Japan Trip Presentation:TOYOTA

Jose F. Rodrigues Neto

Paolo Gencarelli

Greg McKelvey

Giulio Pappalardo

Kazutoshi Tominaga

• Company Background

• Car Industry Trends

• Toyota Challenges & Strategies

• Our Questions for Toyota

AgendaAgenda

Company BackgroundCompany Background

• Annual sales: $114 Billion

• Production: ~5.8 million Units/Yr.

• Employees: ~210,000 people

• 56 manufacturing plants in 6 continents

• 3rd largest automotive manufacturer in the global market

Headline Facts: ToyotaHeadline Facts: Toyota

• Established in 1937 out of Sakichi Toyoda’s weaving machine company

• Launched first car (SA Model) in 1947 • “Toyota Production System” formed in 1950

based on Just-In-Time principle• Overseas production starts in 1959 (Brazil)• In 1972, cumulative production >10M units• In 2002, entry in the Formula 1 circuit

Company HistoryCompany History

• Automotive [90.0% Sales]

– Design, manufacture and sales of passenger cars, recreational vehicles, SUVs and related parts

• Financial Services [4.5% Sales]

– Provisions of loans to car buyers and car dealers

• Others [5.5% Sales]

– Industrial vehicles (forklifts, etc.)

– Pre-fabricated housing

Business Segments - Business Segments - Low DiversificationLow Diversification

Japan Market (2000)

Strong International Presence and Dominant Strong International Presence and Dominant Position in the Domestic MarketPosition in the Domestic Market

GM

Ford

TOYOTA

VWDaimlerChrysler

Fiat NissanPSA

HondaRenault

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Int’l Market (2000)

In 1,000 Units

8

Other 0,1

Asia 0,3Europe 0,2

North America 1,1

Japan 3,5

Other 0,6

Asia 0,3

Europe 0,7

North America 1,8

Japan 1,8

Production Sales

Toyota Production and Sales (MM Units)

21%

67%

12%

35%

35%

30%

Balanced Global SalesBalanced Global Salesvs. Predominantly Export Based Productionvs. Predominantly Export Based Production

3-year stock price comparison

Strongest Stock Market Performance Strongest Stock Market Performance Relative to the IndustryRelative to the Industry

• Market Cap

• 5-Yr CAGR Revenues

• 5-Yr Pre tax Profit Margin

• 5-Yr CAGR Earnings

• ROE

• $ 102 Bn

• 3.0%

• 7.3%

• 17.3%

• 9.5%

• $ 43 Bn (DaimC)

• 3.8%

• 4.5%

• –12.63%

• 11.8%

INDUSTRY

Strong Financial PerformanceStrong Financial Performance

• Revolutionized manufacturing industry

• At its core is “lean” principle– Relentless drive to improve efficiency and

eliminate waste

• Beginnings of TPS were born out of necessity due to lack of resources in post-war Japan

Revolutionary Production SystemRevolutionary Production System

Toyota Production System:Toyota Production System:Key Main ConceptsKey Main Concepts

• Just In Time manufacturing• Small batches which reduced inventory costs,

tightened relationship with suppliers and improved quality control

• Just In Time manufacturing• Small batches which reduced inventory costs,

tightened relationship with suppliers and improved quality control

• Low cost supplier

• Low cost supplier

• Asking “Why?” 5 times to locate source of problems• Stopping the production line whenever there are quality

problems to ensure they are not repeated

• Asking “Why?” 5 times to locate source of problems• Stopping the production line whenever there are quality

problems to ensure they are not repeated

• JIT • JIT

• “5 Whys” Quality

• “5 Whys” Quality

• Long term supplier relationships• Long term supplier relationships

Car Industry TrendsCar Industry Trends

• Consolidation

• Push to Emerging Markets for Growth

• Global Emphasis on Small-Size Vehicles

• Environmentally Friendly Products

• Internet as a Key Enabler of Change of

Automotive Retailing

Car Industry TrendsCar Industry Trends

Drivers of ConsolidationDrivers of Consolidation

Platform Sharing

Purchasing Rationalization

Capacity Rationalization

Supply Base Rationalization

Forge Strong VBO Relationships

Integration of Production & Capability Sets

Create & Manage Global Supply Network

Veh

icle

Bra

nd

Ow

ner

Su

pp

lier

Mar

ket

Driv

ers

Pro

duct

D

river

sN

ew C

apab

ilitie

s D

river

s

New Scale Economies in Production, Purchasing and Product Platforms

Enhanced Market Penetration

Progress Toward Integration Status

New Scale Economies

“Of the 20 auto makers in 1965, 14 have since merged or been taken over. By 2006, the top 14 VMs will account for 90% of light vehicle output.”

Type Rationale Tactics

Growth by Region 1998-2006

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Asia-Pacific

EastEurope

NorthAmerica

WestEurope

SouthAmerica

Africa /MiddleEast

% o

f G

row

thEmerging Markets to Provide Long-Term Emerging Markets to Provide Long-Term

Growth in Light Vehicle ProductionGrowth in Light Vehicle Production

Light Vehicle Segment% Growth

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

A

B

C

C/D

D

Small-size Utility

Small-size Van

Mid-Size Utility

Mid-Size Van

Full-Size Pick-up

Global Emphasis on Small-Size VehicleGlobal Emphasis on Small-Size Vehicle

Reduction in Polution Standards (Grams of NOx per mile)

0

0.5

1

1.5

2

2.5

3

3.5

1975 1977 1981 1994 1999  2004 -2009

Cars

Smaller SUVs, Minivans, and Light Trucks(Less that 6000 lbs)

Reduction in Emission StandardsReduction in Emission Standards

Toyota ChallengesToyota Challenges

• Industry overcapacity

• Economic downturn

• Globalization

• Environmental concerns

• The IT revolution

• Diverse and shifting consumer demand

Toyota Challenges - SummaryToyota Challenges - Summary

Toyota’s StrategyToyota’s Strategy

• Increase competitive strength through advanced technology

• Promoting a global perspective• Value-driven cost reduction

(CCC21 program)• Expanding the value chain—becoming

the Total Mobility Services Provider• Expansion of model offerings—Quality,

value, and style?

Our Questions to ToyotaOur Questions to Toyota

Toyota QuestionsToyota Questions• What do you see as the key elements to succeeding in the European

market?• After Japan, U.S., and Europe, where do you see as the next critical

market to Toyota’s globalization effort?– Emerging markets

• What have been the most difficult challenges in the global implementation of “The Toyota Way?”

• While sales continue to globalize, non-Japan production footprint appears to be leveling at 35%. What is Toyota’s strategic direction on “make where sell”? Challenges?

• Does Toyota foresee Internet as viable infrastructure in purchasing, supplier relationships? How will Toyota integrate into TPS?

• When do you think hybrid vehicles will reach critical mass?• What is Toyota’s view on industry consolidation and potential benefits of

acquisitions / mergers?• How does Toyota’s recent initiatives reflect future strategic focus (e.g.

new channel brand in U.S., participation in Formula-1)

Reduction in Emission StandardsReduction in Emission Standards