2 million sales target set for American market Toshiaki (Tag) Taguchi doesn't mince words about the space North America occupies in the pie chart of Japan's leading vehicle maker: more than one-third and rising.

In fact, Mr. Taguchi, president of Toyota Motor North America, says "the U.S. and Canadian markets not only fit into Toyota's past, present and future but are crucially important to our global operations, with total annual sales now almost equal to those in Japan."

The balance has shifted dramatically in the last 10 years. In 1989, the domestic Japanese market was dominant, accounting for sales of 2.3 million units - 52% of Toyota's global total - while North America was a distant second with slightly over 1 million units sold, 24% of that global total.

Although Mr. Taguchi says the Japanese economy and automotive market, both in the doldrums for the past decade, finally are on the road to recovery, he points out that North American sales have been constantly increasing. "We'd like to see our sales here surpass 2 million units in three years," he says.

Toyota, a Johnny-come-lately to production in North America, has been making up for lost time since the first Toyota rolled off the line in 1986 at New United Motor Mfg. Inc., better known as NUMMI, the joint venture with General Motors Corp. in Fremont, CA.

Since then, the automaker's investment in North America has reached $11.8 billion as assembly, engine and parts plants began operating first in Kentucky; then in Ontario and British Columbia, Canada; and as of late in Indiana, Missouri and West Virginia.

Indeed, investment will grow to more than $13 billion when the current expansion plan is completed in 2003. At a cost exceeding $1.25 billion, 200,000 units now are being added to North American capacity - 150,000 at the Princeton, IN, facility, where the new Sequoia sport/utility vehicle (SUV) has joined the fullsize Tundra pickup truck in production.

And another 20,000 units are being added in Cambridge, Ontario, plus 30,000 units squeezed out of other plants, boosting North American capacity to 1.45 million units. Is still more capacity coming to meet Toyota's objectives?

"First things first," says Mr. Taguchi with a smile. "We must match sales to production. An additional 200,000 capacity is a lot. We have been taking a step-by-step approach here. When we feel confident, we'll study the possibility (of adding more), but we can't say when and how we are thinking beyond 2003."

A major shuffle will take place that year as the first North American production of a Lexus model - the RX300 crossover vehicle - gets under way at Cambridge. All midsize Solara output will shift from Ontario to the Georgetown, KY, plant while production of Sienna minivans moves from Georgetown to Princeton.

As North American production increases, imports from Japan have been declining from 814,000 vehicles in 1989, when they accounted for 77% of Toyota's sales here, to 650,000 last year, when the share of Toyota sales from imports shrank to 38%.

The downtrend is expected to continue, spurred by the additional capacity now being put in place. Mr. Taguchi emphasizes that model production by plant depends on the marketplace, citing the RX300 as an example. He adds that, with automakers forming into ever-larger groups with plants all over the world, strategic decisions must be made on where to source vehicles.

The industry's consolidation, he says, is making it difficult if not impossible anymore for Toyota (and other makers) to identify chief competitors by nationality - as U.S., European or other Japanese makers.

"We look in different viewfinders these days," Mr. Taguchi says. "The new automotive groupings have blurred definitions. Last year, for example, the General Motors Group (GM, Opel, Isuzu, Suzuki and Subaru) was second in sales (1,050,000 units) after Toyota (2,220,000) in the Japanese domestic market. Ford has Mazda, Volvo and Jaguar. It's a different picture. All global companies are important competitors."

Now that the multinational 13-company Alliance of Automobile Manufacturers has succeeded the American Automobile Manu-facturers Assn., Mr. Taguchi says U.S. protectionist backlashes are a thing of the past.

He readily acknowledges that times have changed in other ways, as well, explaining that every vehicle manufacturer is bringing better products to the marketplace, and noting that as a result of improved quality and product acceptance, "U.S. auto producers are becoming more competitive today and tomorrow."

As a result, he says Toyota is kept on its toes trying to maintain a competitive edge with new models, full model changes and more efficient production techniques.

The company's precedent-setting lean-manufacturing production system has become the international norm. Hundreds of competitors have made the trek to the George-town plant to get a first-hand look at how Toyota builds vehicles.

Mr. Taguchi stresses, however, that the Toyota Production System is not static but ever-changing, with company engineers and workers worldwide constantly seeking and making improvements in manufacturing processes and productivity.

Last year, for example, 150,000 suggestions submitted by employees at the Georgetown plant were implemented. "According to The Harbour Report North America 2000," says Mr. Taguchi, "we are still ahead."

Staying there will be neither simple nor easy, so new ways and means are constantly being explored. For instance, for better communication with its suppliers in order to improve efficiency and lower costs, Toyota has adopted WARP (World-wide Automotive Real-Time Purchasing). This has permitted more clear-cut exchanges and fewer mistakes when design changes are required.

"Toyota must have the best of the best parts and components available," says Mr. Taguchi, who is equally insistent that "OEMs and suppliers must co-prosper."

He admits that Toyota has not always succeeded in detecting market trends and devising products that satisfy picky buyers, explaining that "10 years ago we were wrong in judging the North American truck market."

Yet Tundra, the company's first fullsize pickup, saw its sales jump to 42,769 units after a June launch, with sales expected to rise to 100,000 by this year's end. Mr. Taguchi says the larger Highlander SUV has even stronger potential in North America.

The Japanese automaker is aiming at 5% of the U.S. large pickup truck/SUV market and figures 9% of that segment is possible just with variants of the Tundra and Sequoia.

Future vehicle tastes, he says, will depend mainly on the cost of energy, environmental concerns and what excites the younger generation. But he is convinced that pickups, minivans and SUVs will not lose momentum.

"All manufacturers are working hard to improve models in these segments, but no segment will monopolize the market," he says, noting the Sequoia "will be big enough for us," and adding that "information technology will stimulate more variety. We foresee more niche vehicles like the DaimlerChrysler PT Cruiser."

To commemorate the production of 1 million Toyota vehicles, the company recently produced its own retro model - a nostalgic reincarnation of the 1955 Toyota Crown sedan called the Origin - introduced in November for sale in Japan with a limited 1,000-unit production run.

After a successful 1997 launch in Japan, where to date 42,000 units have been sold, another niche vehicle - the gasoline-electric-powered Prius hybrid compact car - is getting wider exposure with an introduction this year in Europe and North America, where Toyota is looking for annual sales eventually of 15,000 to 20,000.

"We are testing foreign waters," Mr. Taguchi says. The implication clearly is that Prius production, currently around 3,000 per month, will be raised.

With Toyota firmly committed to new technology, Mr. Taguchi is understandably intrigued by e-commerce and considers the Internet an invaluable tool to inform, educate and influence buyers. Still, the company is proceeding cautiously.

"Computers can't deliver or service cars," he says, adding that dealers will remain Toyota's partners and will always be its first line of defense.

That assessment suggests the unofficial success formula for Toyota in North America, as well as Japan, remains, in Mr. Taguchi's words: "First things first, one step at a time."