Toyota NA President Inaba: Hopes for profit in 2011, NUMMI could be dissolved

Three weeks into his new assignment as president and chief operating officer of Toyota North America, Yoshimi Inaba came to Detroit to talk about the state of the business. This is Inaba-san's third stint working for Toyota in North America after returning to Japan in 2003. This spring the senior management in Japan asked Inaba-san to return to North America and help turn the suddenly ailing giant around.

Those who have been watching Toyota in the past decade have observed the company grow at a tremendous and seemingly inexorable rate. When the big crash hit in 2007-8, Toyota proved to be no more immune than any other automaker and recently recorded the first full-year loss in 71 years. As one of the biggest markets for the company, the North American operations clearly played up part in that loss and will play a part in returning the company to profitability. Read more after the jump.

[Source: Toyota]

Inaba took on his new position at the same time that Akio Toyoda took over as CEO of the company in Japan. Inaba explained that Toyoda has highlighted just a few major high-level focus areas for returning to profitability. As Toyota has grown over the past two decades it has encountered the same problem that every other huge company faces. The bigger the company, the harder it is to manage. To that end, Toyoda doesn't want a major restructuring of the company. However, he is pushing more decision-making downstream to the various regions around the world. This should help speed up several processes and allow regions to focus on local needs.

Inaba-san acknowledged that while Toyota products have many fine qualities, they are "not exciting enough." As an avowed car-enthusiast Toyoda-san has declared that Toyota needs to "re-ignite passion for the products." With a few exceptions (2000GT, the Celicas, Supras and MR2), passion seems to have long been in short supply for most of Toyota's mainstream products which in part might explain their widespread appeal. Inaba-san did not say anything about reviving any such products, but rather implied that some of that passion would be imbued in future products.

When asked about how the prolonged slump in Japan might give some lessons to the company about the current downturn in North America, Inaba highlighted the differences between the two markets. He explained that Japan, with its well developed mass transit system, poses a different problem for automakers. People there need personal transportation to get around, while in North America, except for a few urban centers, personal transportation is much more of a necessity and a quicker recovery is likely.

Inaba-san told the gathering that recent data indicates "there is a little bit of a pulse of improvement, consumer confidence is up." The situation remains difficult however, as people worry about their jobs. Inaba expects the US market to stabilize to a 10+ million unit sales level by the end of this year and hopes to see that rise to a 12-13 million unit level within the next couple of years. He didn't speculate on when or if we might ever return to the days of 17 million units.

Inaba hopes to have Toyota North America in a profitable position again by the end of the company's 2011 fiscal year in March 2011. Helping to get the company there will be increasing the flexibility of the plants allowing them to build more models. For example, the Princeton Indiana plant will soon be able to build body-on-frame Sequoias and uni-body Highlanders on the same line. Allowing individual plants to build more models will allow the company to respond to market shifts much more rapidly. Inaba also wants to increase the proportion of NA sales built here above the current 60% to help guard against currency fluctuations.

One place that seems unlikely to get new production however, is the NUMMI joint venture plant in California. Inaba said that "dissolving the joint-venture is a very strong possibility" and Toyota is in negotiations with Motors Liquidation Co. about the factory's fate now. He called the chances of Toyota taking complete control of the plant unlikely.

On the subject of Scion, Inaba called it "a very good attempt and a good business model which will be valid and viable in the future." However, he acknowledged that product freshness is a key to the Scion strategy and that is something that he will be trying to address moving forward. Inventory of Scions is low at the moment and he wants to maintain a market-pull strategy rather than pushing the vehicles out. Inaba has set a goal of "reviving the Scion spirit."

Another product area that Inaba doesn't see much near-term potential for is battery electric vehicles. In spite of the enthusiasm from the likes of Nissan, Mitsubishi, Ford and GM, Inaba says, "we don't see in the near future, battery electric vehicles being mainstream." Instead, Toyota will focus on plug-in version of existing hybrids like the Prius and fuel cell vehicles. "We don't see the major advances in battery technology" that will be required to make EVs safe, reliable and affordable. Inaba stressed that "in terms of technology, we do not believe that we are behind, but acknowledged that Toyota is not ahead either." He did acknowledge that if competitors EV's take-off, Toyota would have to look carefully at the situation, but was reticent about being willing to take a large loss on EV's. "We believe hybrid technology" and it is "more realistic for at least the next four-five years.

Inaba told the group that "unless the US comes back to profitability, it is really unlikely for Toyota to be profitable globally." He acknowledged that competitors are catching up in terms of quality and as vehicles get better overall, it is harder for everyone to continue getting better. Inaba, "sees signs that technical problems and recalls are coming down." Not so long ago a "GM bankruptcy and sub-ten million unit market were unthinkable events" to Toyota. However, everyone has seen the light and is moving aggressively to repair the damage.