn't entertaining, people will not buy," said Jay Chai, former chief executive of Itochu International Inc., the Japanese trading concern formerly known as C. Itoh. Chai said he'd be "very surprised" if Toyota succeeded in this respect.

General Motors so far hasn't responded outwardly to Toyota's challenge. "There's been no discussion of Toyota," said Steve Harris, vice president of public affairs.

Ford, whose profit plunged amid lower sales, might be more vulnerable to inroads from Toyota, though the Japanese automaker remains sensitive to political currents in the U.S. and isn't reveling in its rival's financial setbacks.

If Ford drew an unwanted suitor's attention -- or needed a government bailout such as Chrysler Corp. got in the early 1980s -- Toyota could turn into a target, said one of its executive.

Still, while gradual growth has kept Toyota from receiving its own share of unwanted attention from U.S. legislators, it's unclear whether slow and deliberate will also deliver the sort of meaningful growth embodied in Toyota president Fujio Cho's vision for the company.

To reach the automotive pinnacle, the Japanese manufacturer may just have to risk U.S. ire and press ahead with whatever it takes to sell cars here and in the rest of the world."