Toyota Looks Ahead: At 2008 CAR Management Briefings Seminar

Bob Carter
Group Vice President and General Manager, Toyota Division
Toyota Motor Sales, U.S.A., Inc.

August 14, 2008 Traverse City, MI

"The Collaboration Zone"

Thanks, Dave and Good Morning!

By a show of hands, how many of you think things will get WORSE in the next two years?

OK...I understand...today's economic headlines can lead many of us to feel that way.

Now...how many of you think things will get BETTER in the next two years?

Fantastic!

Do you guys want a job?

I don't know about you...but when facing hard times...I want to work with people who are positive about the future...who know tough times create opportunities.

Because...when it comes right down to it...how we THINK about the future determines our course of action...and our results.

And preparing for the future is what I want to talk about today.

Like anyone who's been in this business for awhile, I've seen a bunch of ups and downs.

Everyone can live with the ups...but when the market turns south...the TRUE movers and shakers of this industry come together and develop ways to improve.

That's what this conference is all about...and I'm glad to be here with you.

Together, I'm confident we will find ways to help all of us in "Transcending Turbulence" that's swirling around our industry.

You notice Dave Cole was pretty clever in choosing that theme for this conference. He didn't say "Tame the Turbulence" or "Ride Out the Turbulence". That would indicate...that at some point...the turbulence might go away.

Instead, he's calling for us to "transcend" it...to rise above it...because turbulence will always be a part of this business as it reacts to the highs and lows of social, political and economic trends.

Things are always rising, falling... or changing...creating turbulence.

Turbulence is tough and unpredictable. But it's also exciting and challenging. And, if we work hard, it can bring out the very best in us.

And that's what I'm proposing today...that we bring out the best in our thinking to move us forward during the rough turbulence we're experiencing this year.

It seems like a double barrel "Perfect Storm" right now.

Many of you are with auto suppliers and you're seeing your companies being caught between rising costs and slumping orders. It can seem like a no-win situation.

You can't absorb the cost increases...you can't pass them on...and the economic downturn puts your current production is at risk.

When Ford is considering 4-cylinders for the F-150...GM puts Hummer on the block...and Toyota is slowing down production...things are seriously out of whack.

So where do we turn for help?

Well, we turn to each other.

As an industry, we cannot let automotive suppliers...the very backbone of this business... collapse at a time the industry needs them the most.

Today, the automotive supply industry produces two-thirds of the parts used in vehicles and even more will be expected as we enter an era of smaller, cleaner, safer, more efficient vehicles.

At Toyota, we depend on more than 500 supplier locations in North America to provide our 13 plants here with $30 billion in parts...materials...goods...and services per year. And it's the same story throughout the industry.

As automakers...it's in our best interest to promote healthy and prosperous suppliers...because frankly...we can't make it without them.

So how do we do that in times like these?

The only way to survive the current economic challenges and the even more critical regulatory challenges that will define our future...is to work together.

We have work together on creative solutions that benefit our ULTIMATE customers...the people who rely on our products everyday to move them forward in life.

And those people are speaking in a loud voice about what they want...they're calling out to the auto industry for four cylinders and 30 miles per gallon.

It's true. 50% of the motor vehicles sold in May and June were powered by four-cylinder engines...the first time that's happened in the modern history of the auto industry.

That sort of shift rattles every auto company and it means we're looking for our supply partners to be quick-footed in helping us make the needed changes to the supply chain.

NO auto company can go it alone any more. We're in the collaboration zone...folks...and it's in our best interests to work together for the good of our customers and society.

Look...at the end of the day, we work for our customers...and they want change and our government wants change. We can fight it...or we can adjust and adapt to the new order.

And with costs rising, energy shrinking and environmental concerns rising, we HAVE to respond quickly.

There's no more timeouts...the game is on the line here.

We have to radically revamp our lineups...create cleaner technology...and work with others to develop new energy, new fueling stations and smarter roads.

And that can only be done through collaboration, innovation and taking risks.

Great ideas will not only rescue us from the current downturn, they'll help us meet the even greater challenges that lie ahead.

New CAFÉ standards...global warming proposals...and Zero-Emission Mandates are right around the corner...and frankly...our industry is not ready.

Customers expect us to provide reasonable solutions to these issues and we've been slow as an industry on the up-tick. It's time to change that.

The future will belong to those suppliers and those OEMS who effectively work together and generate the best ideas. It's that simple.

OK, along about now, I hear you saying, "Sure all you big OEMs say you want collaboration and the best ideas, but you're impossible to reach and you won't listen to our good ideas."

OK...fair enough...and that may have been true in the past.

But that was then...and this is now. Our backs are against the wall and we ALL need help to get better. YOU have great ideas...bring'em on.

Now I can't speak for other manufacturers, but I can tell you that Toyota is fully open to new ideas. We will listen... we will review them at the highest levels...and we will work with you as a close partner if we agree to collaborate on an idea, product or service.

Toyota's philosophy has always been to work closely with suppliers and do whatever WE CAN to make it a profitable relationship.

Let me give you a recent example.

During development of our full-size Tundra pickup, we began searching for unique features for the truck that would wow customers and exceed expectations.

To get the best ideas, we put the word out among suppliers.

A new supplier...Multimatic...answered the call with a damper-style system for the tailgate. Since dimensions of the new Tundra had increased dramatically, it was important to find a way to make it easier for customers to open and shut the bigger, heavier tailgate.

Mulimatic had the right product and the ability to produce the part...so we placed our first high-volume order with them.

Why did we entrust the handling of a complex system on such a vital product with a new supplier?

Because Mulimatic did their homework...they had submitted other ideas to us over the years...and they invited us to their plants to show us their methods.

Even better, they used our feedback to modify their product, upgrade their quality checks and apply the Toyota Production System to their workflow...all before we made any commitment to them.

In short, Multimatic's persistently positive attitude proved that they wanted a long-term partnership rather than a short-term business deal.

And this partnership has met all of our expectations.

In fact, is there anyone here today from Multimatic? ...I'd like to acknowledge their efforts and thank them for the partnership...no...OK...they must be out coming up with new ideas.

Now, with Tundra production cut back, you might think Multimatic won the battle and lost the war. But the full-size pickup market will recover and continue to be a viable segment and this supplier will profit along with Toyota as it rebounds.

So, I can tell you...without hesitation...that Toyota is definitely interested in supplier ideas... and we're willing to work with those who bring us good ones.

To find out more, I urge you to visit toyotasupplier.com or talk to us at supplier industry events. I think you will find we are quite open to new ideas...and I'll bet other OEMs are more open than they've ever been.

And it's critical to propose your best ideas NOW as we deal the current economic slump and start grappling with the difficult regulations of the future.

So, where does Toyota see the industry going in the short term?

Well, we're in for a rough patch.

I think we were all hoping for a recovery that looked like a "V" on a chart... meaning the market would go down...then rebound fairly quickly.

But instead, we think the recovery will be shaped more like a Nike swoosh...with gradual improvement in 2009...and then steady progress into 2010 as our economic fundamentals regain solid footing.

We have to realize, that many of these events...while painful...will stimulate remedies that help prepare us for a stronger economy and healthier consumer finances in the future.

And ... we're still quite bullish on the industry's long-term outlook.

Just look at the U.S. population growth. It's the BEST in the developed world ... and WILL BE for some time.

America recently passed the 300 million mark in population and we'll add another 32 million people in the next 12 years.

That's like adding another Florida... New Jersey... and Maryland...COMBINED.

That growth... plus a stronger U.S. economy...will drive us to new heights of productivity and sales.

We do see a time...in the not too distant future...that annual auto sales WILL reach 17 million vehicles again...and probably go higher.

It will be a new day for us...but a DIFFERENT day because of the MOMENTOUS changes being driven by new regulations and the desire for people to drive cars that conserve fuel and help the planet.

Sure high gas prices are a huge motivator, but nearly every report we see these days points to a major shift in consumer thinking.

People want vehicles that are cleaner for the environment...use less fossil fuel...and produce fewer greenhouse gases.

If we want to remain a viable industry in the 21st century, we MUST respond to those needs.

We need to rollout more hybrids...and continue to perfect ethanol...clean diesel... electric cars...fuel cells...and other alternatives.

I know that's easy to say, but I'm proud to tell you that...at Toyota...we're putting our money where our mouth is.

Among other things, we're working on start-stop systems...highly efficient, compact 6-speed transmissions...and an eco-driving switch that conserves fuel by monitoring and controlling functions like gear-shift timing and air conditioner settings.

For hybrids, we're working on smaller, lighter components to bring costs down... plug-ins with lithium ion batteries for fleet customers in 2010...and a next-generation battery we hope will perform even better than tomorrow's lithium ion cells.

We're also working on ways to produce ethanol from crops that won't compete with food supplies...including...would you believe...YEAST!

I thought that would get a RISE out of you...

Sorry, it was there and I had to go for it...

And hey...if the yeast doesn't work out...we can always use it to brew some beer!

And we're not alone. ALL major automakers and suppliers are working on ways to meet the demands of a world running low on oil and high on greenhouse gases.

We need to help and encourage each other and band together on solutions so we can show society this IS an industry with a heart...and a future.

And ... at this point...we shouldn't rule out anyone or anything that might help.

In fact, there are lots of fascinating ideas out there right now...maybe you've seen some of them.

I'm talking about: - satellites beaming clean solar power to earth... - variable geometry camshafts... - making ethanol from leftover heat from nuclear power plants... - and developing designer organisms that will churn out clean-burning hydrogen.

In Southern California...where I come from...they're even talking about turning sewage into energy...or...as we like to say..."poop into power"...

Seriously, a local sanitation district plans to siphon methane gas from waste holding tanks to create enough hydrogen for filling 50 fuel-cell cars per day.

Kind of gives a new meaning to the saying, "When you gotta go...you GOTTA GO!"

All these creative ideas have potential, but my personal favorite is algae. You know...the green, mossy stuff you see in ponds and pools...it's yucky, right?

Well, it just maybe one of the keys to the future.

Sapphire Energy, an upstart firm in San Diego, is developing a process that uses algae...sunlight...carbon dioxide...and non-potable water to make "green crude" that can be converted into ultra-clean gasoline and diesel.

Now whether or not any of these ideas ever make a huge impact is not as important as the fact that we ARE creatively looking at any...and all...solutions to the challenges we face.

So let's use the tough times to bring out the very best in our ingenuity and to ignite the full talent and power of this industry. Together, we can face...conquer... and eventually prosper...from ANY adversity. Well, we've covered a lot in a short amount of time, so let's review our key challenges and possibilities.

First...the current economic turndown will last longer than we'd like...But we will work through it ...and business will get much better...so let's not let negative attitudes slow our progress.

Second...formidable challenges beyond this downturn will severely test our mettle. How we deal with CAFÉ regulations...zero emission mandates...and global warming will surely define our leadership in the 21st century.

And third, the only way we can survive...and thrive...is to collaborate, share our best ideas and build alliances that will blossom and endure.

Which brings us back...full circle...to what I mentioned in the beginning...that our attitude about the future makes ALL the difference.

If you believe things will get worse, you're likely to take a negative, counter-productive attitude towards work.

On the other hand...If you believe things will get better...you'll work diligently to make that happen...and in the process...open up new horizons.

It's not mind over matter...its human nature.

So I ask again...no need for a show of hands...how do YOU feel about the future?

Is it full of hope and promise... or helplessness and despair?

You know...the truth is...we can't control the economy...or the government...or what people want to buy. But we CAN control how we "respond" to them.

We can choose to TRANSCEND the turbulence.

So...together...today...let's start a trend for the better.

Let's start focusing on our best abilities...and possibilities.

Let's work more closely together for the greater good of our customers...our industry... and society.

And let's go forth from this conference with a renewed spirit to inspire others to CONQUER...rather than fear...the future.

It's time for a new beginning...and WE are the hope for the future.