Exclusive interview: Toyota's Okuda

TOYOTA CITY, Japan -- Is the Golden Age finally over for Japanese automakers? Perish the thought says Hiroshi Okuda, president of Toyota Motor Corp., in an exclusive interview with Ward's Auto World.

Despite the full platter of problems he faces, the new head of Japan's biggest vehicle producer -- and the world's third largest -- is upbeat and optimistic, contemplating a challenging world of old and new markets including China, "the greatest sales opportunity" of all, as he puts it.

Mr. Okuda, 63, took charge in August, and his first priority is his home market, where sales and profits have not been meeting expectations. He says "Our biggest challenge now is to maintain our domestic market share above 40%."

Dwindling profits since Japan's "bubble economy" burst four years ago are another problem area. With profits well below targets, Toyota has been forced to readjust sales projections downwards in line with disappointing performance.

Mr. Okuda, the first president outside the Toyoda family since 1967, has been with Toyota for 40 years and is an all-round car man. His hands-on management experience has extended into virtually every phase of Toyota's operations.

To begin turning Toyota's fortunes around, he is focusing on the domestic dealer organization, considered the best in Japan -- yet not good enough for him.

"What we're doing now is improving communications with our dealers," he explains. This includes offering them more incentives to increase sales, encouraging them to put more prospects behind the wheel for test drives (not yet a common practice in Japan) and spending an extra 20 billion [yen]($200 million) on advertising in the current fiscal year ending March 31.

Another priority: streamlining a company that he considers too diverse, with response time too sluggish. "What we'd like to do is simplify the organization and shift more responsibility downward," he says.

Look for changes in product line-up as well. Toyota was slow to catch on to the booming demand here for RVs, Japanese shorthand for a variety of vehicles from sport/utility vehicles to minivans. Mr. Okuda aims to increase the number of Toyota's body styles while reducing the platforms in such a way that "we can use the same platforms for a long time."

And despite significant domestic over-capacity, Mr. Okuda says Toyota has no plans to shut down a Japanese assembly plant.

He does not have a tight and tidy schedule for full recovery, but hopes profits by the year 2000 will average 6% of sales, up from around 4% currently.

Toyota, which exported 43% of domestic production in 1994, has been hit hard in past years by the soaring yen and welcomes the recent weakness because each change of a yen in the exchange rate has an impact of some 15 billion [yen] on Toyota's earnings. Mr. Okuda is counting on a rate of 100 [yen]=$1 in 1996, approximately the current rate.

A newer concern is the taste for foreign marques Japanese motorists have been acquiring, with imports now almost 1 out of every 10 car sales here. He sees import sales continuing to rise, but believes their growth rate is containable. A research institute estimates that if the yen rises to 95[yen]=$1, the import share will rise to 15%.

"This seems reasonable," says Mr. Okuda, noting that a substantial part of the total (23% in 1994) includes so-called "retros," or cars made by Japanese transplants abroad and shipped here.

He does not seem worried about the plans of Detroit's Big Three to multiply their car sales here to 100,000 each in the year 2000 because the volume is modest in a domestic car market of 5 million.

"The numbers are realistic if they exert the necessary effort. But, from my point of view, Big Three sales people do not try as hard as Japanese salesmen," says Mr. Okuda, who insists Toyota dealers are free to handle any foreign cars they wish to. "We do not control our dealers."

Toyota's arrangement with General Motors Corp. to sell 20,000 re-badged Chevrolet Cavaliers annually for the next five years (see Editorial, p.7) is a special case, flavored noticeably more by politics than economics. Mr. Okuda explains that "Selling Cavaliers means helping to solve Japan's trade problem with the U.S."

He reports that Toyota dealers are enthusiastic about adding a new and different vehicle to their lineup and "will do their utmost to sell 20,000 per year."

Across the Pacific in the U.S., Toyota sales these days are merely "okay" in Mr. Okuda's opinion, reflecting in part the less competitive pricing produced by the strong yen. Still, Toyota has ambitious plans for North America. (see A strong yen boosts transplants)

He explains that Toyota's new global strategy involves the development of safer, more fuel efficient, environmentally friendly, recyclable vehicles; offshore production capacity of 2 million units by 1998; and tapping growing new markets such as India and China.

In November, Mr. Okuda returned from his first visit there in seven years. His purpose: "To do my own marketing research" with particular attention to Tianjin Automobile Co., which already has a joint venture with Toyota affiliate Daihatsu Motor Co. Ltd. and thus is a likely entry point for Toyota vehicle assembly.

Tokyo theorists believe Toyota recently doubled its investment in Daihatsu to 33.4% to sharpen its wedge into China, where Mr. Okuda believes "car sales will expand explosively."

Meanwhile, Toyota's production shift overseas is almost as explosive. By 1998, two-thirds of all Toyota cars sold abroad will be made abroad, he says.

He concludes: "If we can maintain domestic output in the 3 to 3.5 million range, there will be no 'hollowing out' for Toyota."

He is encouraged by the ample room left for global expansion along with markets his company has not yet entered. So if Hiroshi Okuda has his way, a new "Golden Age" may lie ahead, at least for Toyota.