Future Vision: Toyota Balances Market Share and the Environment

Future Vision: Toyota Balances Market Share and the Environment

With his feet planted firmly in the realities of the present-day world, Toyota Motor Corp. president Fujio Cho looks hopefully to the future as he guides the global automaker in its pursuit of continued growth-expansion that will come, he says, because of an aggressive environmental stance. By Katie Sosnowchik

After 42 years with the company, Fujio Cho knows Toyota -- inside and out. He easily recites the facts and figures that has earned the company its ranking as the world’s third largest automaker in terms of vehicles sold: operating income has increased by 400% over the last 10 years despite harsh economic conditions in the Japanese economy; income has risen steadily over the long-term; net sales have soared by 1.7 times in the past decade; total assets and number of employees have doubled. And, as of 2001, Toyota had achieved over 10% share of the global automotive market in terms of sales. It manufactures autos in 27 countries and regions worldwide, and sells vehicles -- 5.54 million cars, trucks and buses in the fiscal year that ended March 31, 2002 -- in more than 160 countries. Brand names include Toyota, Lexus, Daihatsu and Hino.

Cho also knows the automobile industry -- an industry he believes is still maturing and thus will continue to burgeon. He foresees that motorization will accelerate in emerging markets such as China and India and it will become possible for virtually all people around the world to enjoy the high degree of mobility afforded by automobiles.

And therein lies the challenge in which Cho is also equally versed: striking a balance between the environment and the market growth that is anticipated.

“When considering the potential environmental impact resulting from the motorization of emerging markets, the need for higher levels of environmental response is apparent,” he wrote in Toyota’s recently released 2002 Environmental Report. In a speech given at the Detroit Auto Show in 2001, he drove home the issue even more forcibly: “Toyota and the other automakers will not survive the 21st century unless we pull together now and find ways to limit the car’s impact on our earth. We need to make this new century the start of a unified effort to better tune the automotive industry to the needs of the earth. It is more than just good business for Toyota; it is the key to the future of our industry and a necessity for a healthy future for people everywhere.”

After years of working fairly quietly on environmental initiatives, Toyota gained global visibility with the 1997 launch in Japan of Prius, the world’s first mass-produced gasoline/electric hybrid vehicle. The Prius made its North American debut in June 2000 and is now the best-selling hybrid sedan in the U.S. market, with accumulated sales surpassing 30,000 units. Toyota projects sales of about 17,000 cars in the U.S. for the 2003 model year.

The Prius has since been joined with two other hybrid offerings: the Estima Hybrid minivan, which came out in June 2001, and a mild hybrid version of the Crown luxury sedan, released the following August. Beginning in February 2002, Toyota also began offering the RAV4-EV to retail customers in California. This zero emission, electric version of Toyota’s RAV4 SUV was first made available nationally in 1997 through a special fleet lease program to major corporations and utilities.

Next up: limited marketing of a fuel cell hybrid sport utility vehicle in Japan and the U.S. around the end of this year. Initial plans call for Toyota to lease 10 units in each country during the first year to entities that have access to a hydrogen-supply infrastructure and after-sales service.

A milestone came in April of this year, when Toyota announced that total cumulative sales of its hybrid vehicles topped the 100,000 mark. With nearly 103,000 units sold by the end of March 2002, this represents a 90% share of the world hybrid vehicle market.

In a unique collaboration between the public and private sectors, Toyota worked with the city of Irvine, CA, the Irvine Co. and the Orange County Transportation Authority to launch ZEV·NET (Zero Emission Vehicle -- Network Enabled Transport), a pilot program that offers participating commuters zero and low emission vehicles to get from the Irvine Transportation Center in the Irvine Spectrum to their place of employment. Once there, fellow employees share the vehicles for short trips during business hours. At the end of the business day, the vehicles are driven back to the transportation center, where they are used by a returning Irvine resident for the commute home.

While its vehicles are the most tangible element of its environmental initiatives, Toyota also concentrates heavily on achieving environmental progress behind-the-scenes as well. Company executives cite a holistic approach to environmental stewardship and commitment to continuous improvement at every stage of the life cycle of its products, from design to dismantling. For example, in its 2001 North American Environmental Report, programs are categorized in four sections: developing cleaner vehicles; making manufacturing cleaner and more efficient; greening sales, distribution and service; and recycling end-of-life vehicles. A sampling of its stated goals include: by 2005, reduce energy usage by 15% per unit of production from the 2000 base year, which in turn decreases CO2 emissions by 15% per unit of production; within two years, develop a database to track greenhouse gas emissions associated with sales and distribution operations; implement material and design strategies that will increase the recyclability of vehicles; and meet a goal of a 95% vehicle recovery rate by 2015.

In fact, the spread of recycling and “zero-waste” philosophies throughout society is one of four major influences Cho identifies as shaping society in the future. He emphasizes that automakers will be expected to show environmental awareness and commitment to environmental protection and recycling. One area in which Toyota is active is the use of bio-technology and is currently in the final phase of adapting a proprietary biodegradable plastic made from sweet potatoes for use in vehicle parts.

Immediately following a North American investment briefing in September in New York City, Cho sat down with [email protected] to talk about Toyota’s public commitment to environmental progress. During the conversation, he explored some of the areas he feels Toyota is making advancements in its endeavor to become what he describes as a “leader of global regeneration.”

What and who drives the environmental policies at Toyota?
I take initiative in coming up with basic guidelines. How to implement those is up to the executives and managers in each division. There is so much we need to accomplish. Over the years, we have valued the environment and have always considered our efforts in this area to be very important. If those efforts are now considered part of the culture, then I am delighted it is so.

How does Toyota partner with its suppliers in the area of environmental actions?
There are many areas where we work with suppliers; but in terms of those areas such as hybrid systems and fuels, and in particular state-of-the-art technology, our basic policy is to marshal all of the resources of our suppliers. So we mobilize their capabilities and work together with them in this regard.

Is there a policy regarding outside vendors and their progress toward environmental initiatives?
We have what we call a “consolidated environment management initiative” in which [we] call upon other companies to participate. For example, we have 66 companies in Japan and 61 companies overseas involved in these activities. We indicate our environmental policies to these companies and call upon them to implement or execute those policies as well. The same applies to our dealerships. We call on our 44 domestic sales companies and 26 overseas distributors to likewise participate in our activities regarding the environment. These companies are all called on to formulate their own voluntary environment action plan, which they are expected to implement. The specific content of those plans should include, for example, CO2 emission reduction and implementing zero plant waste programs.

We believe that ISO 14001 is very useful in carrying out, in a systematic way, environmental and conservation activities through the establishment of an environmental management system, thus enhancing the transparency in this area and encouraging the participation of all employees in those endeavors. Therefore, we urge outside companies who participate in our consolidated environment management initiative to obtain certification under ISO 14001.

Many of our plants are more or less concentrated in one, rather broad geographical area, and many of our suppliers are located in the vicinity. So, not just in the environmental arena, but in the safety area and other areas as well, Toyota takes the initiative. We don’t really force our suppliers, but we urge our suppliers, to participate in these kinds of activities. This has been conducted for many years; but especially in the past 20 years or so, the environment has been emphasized as the major issue. So Toyota has encouraged suppliers to join hands with us -- by Toyota showing technological initiative, we believe they will follow suit.

What advancements in the environmental arena show the most promise?
In the final analysis, I believe the fuel cell is going to be the most promising technology in this area. But we have also been dedicating a lot of efforts into the development of hybrid systems. We consider this system to be the “core” technology in environment-related area. We are now trying to apply hybrid technology to the fuel cell as well and working very hard on the development of what we call a “fuel cell hybrid” vehicle.

Do you have an anticipated time frame?
We have already sold over 100,000 units of hybrid vehicles. Especially in the United States and Japan, we think we can increase those sales figures up to approximately 300,000 units per year by 2005. With respect to fuel cell vehicles, according to our engineers, it will take another 10 years for fuel cell vehicles to be mass produced to have any kind of impact on the market. But we simply cannot wait that long; therefore, on a trial basis, we have decided to produce 20 units of such vehicles to be leased evenly in Japan and the United States -- 10 units in Japan and 10 units in the United States. Our intention is to lease those vehicles because they are considered a test.

Is it a younger consumer who wants these kinds of vehicles?
Not necessarily, if you look at the existing customers of Prius or those who are interested in it. It appeals to many age groups.

Quite a number of customers purchased a Prius because of their interest in the environment. But some younger people purchased a Prius because of their interest in this brand new mechanism that they can’t find on other conventional vehicles. When the car is powered by battery or when it is fueled by gasoline or when the energy is being regenerated -- all of those functions are indicated on the panel. This draws the interest of younger people.

There is even a Prius Club that has been formed on the Internet -- a forum for exchanging information among drivers of Prius cars. Many of those people are very interested in the mechanism of the vehicle.

Does Toyota, as an automaker, have a responsibility to educate consumers about the environmental impact of the products it makes?
Yes, but if I say that we should educate consumers or enlighten consumers, then it might give the impression that Toyota stands at a higher plane looking down on those customers, and that’s not how we feel. Historically, when selling our vehicles, we receive customer feedback. Out of this feedback, we have been nurtured, we have been trained by the customer, so to speak, which has resulted in higher performance or more affordable price levels that we were able to reach.

The same holds true with respect to the Prius. Customers have given us feedback about how they feel about this vehicle. At the same time, we carried out various public relations and advertising campaigns, which in a sense was an educational experience for both ourselves as well as our customers. In our campaigns, we talked about the importance of the vehicle in regard to the environment and conservation. Through our advertisements, I think, customers became more and more interested in this technology. But it was not a deliberate effort to educate.

We do hold an environmental forum every 12 to 18 months; the last one was in 2001. Yet, even going back to 1992, we carried out a campaign featuring Dr. Dolittle, called “Let’s Talk,” a dialogue in which we talked very frankly about the negative environmental impact of vehicles on society. Our engineers were part of these activities, which eventually led the way to the development of the Prius. Even if the automobile technology is changed or improved, unless the interest factor supporting that undergoes a similar change, a newly-developed vehicle may not be feasible in society. So we need to carry out a dialogue with society, especially in the area of the environment and developing technology -- that was behind our decision to hold these environmental forums.

What differentiates Toyota from its competitors?
One differentiating point I believe is that Toyota is engaged in a very broad area of environment-related challenges, trying to find solutions based on our own in-house capabilities, which actually requires a substantial amount of natural resources. So we have been making substantial investments in research and development in those areas.

How can government play a role in accelerating momentum?
Offering incentives to the buyers of these vehicles is very important in achieving broader acceptance of these vehicles.

When we talk about fuel cell vehicles, that will require refueling stations for hydrogen. Governments will need to be fully aware of these requirements in order to develop the infrastructure. That’s why we have decided to market 20 units of the fuel cell vehicle to sell in Japan and the United States by the end of this year. Once they are on the market, the need for refueling stations will become apparent. Bearing that in mind, we intend to tenaciously talk with the government about infrastructure development.’

Tell us a little about the agreement between Toyota and Nissan regarding hybrid development.
Our stance is that environmental technology is not something that one company should monopolize in the market. Rather, for us to be able to benefit from a greater volume of production which, in turn, leads to better prices for customers, we need to have more customers using this technology. When Nissan approached us with their desire for using our hybrid technology, that was in line with our willingness to share as well. It covers a 15-year period and calls for us to install our hybrid system into Nissan vehicles here in the United States by 2006.

Are you hopeful for additional agreements?
We wouldn’t go out of our way looking for customers for our hybrid technology, but if anyone came to us wishing to use our technology, we are open to negotiations. Of course, all the car makers in the world are studying and researching fuel cell and hybrid technologies. But if all of them come up with their own proprietary methods, that could result in substantial wasteful activities. Imagine if all of those different technologies or systems were converged into one or two technologies, which could become the global standard -- that would go a long way toward reducing the cost of the parts and components, which I think is very desirable.

Which of Toyota's environmental accomplishments are you most proud?
I believe that our engineering and technology people are at the leading edge of environmental technology -- that is a great source of pride. These people are fully aware of the importance of their work, and they are passionate, dedicated.

This article first appeared in the Nov/Dec issue of [email protected] magazine.