Following his presentation on the day of the financial results announcement (see the 20-minute long speech here), Toyota President Akio Toyoda participated in a question and answer session where he expressed a lot of his honest feelings.
What types of questions elicited such honest responses?
For someone like Akio Toyoda who is currently facing a crisis larger than even the global financial crisis, why would he say “I find that I am extremely calm?”
Please find the QA session’s record here, with the editorial team at Toyota Times highlighting points of emphasis and clarifying the original minutes based on a transcript originally from the English interpretation, an interpretation which may not have been able to fully account for all the intended nuances Akio wished to convey. The intent here is to restore that which had been “lost in translation”.
<QA Session from the Toyota Motor Corporation Financial Results Press Briefing on Tuesday, May 12, 2020>
1. The significance of publishing the next fiscal term’s forecast was “to set the criterion or basis to get things going”
I have a question for President Toyoda. First of all, what is your opinion or thoughts on the financial results for the term ending in March (2020). And, about your forecast...many companies have refrained from giving a forecast for the running term, however you (Toyota) have made a forecast. What is the basis of the forecast? Would you say that it is based on the trend of demand? Or perhaps in anticipation of results?
Yes. Starting with your first question, you are hoping to learn about my thoughts on the financial results for the term ended in March 2020 and the figures forecasted for the running term – that is your first question, right?
So, for your first question, first of all, please let me express appreciation to all those involved in helping to keep the financial results announcement as we had originally scheduled.
If it was a normal year, it would be taken for granted that as this time period comes around we would make our financial results announcement. Then, in the following month, we would have our General Shareholders meeting. But this year…with the COVID-19 crisis, things like these meetings that were taken for granted are not being able to be kept to their usual schedules under these conditions, so, first, I want to say that I have a deep appreciation for all of the people involved including the employees of the company.
And now with that, to summarize my thoughts on the financial results, as Mr. Kon, our CFO, mentioned in today’s first session, in the results we had a decrease in the sales volume as well as a decrease in income and profit; however as for TPS and our manufacturing costs, important themes for us, our challenges have become extremely well defined. As we have been able to identify what must be done more clearly, I think that we can make further progress in these improvement activities.
However, this so-called COVID-19 shock, if you will, appears as if it will have by far a much larger impact than what we saw during the global financial crisis. Nevertheless, in our forecast for the running term, although the number of units sold will decline at a magnitude more than following the global financial crisis, this time, somehow, we anticipate being able to remain in the black. Because I previously declared that we would like the auto industry to be the best engine to revive the economy following a return to normal, the situation is that we are now prepared to start those activities from here.
In that regard, I think that it will come to be said that these results served as “the starting point where we will be reborn into an all-new Toyota”.
And now, while we wanted to show the demand trend, actually, we had a lot of discussions internally.
Because we are an OEM, we can only have the ability to make cars if first we have customers that will buy them. Under those circumstances, by Toyota making cars, our suppliers can get their factories back up and running and regional communities will also be able to get going.
The automotive industry has an immense impact on the economy. It is said that for every vehicle (1) that is made, it has an impact of “2.5” on other manufacturing. By getting the automotive industry back up and running, it will likely have a large positive impact on helping to get various aspects of living/life back.
Because we are in these critical circumstances, we need to talk candidly about the situation as it is now, and show the criteria.
By having set this criteria, my friends and I in this vastly extensive automotive industry will be able to make some sort of plan, some sort of preparations.
Moving forward, we believe that it’s important to share information on what we have come to understand in a timely manner, and, by doing so, even in the midst of not being able to make a full forecast, by managing the problems (abnormalities) as they arise, we will unite our hearts together with everyone so that we can achieve something close to our original plan.
2. What should you continue to protect? The real world.
And another question is: currently we are in the COVID-19 crisis, which is an unprecedented crisis for all of us. For this era, together with this crisis, we are also seeing a once-in-a-century profound transformation in the automotive industry. How are these going to change the industry, and/or Toyota? On the other hand, what are things that you are not going to change? What should you be protecting?
For your second question, I understand it to be about what changes COVID-19 will have on this once-in-a-century transformation period for the automotive industry and for Toyota, as well as about what types of things that won’t change and what things need to be protected…
Actually, upon receiving the emergency guidelines from the government, I have personally taken measures to avoid traveling beyond (Aichi) prefecture by hunkering down and working at our Aichi executive training center. Something that I have come to learn through this is that I have been able to reduce about 80 percent of my transportation time, 85 percent of the people I meet with, about 30 percent of my time for meetings, and about 50 percent of the documents that were being prepared for meetings.
Up until now, when employees have come to meet me, they all make documents, and if it is a leader, then they have someone make it for them, and then from the time of that conversation, the data is then one or two weeks old by the time it reaches me.
But now, using television calls, and by connecting face-to-face instantly, even without the documents, we are able to discuss the challenges and concerns they have at that time.
From this change, the amount of documents has been reduced by about half, and with this reduction of effort for material preparation, I hope that we can use the newly found time to invest into our future, to focus our resources for the future of this new Toyota and this new way of working.
Also, while I have been in our training center in Aichi Prefecture, I have also been able to have frequent contact with people like our region CEOs outside of Japan, other people from other companies outside Japan as well as the leaders from other companies. Up until now I have thought it to be inconsiderate of me to not go and see these people directly, meaning that I tried my best to have in-person face-to-face meetings, and this is what I thought was appropriate.
However, in doing that, physically it was only possible to meet after one month, but now, for example, over the course of one day, anyone, even a top leader has five or ten spare minutes in a day. So I have found that I can talk about the things I want to talk about with the people I want to talk about it with, focusing only on the content that I want, another added benefit.
Based on this experience, being able to quickly quit things during this opportunity, and being able to quickly change the way things are done, and, being able to use this opportunity to further press the accelerator to actually achieve a new Toyota is something that is happening more rapidly, I believe.
Therefore, as for your question about what we will continue to protect, I think that will be the “real world”.
We have a “genba” or frontline where work gets done. That genba is real, and what we have been able to cultivate in our genba over these many years is something that no digitization or telework system, no matter how advanced they become, can ever replace in the real world. It is the real world where people have work to do, doing the work only people can, and where Toyota people capable of further kaizen or improvement are trained. With this ability to improve, I would like to make Toyota into a company that all people can have high expectations from into the future.
3. Why are you so calm in the midst of this COVID-19 crisis?
As you said in your presentation, so far you have overcome several crises, and COVID-19 is the current crisis. Thinking of your past experiences overcoming the other crises and what you have learned, what learnings can be used to help you overcome the current crisis?
I think that first and foremost my response would be that “I am feeling calm”. Why am I calm? Well, for the last 11 years since the global financial crisis I have been engaged as the president, top executive, and the one in charge of managing the company.
During that time, there have not really been any peaceful years, as every year, year over year, we have witnessed and/or experienced some type of large, drastic change or event that is said to be one that occurs only once-in-a-century. This has gone on for 10 years, and I never thought that my term as president would last for 10 years, and it was not something I had aimed for.
At the time I became president, at least what especially was my impression was that almost no one inside or outside the company seemed very happy that I was made president.
The only ones that accepted me were those at the genba. My impression when I became the president was that almost all employees, especially those working in technical and administrative positions, would work at their own pace and on their own theories of how it should be done no matter what you ask of them – they didn’t make an effort to change the status quo of their work.
In the 11 years I have served as president, every year we have faced various crises. During those crises, I was able to help show the way in some way through the crises when there were no answers, and, though gradual, people from the technical and administrative areas started to listen to me, sympathize with me, and now I feel that the number of people that are willing to work together with me is increasing.
Especially now, as I meet with and encounter those employees, I feel like I am having increased opportunities to say ‘Thank you’ to them.
So, I think that the calmer I am, the calmer things are within the company. In that environment, in contrast to the time when we had to quit everything to return to the black during the global financial crisis, this time, even though the drop in volume will be greater than it was at that time, it appears that we will be able to maintain a positive income, meaning that we can continue investment into the future.
As such, under those circumstances, I hope that we continue to place an emphasis on the types of relationships were we can say thank you to each other, and with that relationship where we can say thank you together, we should not change the idea that we are always working for something or someone other than ourselves as Toyota.
4. What are the priorities that shouldn’t change during a crisis?
And another topic related to this crisis – What is the top priority for management, what are the focus points that you are working on now?
And in terms of COVID-19, what is your prioritized area in managing the company in overcoming the crisis of the COVID-19?
As for what we consider high priorities during this time of crisis, Toyota priorities are established in order: first is safety, second is quality, third is volume, and fourth is making profit.
As time changes, there may be priorities that need to be revisited. However, it is precisely during times of crisis like this that the priorities are important. I think the top priority issue is to train Toyota people with those priorities as their foundation.
And, as said in my thoughts on the financial results, I think these results will serve as the starting point where we will be reborn into an all-new Toyota.
With that meaning included, currently, to be accepted in this new era, and to for Toyota to further grow in this new era, I think we have been given a huge opportunity to be reborn into a Toyota that others can depend on. Therefore, during this COVID-19 crisis and with that thinking, I would like to continue to lead the management of Toyota.
5. Accelerating into a contactless society and the reality of becoming a mobility company
Thank you for today, and for your really great remarks. Since I am restricted to only one question, I would like to ask about the attention that cars are getting for their private space that sets them apart from public transportation. Maybe what people are looking for in cars will change, or they may be seen in a new light?
Saying that as a lead-in, if interest actually increases in cars because of that, sales of cars online or other such means are already in the spotlight. In those circumstances, I think there may be a need for additional tools because people will be interested in alternative means besides filling out paperwork and using telephones. What thoughts does Toyota have about that?
For example, if the cars are used for commercial purposes, that might be fine, but if it is a GR or Lexus, people might be hesitant to purchase because there may not be enough ingredients to entice them. Whether to buy or to seek after it, when you think about how to move people’s hearts for purchase, do you have any ideas on your mind about sales in the future? Or, do you have any thoughts about what needs to change for the future or not change?
Thank you very much for your question. After I make my comment, I would like to have Mr. Terashi (Operating Officer) who is attending here with me today, answer from a technical perspective.
First of all, as we are experiencing during this COVID-19 crisis, I believe we will be moving more rapidly toward a society that has less physical contact. However, even though it is less physical contact, that doesn’t mean that all cars will become automated or autonomous vehicles. People will still want cars that they can enjoy more and live more fully, in other words, Fun to Drive-type cars, cars that make people wonder if someone is driving even if the system is automated. There will be good and not so good drivers still, so I would like to aim for automated driving.
I think that we’ll see a heightening of personal mobility needs, so I think that what I said a couple of years ago about Toyota changing from an automobile company to a mobility company is much closer to becoming a reality.
At the beginning of this year I announced “Woven City” which is a living laboratory where people will be placed at the center. I’d like to stop and take a look at the word “MOVE”. It is about moving people from place A to place B, but “MOVE” can also be about moving people’s hearts. So what does it mean for a person to be “moved” by “moving?” That is what I want to build cars for, I think.
As for the sales side, at the same time we have just started our initiative to sell all models in all dealer channels in Japan. This means that no matter which Toyota dealer you visit you will be able to purchase any of the models in our line-up. Also, we are offering “KINTO”, a fixed-cost subscription service, as we look to prepare various options for customers to be able to choose from.
Among the options, for models like GR and Lexus, I think there is a story here that needs to be told. Maybe a story about the joy of these cars, more than a product story, something beyond the actual specifications of the vehicles so that everyone can share the joy and happiness of owning such a vehicle. With that I’d like to have Mr. Terashi, sitting next to me here, add some comments.
Please allow me to make some additional remarks. As President Toyoda just mentioned, in this crisis we have all felt and experienced what it means to stop moving.
Especially, we have learned that there are limitations as to what you can do in the virtual world, and just how much the real world enriches our lives – this is something that I think everyone is experiencing. Thinking from this perspective, I think that people will start considering various ways to use, diversity and carry things, leading to an increased variety of products that will be wanted by society.
However, one of the directions we are moving in is CASE. Using these new types of technologies to enrich people’s lives – these technologies are sure to advance even further in the future.
As a reference, it has now been one year since we announced that we would provide our hybrid patents free of charge. It turns out that hybrids are still something that people want to have, and, as of now, we are signing contracts for the years 2024 and 2025 to provide an annual volume of about 500,000 hybrid electric vehicles.
Thinking about these numbers, we understand what kind of difficulty or struggle people are having related to technology. We would like to work with one or even more partners to help resolve these issues. I look forward to continued discussions – thank you.
6. The priority is to become an automotive company that can be relied on in any country
I’m very impressed by your commitments, such as Toyota’s commitment to 3 million capacity or production in Japan. Toyota is truly an anchor of the national economy here. But as a proponent of this “home planet” philosophy, can Toyota make, maybe today, a similar commitment to some of the other markets where you are an anchor of the economy?
For example, the United States – last year you produced about 1.2 million vehicles there. Is Toyota ready to make a similar commitment to the capital and the personnel and the human resources development that you’ve invested in these other countries? Especially the United States, where you are an adopted home-town player.
Currently, Toyota’s production is around 9 million units and how we have come to here is that in the initial phases it was all done by domestic production in Japan and we had exported to the other markets, that is where we started.
I think it was around the start of the 1980s, and from around that period, we advanced overseas production. Now, we have 3 million for domestic production (in Japan) and we produce about 6 million units overseas.
Even in that situation, our thinking is that we want models that sell well in those markets to be produced in those markets. Based on this philosophy, we have increased the overseas production ratio. In all of the markets that we enter, we aim to become the best in town automobile company in those communities. This is the same in all the regions where we execute our activities.
Japan is the same, and as just mentioned, whether it is the US, Europe, China, Asia, Africa, or South America, when we are blessed with the opportunity to produce cars in those regions, we aim to become the best in town company, so that everyone will be happy that they have Toyota in their community.
Because we produce automobiles, when we build a finished vehicle assembly plant in the region, at the same time we need to build our supply chain. So the foundation for procurement will have to grow together with our plants. That is a necessity for us to have production.
Ultimately, that becomes 3 million units in domestic production and the rest are made overseas. When you include parts procurement, I think we still have yet to go in order to become the best in town in all these regions.
As for the US, let’s use Camry as an example. The Camry produced in the US, for example, has the highest local procurement ratio for parts in the country. Because the procurement is localized within the US, we are able to participate with the car in the NASCAR series, which is limited to cars that “Made in America”. I think we are the only maker that is not considered by the Americans as an American manufacturer that participates.
This is the meaning, the way of thinking. As for Japan, production expanded to a volume of 3 million units, and, after that, as we shifted to overseas production, I felt it was important to protect this level of production in Japan, and why I emphasize that volume of vehicles
But, for overseas production, rather than committing to a certain volume amount, we want to first think about what kind of company that region needs, so we can become the kind of automotive company that can be depended and relied on. That will be our first priority, and, then, as a result, the production volume might increase in that market, if it is something that would also be welcomed by that region, and we could mutually move that direction.
7. Planting seeds for the future to continue pressing forward
As President Toyoda just mentioned, Toyota is at the starting line to be reborn into a new Toyota. So my question is: Will this change the way that Toyota makes investments or uses its money?
In the materials distributed by Toyota, the amount allocated for R&D in the current running term appears to be roughly the same level of investment as the prior fiscal year, of about JPY1.1 trillion, even despite the profit and revenue declining. Why will you continue to invest that much? In terms of the contents or breakdown of the investment will anything change? You have several large projects, like Woven City. Will there be any changes to the amounts allocated for projects like this that you have already started?
Thank you for your question. As Toyota is reborn to become a new Toyota, you are wondering if there will be any changes to the contents of some of our activities, especially things like investments. From my perspective, starting from last year, we started to plant seeds for the new Toyota. For these new projects, we will continue to push the accelerator pedal.
But Mr. Kobayashi, next to me here who looks after our spending, may have a different answer, so I’d like to invite Kobayashi-san to give an answer to your question.
Actually, before the financial results announcement, there were many discussions with executives that included the president. For the fiscal year ending in March 2021, we have forecast JPY500 billion, a figure that was unimaginable at the time of the global financial crisis.
As mentioned, a lot has happened in the 11 years of Akio’s presidency. From his guidance we have been able to get where we are today. And things have gotten better. The president is the only person who had the experience of the financial crisis. So, we had to stop our all our reflections on it. As a company we are always talking about sustainable growth, a going concern.
Based on that, one of the things learned was that one thing you cannot stop is development. The reason you cannot stop this is because it is an investment in your future.This is the kind of investment that you ultimately should keep, one that needs funds to support it.
In order to do that, you need cash on hand. During the global financial crisis, we only had JPY 3 trillion on hand; this time, we have been able to raise it to about JPY 8 trillion. I still feel it is a little lower than it should be; Apple, for example, has about JPY 20 trillion or more…
So, of course, companies will experience ups and downs, but anything for the future will be necessary because, by having sustainable growth into the future, we can help make the world more enriched. This is the reasoning discussed by President Akio Toyoda, which we follow as executives. You asked about the smart city, Woven City project, and also our R&D investment, and these will not change
However, I am watching how much we spend, so if I see a lot of wasteful spending, I will cut it, so that we can have a better prioritization. At the time of the COVID-19 crisis our prioritization is more focused than in the past, so, looking for the future, we will have more discussion among the top executives to continue to prioritize how much we spend and for what.
8. We must review of our definition of ‘Genchi Genbutsu’
Please allow me to ask a question from the perspective of change. Earlier in the president’s remarks, it was mentioned that now is the chance and opportunity to change actions. So, in this COVID-19 era, there is talk about a new normal or a new way of life. One of Toyota’s core philosophies is “Genchi Genbutsu”, or going to the actual site and looking at the actual goods. Will this change?
This is a very difficult question for one of the last questions. I think we need to clarify the definition again of Toyota’s ‘Genchi Genbutsu’. Until now, we have placed importance on going to the actual site work takes place, or the ‘Genchi’, and it was done as a matter of course.
As an example, even as we review our products, our policy is that we must have the product in front of our eyes or we can’t accurately assess it. It was something no one ever questioned until now. However, in just the past month, we have been looking at products more through images via computer monitors.
This was a new thing for me. At first, I wondered at what timing I confirm the product, at what timing do people consult me and ask me for my comments. So, I think at certain stages, it is fine to see the product through the screen, although there will always be a time that you will have to see the actual product.
For example, if there is a need to apologize, or if you have to have consultations with a certain person, I think in these kinds of cases, face-to-face contact is probably necessary. That intimacy will help you to understand the emotions, and the temperature of how things are in your feelings. These are the kinds of cases where I feel it will still be necessary to go to the site to see the person, or to see the product.
When reviewing a product, the purpose of going to the actual site, going to the “genba”, is to feel what has changed. Understanding what has changed is important. If I have to look at a product through this screen, then the first thing I should do is confirm what changed – the part that people want to show me. While talking with them, I want to look at them – how do they look? How do their eyes look? How are they feeling? Some things can be only felt when you are at the “genba”. So for the kinds of things that can only be felt from the actual products or the actual people, that is the type of work that should be done at the actual working site, or “genba”. I think we need to review our definition. Instead of using “Genchi Genbutsu” everywhere, we need to clarify what is necessary to do “Genchi Genbutsu” for, as well as what may not require it.
9. In this crisis it is not “threat” that has increased, but “thanks”
In last year’s financial results announcement, President Toyoda was asked what he saw as the biggest threat. The answer was “That our team members think that Toyota is doing well”. Now, with this new normal, what threats does an all-new Toyota face?
Last year, I did say that the biggest threat was people thinking that Toyota was doing well. However, speaking of new threats, or I guess, rather, more to talk about how I feel – I feel extremely calm. Instead, I think that I am having increased opportunities to say ‘thank you’ to all kinds of office employees, knowing that they are working their hardest. More than a threat, I want to look forward to more opportunities for me to express ‘thank you’ to people as I move around.
If the opportunity for me to say ‘thank you’ goes away, that’s the time when I will be complaining to myself more often than now, and that mindset will lead me to see more threats.
Therefore, including the way I work, I want to create an environment where we can say thank you to one another, and further enhance our internal company relationships, as well as relationships with our suppliers, dealers, and regional communities. If we can have more friends, that would be great. So rather than looking for threats, I want to instead talk about the expectations that I have.