CFO Kon

For the full-year forecast, we are aiming for 185 billion yen in cost-improvement efforts. Every year, we (usually) aim for annual cost improvements of 300 billion yen. Excluding increases in the cost of materials due to market fluctuation, 185 billion yen, which is a gross figure, comes out to about a net 200 billion yen, so the amount is smaller than in usual fiscal years.

Volume is the main reason. On a full-fiscal year basis, we see a drop in new vehicle sales by a little more than a million units. Cost-improvement efforts, of course, have been made at suppliers and the front lines of our operations, but still, it's difficult to see the positive effects largely because of the volume decrease in the first half.

Overall, our evaluation at this third quarter is that we do see a recovering trend when we look at the numbers of each quarter; 13.9 billion yen in operating income in the first quarter, 506 billion yen in the second quarter, and 980 billion yen in the third quarter, respectively.

This is the fruit of all continuous efforts made together with our stakeholders, believing that we simply focus on doing what we should do, based on the guideline of 8 million units of vehicle sales and 500 billion yen in operating income that President Toyoda put forth at the beginning of this fiscal year.

When I had a discussion with President Toyoda about the financial results, he asked me to convey our gratitude to our stakeholders around the world and the 5.5 million people working in the automobile industry (in Japan) on his behalf.

Behind these results, there are strong efforts that have been made for a long time since the global financial crisis and made in the past year during when we reviewed and continued what we should be doing. We believe the results came about due to working diligently.

CFO Kon

It’s difficult to explain briefly, and this was not something we have achieved just by ourselves. We strongly feel that this has been a collective effort by our dealers and suppliers, as well as all other people in the automotive industry such as logistics companies and people working at gasoline stations, who have committed to “driving economic recovery” as our industry’s mission.

We did things that we thought were the basics, things that we should do. We introduced 10 new models last year and nine this year as we had originally planned. That was easily said, but I think it required very hard effort to launch new models as scheduled. But we were able to make that a reality.

In Japan and other markets, when production was halted in the spring, plant members made efforts in kaizen activities to promote cost reduction at Toyota’s plants as well as suppliers’ plants. Some members worked on making masks and face shields.

As a result, we were able to continue our operation with large volumes while keeping our fixed costs lean when vehicle demand and production levels were recovering in the latter half of the year.

During these times, we took action to help society and the economy keep rolling. For example, we helped companies improve productivity in the production of medical protective gowns, and we are now trying to help with vaccine freezing storage processes and vaccinations.

In the United States and the United Kingdom where vaccinations have started, we are engaged in improving the overall process by using our Toyota Production System (TPS) know-how to reduce the lead time and long lines at vaccination venues.

CCO Nagata

In spring when the pandemic started, we had no idea how much sales we could achieve under the situation. But President Toyoda set 500 billion yen in operating income and 8 million units in sales as guidelines.

In our Japan sales business, of which I am in charge, we created a guideline for each region and each dealership. We thoroughly followed up on the progress and the situation of sales and inventory levels every week, and we continuously revised the guidelines.

We focused on continuing these basic things.

Also, since the popularity of each model is different, some of the vehicles made in certain plants were not as popular as others in terms of volume. So we had to close the gap in operation levels among our plants. We frequently planned campaigns and measures to boost our sales.

In the meantime, one thing that was pushed forward globally was online sales. We have considered and tried new ways to reach customers and take orders in a contactless form and provide customers with affordable services using our financial products.

And our dealers around the world have made efforts to serve customers more thoughtfully, such as providing disinfection services to customers who came for maintenance so that they could drive their vehicles with peace of mind.

During this with-COVID period, I think we were able to take actions little by little after sincerely thinking about what customers want and what they are worried about.

If I add a little more to the efforts of employees and stakeholders, I think that the change in communication was the biggest factor that contributed to pushing people forward.

Specifically, President Toyoda, who is of course our top executive, has changed how he communicates with employees and all other stakeholders, taking the advantage of online communications and tools that have become common.

CFO Kon

First of all, regarding semiconductors, there is a tight demand/supply situation globally and we are in the same situation. However, we do not see a significant decrease in our production volume for the near term.

We do see risks. That is why we continue to communicate with suppliers and monitor the situation, every day, every week, and every month, and not just with Tier 1 suppliers, but also with semiconductor makers.

Regarding the outlook, we hear some views that the shortage may continue until summer, but I don’t think it will be that long in our case, based on the information I have learned from our purchasing divisions and suppliers.

Learning from lessons when our supply chain was destroyed in a past crisis (in the Great East Japan Earthquake in 2011), we have looked into multiple tiers of our suppliers and tried to create a system that enables us to find out which suppliers and what parts are at risk in the early stage of a crisis.

When we confirm situations with suppliers, we provide suppliers with a sure and reliable production plan for the following several months and sometimes a three-year forecast.

We have communicated with suppliers based on such trust and reliable information for a long time, so I think that is one factor.

Secondly, as part of our business continuity plan, or BCP, we had secured one to four months of inventory for semiconductors.

And thirdly, we have made sure to communicate and align closely with suppliers, not just Tier 1 suppliers but also Tier 2 suppliers and so forth.

I heard from our Purchasing Group that it has been communicating with suppliers via teleconference as many as 10 times a day when the parts supply situation is severely tight.

I think that our policy of placing orders with reliable figures has become the basis of our close relationship with suppliers in difficult situations.

CFO Kon

Relationships with our suppliers were mainly with Tier 1 suppliers. Regarding suppliers further beyond Tier 1, we relied on the Tier 1 suppliers to take responsibility.

However, this year, many suppliers have been struggling. Production volume rapidly dropped but also shot up to a very high level due to demand recovery. So, through our Tier 1 suppliers, we worked with more than 10,000 Tier 2 suppliers to confirm their business and profit status.

This is a completely new kind of relationship with suppliers.

Also, to most suppliers, we had an excessively high level of quality standards. Even if we did not request so directly, suppliers would deliver perfect products only by leaving out products with a very tiny scratch, for example, thinking that Toyota wouldn’t accept them.

So our engineers visited the supplier worksites to discuss with suppliers so that both sides could confirm and agree on the acceptable level of quality.

Previously, to suppliers, I think Toyota members were rather invisible and people to be afraid of. But engaging with them face-to-face changed that perception, and I think that it contributed to accelerating cost-reduction efforts conducted together with suppliers.