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Green Vehicles – Japanese Edition

Prius: Toyota's Green Parachute?


Toyota for the first time ranks as the world's number-one automaker, yet it faces declining market demand. The hybrid Prius is its only model bucking that trend. Is the eco-friendly car the shot in the arm Toyota desperately needs?



Prius: Toyota's Green Parachute?

By Han-Yi Chang, Hsiao-Ping Sun
From CommonWealth Magazine (vol. 424 )

Early this year, news that Toyota was losing money raised some eyebrows: Could the unbeatable Toyota model really be bankrupt?

Starting in May, however, Toyota has had to bring all its firepower to bear at its Aichi Prefecture plant, even bringing in 1,000 employees from other plants and swelling the Aichi facility's workforce to 4,400 employees, cranking out one vehicle every 57 to 66 seconds, to cope with the flood of orders pouring in.

In the two short weeks following the May 18 launch of the third-generation gas-electric hybrid Prius, Toyota received orders for 140,000 of the vehicles.

With global demand for cars withering and General Motors filing for bankruptcy, rising sales of environmentally friendly automobiles have provided a bit of welcome good news and excitement to an otherwise depressed industry.

On a drizzly, chilly May 8 morning in Tokyo, more than 300 representatives of the world's media gathered at Toyota corporate headquarters waiting for outgoing CEO Katsuaki Watanabe to deliver the last annual financial report of his tenure, thereby handing in his "graduating" report card.

Akio Toyoda, grandson of Toyota founder Kiichiro Toyoda, took the helm starting in June.

Cameras flashed wildly as Watanabe emerged, but his expression remained serious.

Even with Toyota eclipsing GM to become the world's largest automaker, there was not a lot to be happy about. With the global financial crisis contributing to contracting global automobile demand and partner companies going under one after another, Toyota has had to ramp up promotion and marketing expenditures to stimulate sales.

Compounding matters has been the appreciation of the yen. According to an estimate published in the Nikkei Weekly, every yen the Japanese currency appreciates against the U.S. dollar costs Toyota 400 million yen in operating profit.

Prius Bucks Declining Market Trend

Looking at the numbers, Toyota's vehicle sales last year declined 1.35 million units from the previous year, and operating revenue was down 21.9 percent from 2007, for a net operating loss of 461 billion yen, the company's first red ink in 71 years.

Japan was beginning to have doubts that the "Toyota myth" was collapsing.

The only consolation has been Toyota's stellar performance in the market for environmentally friendly vehicles.

In particular, sales of the Prius have continued to climb since its launch and have to date topped one million units. Even with the impact of the financial crisis, which has driven down sales numbers for all other models across the board, the Prius has managed to buck the trend.

As an NHK report put it, the Prius may just be the "savior" Toyota was looking for to get it out of a tight spot.

Not only has it pulled sales numbers up, this is the kind of car that will become the next best hope for the future of the auto industry. A number of the world's other automakers, including Honda, are producing their own hybrids, but it is Toyota's Prius that has assumed the pole position in the market.

For its environmental technology development, Toyota pursues a strategy that is "multi-directional" in principle, working in areas including electric vehicles, fuel cell vehicles, bio-fuel vehicles and hybrid vehicles. It is the hybrid that has emerged as the core element.

Toyota began developing the Prius in 1993 and finally launched the first-generation Prius into mass production in 1997 after four years of R&D. Leading the industry in bringing the world's first gas-electric hybrid vehicle to mass production has helped solidify Toyota's image as an "environmentally pioneering company."

Hybrids may be environmentally friendly and save gas, but their high price tags have hampered their mainstreaming.

Toyota brought down the sticker price for a bare-bones third-generation Prius from 250,000 yen to 200,000 yen to stimulate sales and expand market share. It seems to have worked. According to figures for new car sales from the Japan Automobile Dealers Association, sales of Toyota's new-generation Prius in May, its first month on the market, eclipsed those of Honda's hybrid Insight, launched in February.

Although Japanese media have characterized the Prius as the savior of Toyota, the company itself clearly recognizes that its ratio of eco-friendly cars to overall production remains paltry.

Looking at last year, total global production for Toyota Group (including subsidiaries Daihatsu and Hino) was around eight million vehicles, with environmentally friendly vehicles numbering 430,000 (including 285,000 Prius models), accounting for only around five percent of the total.

Electric Vehicles Key to Next Competitive Wave

While continued strong sales of the Prius are, of course, a fine thing, Toyota must look further down the road and consider how to develop an even more advanced eco-friendly car for the next generation.

Fully battery-powered electric vehicles are the next prize, and the next battlefield on which the world's automakers will contend.

The batteries are the most expensive part of such vehicles, often accounting for as much as two-thirds of total production costs. With batteries moving from supplementary power source to primary power source, automakers will have to seek the support of other technology companies for joint development. Link-ups between Toyota and Matsushita; Mitsubishi and GS; and Nissan, Renault, Fuji Heavy Industries and NEC, for example, have all been driven by the quest for battery technology.

With all the major automakers aggressively pursuing electric vehicles, Toyota has not necessarily drawn the winning hand yet.

As the market heats up this summer, Mitsubishi's i-MiEV and Fuji Heavy Industries' Stella will hit showrooms. Toyota's plug-in hybrid with rechargeable lithium-ion batteries will not be available until next year.

It is still too early to tell whether the race to conquer the green car market will ultimately be won by the fastest out of the gate, or whether it will be a test of stamina that goes to the most steadfast competitor. Toyota, already the world's number-one automaker, has staked out its territory in the eco-car niche. How will the "young prince" Akio Toyoda open new horizons for the company amidst a tough period of contracting market demand after taking the reins in June? The key to future success may just lie in one idea: "environmentally friendly."

Translated from the Chinese by Brian Kennedy

Chinese Version: 環保普銳斯 豐田的救世主