Toyota Motor Corp.’s Hiroshi Okuda, 67, left his post as president last June to become the chairman of Japan’s No. 1 auto maker. Since then, Okuda has plotted strategy for the Japanese carmaker, while chairing Japan’s employers’ association, Nikkeiren. In May, he will become the head of the Japan Automobile Manufacturers’ Assn. as well. Recently, he talked with Tokyo correspondent Emily Thornton about the future for Toyota. Here are edited excerpts from their conversation:
Q: What do you believe Toyota will look like five years from now?
A: In five years, the simple Toyota that exists today and makes new cars will be largely visible in other areas, such as finance and other services. Toyota will also be one of the top five auto makers in the world. Of course, we’d like to be No. 1, but not so much in terms of size as in terms of the quality of our operations.
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Q: How large a market share does Toyota ultimately want in North America?
A: Unlike in Japan, the population of the U.S. is growing. As a result, the number of people who will need new cars to go about their daily lives will reach as many as 500,000 to 1 million annually. So even if there is a slight dip in the American market, it could grow to a total market of as many as 20 million vehicles. We would like to sell 2 million of those vehicles. Right now, we have sold about 1.5 million.
Q: It seems that every day Toyota is announcing a new venture. How far do you think Toyota should diversify?
A: This depends on a company’s natural life span. Every industry has a life cycle. This may be the best time for auto makers. If we do not enter new businesses, there’s a chance that our company will come to an end. We’re proceeding with this sense of crisis in mind. Toyota always has a sense of crisis.
Q: When you became president of Toyota Motor in 1995, you stated that you wanted 10% of Toyota’s revenues to come from non-auto-related businesses. How do you evaluate Toyota’s efforts to diversify its business portfolio so far?
A: In the past several years, I believe the automotive business has accounted for 90% of our revenues. And our credit-card business and other financial activities, as well as telecommunications, have accounted for 10% of our business. I’m not sure how much that will change. But in the area of telecommunications, [Japanese] telecommunications carriers KDD and DDI will join to form a new company in October. In the next five years, we hope that business will really take off.
Q: How does this merger help Toyota?
A: We are most interested in working together with DDI to build a business in mobile communications and the mobile-phone business. In the future, we want to be able to offer interactive mobile communication in our cars.
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By GlobalData Q: In the past, other auto makers have diversified into telecommunications-related businesses and achieved limited synergies. Why do you believe Toyota will succeed?
A: We don’t believe that we have succeeded yet. But at least until now, there have been many players in this business, both large and small, and their stocks have been going up and down. Without a clear picture of the changes ahead in the future, Toyota has been investing in these companies. Toyota has invested in [Japanese telecommunications companies] KDD and IDO. And now those companies are joining with DDI. We’re combining all of these companies into one company. General Motors has not completed anything like this.
We own stakes in many phone companies, Internet companies, and in our competitors like NTT DOCOMO and J-Phone. We’ve been investing in many different places. But now we’re consolidating our operations under IDO. We haven’t sold our shares in the other companies, and maybe this would be considered insider information, but we’ll probably have to sell our stakes in NTT DoCoMo or J-Phone. We can’t go ahead without cutting off these ties. You can use a mobile phone both inside and outside of a car. This business will grow very rapidly, and I think there will be synergy between mobile communications and the car.
Q: Ford has said it would like to capture all of the revenues that go into a car. How do you compare Toyota’s strategy with Ford’s?
A: I’m not sure how much revenue we’re missing in each car sale, but it would be a good deal [to capture all of it], for example, in terms of used cars, parts, service, or finance. In the past, other companies took these profits away from dealers. That’s the situation. Now, we’re working to take those revenues back.
Q: Ford and GM have spun off first-tier suppliers like Visteon and Delphi Automotive. Yet there is discussion that Toyota hopes to create a holding company so that it can take greater control of its suppliers. Do you believe Toyota will gain a competitive advantage by pursuing such a strategy?
A: Right now, Japanese law makes it difficult to create a holding company. We’ll need to wait a year or two to pursue such a plan. There are two types of companies. One type provides basics for automobiles. The other type provides our most important components. We’d like to bring in suppliers with capabilities in producing engines, transmission, fuel-cell batteries, or other crucial parts. In the case of Visteon or Delphi, I haven’t seen their exact capabilities, but I don’t think Visteon has the capability of producing important parts such as transmissions or fuel-cell batteries.
Q: Recently, Toyota has entered several alliances with GM. But Toyota has said it’s not interested in acquiring a foreign auto maker. Why is that?
A: Toyota does not see any merit in that approach. And the demerit is that it’s very difficult to proceed with different cultures. We plan to go forward with Japanese companies like Daihatsu and Yamaha instead. As our group becomes larger, there will be merits in terms of the cost of procuring parts. But it will take over three years for us to harmonize our different corporate cultures. There are cases in which companies merge, but then they have to separate. Toyota does not want to enter such a dangerous situation. We are proceeding at our present scale.
Q: What do you consider the merits of your agreements to share parts with Volkswagen and GM?
A: The advantage is that for some parts we’ll be able to benchmark with these other companies to see if we are purchasing parts at the same cost or a higher cost. I believe we’ll see benefits from these arrangements in one or two years.
Q: How are you enjoying being chairman of Toyota?
A: I’m frustrated because I’ve become busier since I’ve become chairman. At the time when I resigned, we said that I would act as a chief executive officer and Fujio Cho would act more as a chief operating officer. But I don’t have time for any CEO responsibilities. I’m that busy.
Q: Recently, DaimlerChrysler raced ahead of Toyota to become the world’s third-largest auto maker by taking a stake in Mitsubishi Motors. How do you view your rapidly growing competitor?
A: I don’t think it will force Toyota out of business. I don’t have that kind of idea. But in terms of having these different cultures work together, I officially hope that this will work out well. From now on, my most difficult job will be serving as the chairman of the Japan Automobile Manufacturers’ Assn. from May. Until now, 11 or 12 vehicle makers have been members of this association, but from now on there will only be two or three vehicles makers with only Japanese capital. I think it’s going to be very difficult for us to decide how to proceed in this sense.
