Building great cars isn’t enough if those cars aren’t generating the margins needed to keep a global automaker healthy. Toyota CEO Kenta Kon knows that lesson particularly well, having watched the company navigate one of the most difficult periods in its history.
Toyota is an industry giant, yet its operating profit has declined over the past two years. At the same time, Chinese manufacturers are applying greater competitive pressure in important markets, making efficiency increasingly difficult to ignore.
Kon consequently wants Toyota to become more disciplined about how much it spends building cars. According to Automotive News, however, that doesn’t necessarily mean customers should expect cheaper-feeling interiors or useful equipment disappearing from future models.
Instead, Toyota wants to find savings in places owners are unlikely to notice. The objective is to lower costs while preserving the quality, features, and reliability customers actually experience.
Toyota Doesn’t Want Cost Cutting To Feel Cheap
One approach involves simplifying components themselves. Toyota can redesign certain parts to use fewer pieces or switch to different materials where doing so reduces manufacturing costs without noticeably changing the finished vehicle.
Seats are one example, with Toyota already exploring different materials as part of its efforts. Faster vehicle development and improvements throughout the company’s value chain could provide additional savings without requiring obvious decontenting.
Stripping equipment or replacing visible materials with cheaper alternatives can quickly undermine a vehicle’s appeal. Toyota’s challenge is finding efficiencies behind the scenes while ensuring buyers still feel they’re getting the same value.
Kon Is Focused On Toyota’s Breakeven Point
Automotive News reports that Toyota’s breakeven volume—the number of vehicles it needs to sell to cover its costs—has increased over the past two years. Bringing that figure under greater control could give the automaker additional breathing room when demand weakens.
Kon isn’t simply pursuing the lowest possible breakeven volume, though. He said that Toyota needs to maintain a level that allows its suppliers to continue operating even during particularly difficult periods.
That means aggressive cost cutting cannot come at the expense of destabilizing Toyota’s enormous supply chain. The strategy instead calls for improving efficiency across the business while maintaining enough volume to support the companies Toyota depends upon.
Toyota Has Been Here Before
Kon’s emphasis on financial discipline is partly rooted in the 2009 global financial crisis. He was serving as executive secretary to Akio Toyoda around that period, when Toyota suffered its first operating loss in decades.
That experience helped shape Kon’s approach to cost management. Now sitting in Toyota’s top job, he faces another rapidly changing automotive industry, including intense Chinese competition and major technological changes.
Toyota isn’t in financial trouble, and Kon’s strategy is to make each vehicle cheaper to develop and manufacture in ways customers hopefully never realize happened, not to strip its cars down to boost short-term profits.