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Katsuaki Watanabe
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Katsuaki Watanabe on Toyota

Toyota's president discusses the challenges confronting his company during a closed-door meeting in Tokyo - Part One.

By Bill Moore

The Imperial Hotel is a short walk through the Ginza District of downtown Tokyo from the Four Season's Hotel at Marunouchi where Toyota put up a handful of journalists they had invited to visit their research facilities in Japan. Not only would we get to drive the company's plug-in Priuses and their latest generation FCEV but also a small number of us would get a private session with three of Toyota's top executives, including Katsuaki Watanabe, the president, who took over the reigns of the auto giant in 2005.

With the five of us seated at a long row of tables and Watanabe-san facing us from an opposing row of tables, we were asked to introduce ourselves and say our publication. I have to say it was humbling and exhilarating at the same time to be among this elite group who represented the Wall Street Journal, the LA Times, the New York Times, Road and Track, and Bloomberg News. A pair of translators sat in a sound proof booth to our right, fielding our questions and Mr. Watanabe's responses in a session that lasted over 45 minutes.

I was able to capture most of the dialog on audio by placing my tiny digital recorder under the ear-piece of a spare translation receiver. While the quality isn't suitable for podcasting, I have endeavored to faithfully convey the gist of the questions and responses in the following synopsis. Moderating the event was Toyota's North American VP for corporate communications, Irv Miller.

Press Q&A Synopsis

  • Joe White from the Wall Street Journal led off by asking if Watanabe was concerned that Toyota had invested too much in U.S. production capacity; and was he considering "rethinking" focusing on markets outside the U.S. and Japan?

    Watanabe responded that he is not at all pessimistic about the U.S. market, which he believes remains a very, very important market for the company. He acknowledged that the sub-prime rate mortgage debacle and high gasoline prices have "made the market tough." However, he sees there is still room for growth and expansion in the future.

    He added that Toyota must continue to be sensitive to environmental, energy and safety issues in the U.S., while continuing to offer exciting vehicles to consumers. As to the question of production capacity, the company is constructing new plants in Canada and Mississippi. His team will also continue to evaluate other markets outside the US and Japan for growth opportunities.

  • The next question addressed criticisms that Toyota has lost sight -- in the U.S. market, at least -- of its role as an environmental and energy efficiency leader with the introduction of ever-larger gas-guzzling trucks (Tundra) and SUVs (Sequoia).

    Watanabe replied that it is not true that Toyota has lost sight of these goals. Energy, environment and safety are all "extremely important matters" for Toyota, and the corporation will continue to invest even more research going forward. However, he sees a need to also carefully consider the impact of government regulations like the CAFE debate.

    He sees the wider adoption of hybrid technology across more of Toyota's product line as a way to address concerns over energy and the environment, though he would not specify exactly when and on what platforms the technology would be implemented.

  • Given the gathering storm of outside forces from vehicle congestion in mature, urban markets to volatile energy prices, what does the head of Toyota consider the most serious threat to his company?

    After a thoughtful pause, he answered that while it might sound as if he is repeating himself, he sees the trio of energy, environment and safety as the most pressing issues he must address. However, he added a fourth, and that is the pace of ever-more stringent government regulations worldwide that continue to press companies like Toyota to keep its technology development ahead of those regulations. If it can't, it will not long survive and that is of deep concern to him.

  • In what was acknowledged as perhaps an "indelicate question", Watanabe was asked about the recent spate of senior executives leaving Toyota for its competitors. What's his reaction?

    He acknowledged that Toyota is aware of the criticisms being leveled at it and that the company and its leadership needs to take them seriously by not only correcting them, but also proactively addressing their causes as part of its corporate ethic and culture.

    As to the personnel issues within Toyota, Watanabe expressed his regrets that Jim Press, with whom he has worked for 37 years, has left for Chrysler. He stated that he regards Press as a "very good man", but that he also "feels very sorry that he left Toyota." However, Mr. Press made a decision and Watanabe respects that decision to "support the rehabilitation and restructuring at Chrysler." He added that he really misses him.

    While he is concerned about the head-hunting efforts of other carmakers to recruit away senior Toyota executives, he thinks it is more important to focus on the continued training and development of Toyota employees and managers from within. "We have to establish a robust education and training scheme and corporate culture in which we can develop very talented people." Toward that end, the company must invest time and energy.

  • When my turn came to ask my question, I asked what Watanabe would see as a replacement for America's much-debated CAFE standard?

    He replied that Toyota engineers would continue to work hard to develop technology that will allow Toyota products to meet current and future CAFE standards. However, beyond CAFE, he has a dream of a vehicle that makes the imposition of CAFE standard's moot, a vehicle that doesn't pollute, avoids accidents and "can go around the globe on a single tank of gas." He has charged his engineers to work toward that distant goal.

    In the meantime, there are various readily available options today, including hybrids, biofuels and even pure electric vehicles.

    As a follow-up, I asked that in addition to Toyota engineers developing greener vehicle technology, what role does Toyota have in also educating the consumer about the responsibilities they too share in purchasing these vehicles?

    Watanabe answered that it is Toyota's obligation to offer superior vehicles that consumer will want, but that the decision of what they buy rests in their own hands; though he offered a caveat that Toyota perhaps should do more to educate consumers who are less environmentally aware. However, Toyota's mission is to create vehicles that meet the three criteria of energy, environment and safety.

  • The next question was a logical follow-on, asking if the plug-in hybrid was the next step towards Watanabe's dream car and when would he expect to take that step?

    Toyota has received permission in Japan, the USA and Europe to begin testing its plug-in Priuses, but that the key as to when this promising technology can be offered depends on battery developments. He sees that the first step toward his dream car is Toyota's current hybrid technology, followed by plug-in hybrids. Beyond that, he sees the fuel cell electric (FCEV) and fuel cell hybrid (FCHV) vehicles as the next steps beyond those. He added that plug-in hybrids have "good potential to be offered commercially in the future."

    When asked when that might be, he responded that already the company's current set of development vehicles can travel upwards of 8 miles on electric power only and that future improvements in battery technology would extend that to 20-30 miles. Interestingly, he stated that his engineers think that in order to achieve this, the company has to look to something beyond lithium ion battery chemistry.

  • Given the obvious need for continued investment in R&D, the question was asked whether or not the company needed to increase its research budget as a percentage of its operating budget or whether it was considering partnering with others to help spread the costs -- a strategy taken by GM, Chrysler and BMW in developing their two-mode hybrid drive. [Incidentally, Toyota already spends $1 milllion dollars a hour on R&D worldwide].

    He explained that Toyota's annual R&D budget is just below one trillion yen. 80-90% of that is within Toyota Motor Corporation. That being said, he noted that continued development of advanced materials like those found in the 1/X carbon fiber concept car debuted at the Tokyo Motor Show the day before, may require TMC to partner with materials developers and manufacturers.

    This also would apply to developing advanced battery chemistries, in which Toyota may partner with a "powerful, capable company."

    "We may go into an alliance with these manufacturers," he stated. His first choice, however, is to exploit the engineering talent and capacity of Toyota as much as possible. "On the other hand, collaboration and alliance with companies that have relevance on that specific area of technology may become a reality."

    In response to a follow-on question, Watanabe explained that such collaboration would take place in the very early stages of the development of technology, but that as it drew closer to production, Toyota would seek to bring the technology in-house, in keeping with its long-held business development strategy.

  • The next question inquired as to whether or not he saw the need for a more unified organizational structure in its North American operations where marketing and production are separate companies, perhaps emulating the reorganization of it operations in Europe?

    Watanabe observed that the company has set up a R&D/design center in the US specifically to engineer cars for that market and that it works very closely with manufacturing and procurement. The marketing, sales and service side of the company, called TMA, is the oldest US-based arm of Toyota. Toyota's finance arm is a third and separate entity. The key to success, in his mind, is how smoothly the various levels of management in each communicate with its sister units. If they are communicating effectively, he doesn't anticipate a need for integrating them.

    What he does see as needing strengthening is the R&D/design component of the company's North American operations. He stated that the company is going to "dedicate a lot of effort in this area going forward."

  • With all the talk about very inexpensive cars for the masses in the developing world, could Toyota profitably enter this market and still maintain its standards for quality, environment, safety and efficiency?

    Toyota is, in fact, developing a plan to meet all those criteria in an inexpensive vehicle platform, but that what remains in doubt is the "enabling technology." Toyota is reexamining all the parts and components that would go into such a vehicle down to the air conditioner to see if it's possible to produce a low-cost alternative. He established a program in his first six months after becoming president to study just such a vehicle, reporting that the company has now achieved 80% of the goals it set in terms of cost reductions. The company is now working on just such a vehicle that incorporates those technologies, but that it isn't finished yet. He added there are many problems yet to be solved with the prototype.

    He noted that while he believes it will be possible to build such a vehicle profitably, it won't generate much of a profit margin.

  • TO BE CONTINUED...

    Times Article Viewed: 8302
    Published: 30-Nov-2007

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