Toyota Motor Corp, the world's second-biggest auto maker, is eyeing a new cost-saving strategy that would rely on a fundamental shake-up in the design of car parts to offset a sharp rise in raw materials prices, a top official said on May 30. A detailed strategy has yet to be mapped out, but it would involve looking for ways to develop and produce car parts differently - such as by lumping certain components together into one module - instead of shaving costs for each component under a previous method.
"Let's take nuts and bolts, for example. What if we were to develop components that don't require screws? That's the kind of thinking we're after," Mitsuo Kinoshita, senior managing director and chief purchasing officer, said in an interview.
"We've pretty much reached the limits of what we could do under the previous strategy. Under the next method, we're taking a brand new approach and asking our engineers (and suppliers) to go back to the basics of vehicle development," he told Reuters at Toyota's headquarters in central Japan.
The policy, dubbed "VI" for Value Innovation, was drawn up in March and comes at a time when per-vehicle cost savings at Japan's top auto maker have more than halved from just two years ago, hit by a surge in steel and other materials prices.
In the business year that ended on March 31, Toyota saved 21,600 yen ($200) in costs per vehicle sold, compared with 34,230 yen in the previous year and 48,031 yen in 2002/03.
Kinoshita said there were no numerical goals under VI. But he said he hoped the steps to be taken, which will be reflected in cars sold from 2007, would help bring per-vehicle savings beyond the low levels of last year.
"For the next few years, the best we can hope for is to offset the high materials prices. But we have very high hopes for VI beyond 2007 and eventually we'd want to do better than that."
After years of double-digit jumps in operating profit, Toyota posted a mere 0.3 percent rise to 1.672 trillion yen ($15.47 billion) in the year to March as the impact of cost cuts dropped to 160 billion yen from 230 billion yen in the previous year.
Cost-cutting is one of Toyota's biggest fortes, helping it become the world's most profitable car maker in terms of absolute earnings. Under the previous strategy, called CCC21 (Construction of Cost Competitiveness 21), Toyota cut 1 trillion yen in costs - about 30 percent of the value of parts it buys in Japan.
The vast savings, in turn, have enabled Toyota to build in improved features in its cars at prices unchanged from preceding models, Kinoshita said.
The company's ultimate goal is to keep feeding the cycle of offering attractive products, thus increasing sales volumes and reaping bigger economies of scale for further cost cuts, he said.
Along with the VI framework, Kinoshita, who will become an executive vice president next month, said Toyota would aim to cut costs by manufacturing cars in a way that would raise the utilisation rate of steel when cut into various parts.
"Right now we only use about 60 to 70 percent. If possible, we'd like to raise this by another 10 percentage points," he said, noting that even a 1 percentage point increase would translate into huge cost savings.
There was also more room to slash costs by applying the CCC21 method overseas, where Toyota purchases another 5 trillion yen worth of parts, he said.
"We haven't been able to do much at all vis-a-vis our overseas production," he said.
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