TOKYO — Toyota is cranking up more cost controls to keep up profits as it pays for next-generation automotive technologies.
And no amount of crimping is too trifle for Japan’s biggest automaker.
The company is now dispatching factory maintenance teams to its suppliers to keep their lines glitch-free. It is examining its own products for signs of costly overengineered features that customers don’t need. And it is conducting a companywide suggestion-box campaign to drum up employee ideas for more savings.
Toyota is squeezing every last drop of cost out of its system.
“Let’s say that there was one drop of paint left in a paint can — can you not use that last drop of paint somewhere?” asked Executive Vice President Mitsuru Kawai last week to illustrate the mission. “That would be maybe a fraction of a cent in savings for that drop. We would like to spread that kind movement to all the plants across the world.” As obsessive as the effort sounds, it appears to be helping.
Toyota Motor Corp. last week announced a 14 percent surge in operating profit in its latest quarter, ended Sept 30. The company credited cost cutting as a major engine in delivering a 45.0 billion yen ($417.1 million) boost in the period.
Continuing the aggressive efforts will keep the company on track to reach a robust 8.1 percent operating profit margin this fiscal year, Toyota predicted in its earnings outlook.
Kawai, who oversees plant supervision, general administration and human resources, said the race is now on to dial up efficiencies. The company has extended the suggestion-box program to 53,000 employees so far, and nearly 47,000 have submitted cost-cutting proposals.
Toyota also is sending its in-house experts to suppliers to help them improve maintenance routines to reduce expensive line failures and repairs.
It is also targeting what it calls “excess quality” as a potential way to shave costs.
“When we say ‘excessive quality,’ that means Toyota specifications were very stringent, and suppliers had to discard components and parts which were really very good, but did not meet Toyota’s standards,” Kawai said. “That’s a problem. We want to review these things.”
The company realizes that cost cutting alone will not deliver sustained profit growth. Toyota’s latest earnings increase also was underpinned by rising sales and a better mix of fatter-margin vehicles such as crossovers.
Those positives helped offset a big hit from unfavorable foreign exchange rates.
Operating profit increased to ¥662.3 billion ($6.14 billion) in the July-September period, as net income edged ahead 1.2 percent to ¥592.0 billion ($5.49 billion).
Revenue grew 4.5 percent to ¥7.64 trillion ($70.8 billion).
In announcing the earnings results last week, COO Ken Kon said cost control and better sales efforts delivered improvements across the board.
North America, Toyota’s biggest market, emerged as a profit engine in the most recent quarter. Kon said the company saw North American improvements through tighter cost controls, more targeted incentive spending and a portfolio shift to crossovers and light trucks. Toyota has directed spiff spending to vehicles that actually need it, while dialing it back on those that don’t. A rollout of higher-margin vehicles, such as light trucks, also helped.
“We are promoting activities, such as carefully and strategically examining the allocation of incentives, strengthening model-based cost-reduction activities, making efforts to improve the supply of SUVs and light trucks, improving the productivity of each of our manufacturing plants and reducing fixed costs on companywide scale,” Kon said in a briefing.
Toyota now expects about $417 million in additional cost reductions, compared with what it had predicted as recently as August.
That will help Toyota achieve a 14.2 percent increase in net income in the current fiscal year, despite an anticipated 2.7 percent dip in operating income.