Toyota's U.S. CEO says $100,000 flagship Lexus is coming

By AUTOMOTIVE NEWS


"In the long run, every product will have a hybrid power option," says Yuki Funo, CEO of Toyota Motor Sales U.S.A. "How soon it will happen is still unclear."

Like his predecessors, Toyota Motor Sales U.S.A. CEO Yuki Funo spent time in America before taking his current job. He was assigned to Toyota's U.S. sales arm from 1997 to 2000.

Before rejoining Toyota Motor Sales U.S.A. as the boss last summer, he oversaw North American operations from Japan. Earlier in his career, he had responsibility for Toyota's business in Oceania, Asia and the Middle East. He earned an MBA from Columbia University in 1976.

Funo, 57, spoke with Automotive News Staff Reporter Mark Rechtin about the challenges the Toyota juggernaut faces in America.

How large can Toyota Division grow?

For Toyota Division (including Scion), we can keep increasing volume by growing with the market. But we can increase market share as well. It won't be a drastic or sudden surge. But historically, our average increase is 0.5 or 0.6 points of share for the past six years or so. Certain years, such as if we're introducing strong models, maybe we could reach a percentage-point increase in share, but then the following year we come down by 0.4 or 0.3 points. Since 1996, we have been increasing share by almost a point a year.

Will you add dealers?

We like to take a conservative attitude in terms of increasing the number of stores, but there are certain realities for service and parts. So our capacity should be increased. That suggests some satellite dealers or some additional open points, but basically our policy is very conservative. We have been encouraging dealers to invest aggressively. Usually the factory has an egocentric attitude that suggests that the more stores you have, the more units you can sell. But Toyota has a very firm policy to not be trapped by that easy temptation. That has been the secret to Toyota's success from a dealer perspective. Per-dealer sales are kept high, and we've respected the investment the dealer makes. It's the monetary basis of a good relationship with the dealers.

Will Lexus lose its luxury status if it keeps growing?

That theory depends on the commodity and whether there is a rareness of that product in the market. That could suggest a product like jewelry. But in the automobile business that's not the case, unless we're talking about a Rolls-Royce kind of product. (Lexus) is not appealing to the market by being rare. We are appealing to the luxury market by our strength of product, the franchise and customer service. In the case of Lexus, the number of sales is just a result of our pursuit of perfection. Lexus has been successful in keeping the integrity of its franchise despite the volume growth. We need to be even better in terms of our pursuit of perfection. As our volume increases, there will be more units in operation and more customers we need to deal with.

Should Lexus sell a $100,000 car?

For the brand it is quite important. But at this stage we don't know what it is going to be - a two-seat coupe, a four-seat sedan, or whether the engine will be a V-10, a V-12, or whatever. From a marketing and sales perspective, we need a strong product that should be regarded as the flagship or the ultimate Lexus. At a certain point we should have that kind of product. Doing something like a Maybach is too much. But we are thinking in the vicinity of $100,000.

If Scion gets too much attention and grows too much will it lose its cool factor?

Within Toyota there are different opinions. There is no master plan. Yuki Funo thinks the coolness or trend-setting character of Scion should be the core value or role of Scion. So volume is secondary. More important is the positioning of Scion as a brand. As far as Scion selling 100,000 units, there is no science to that number, it's a gut feeling that it's the right number given what Toyota Division is doing. Of course as Toyota Division grows, maybe that 100,000 units could be a little bit bigger, but that is secondary. I think we can do that and keep the coolness of Scion intact, and that is the more important thing.

How much should Scion's product line be expanded?

We haven't thought over what should be the replacement of our three models. Even if we have a new product that has a good appeal to the youth market, we will not necessarily add those products to Scion. To attract the young market is the role of Scion, but Toyota should attract the young market as well. Scion customers might stay with Scion, or they could graduate to Toyota or some even to Lexus. That means that both Lexus and Toyota should have appealing products for those customers who have experienced the Scion franchise. When it comes to mainstream products that appeal to young people, we're more likely to add it to Toyota.

It has been several decades since the best-selling car in America sold more than a half-million units. Do you want Camry volumes to go that high?

To go beyond this present volume level is not right. First of all, we have many other products we can sell. We need to spread our resources. To stretch a product to an unbelievable level would be too expensive. Whether or not the volume even comes down a little bit, I don't know. We are comfortable with the current sales level. We are not stretching too much.

But dealers are complaining that the Camry has slim gross profit margins.

Because Camry is getting a bit older, the gross profit level is a bit on the lower side. It is our responsibility to restore that profitability, taking the opportunity for a freshening or model change. We are determined to manage the life cycle of the product, not only to benefit the factory but also the dealer.

Toyota Financial Services is expanding into banking operations. How will that change its relationship with Toyota Motor Sales U.S.A.?

The focus of Toyota Finance will continue to be automotive. They will start testing the water in the normal banking side, but I don't know how successful we will be. We have little knowledge of banking. We are still learning.

The public perception is that Toyota's dealer personnel are little more than order takers and aren't in the business of customer satisfaction. You've said you want to change this, but so have your predecessors. How will your initiative be different?

To change the perception of Toyota, you change the reality. In the past, it has shown in the J.D. Power indices that we are not very good. I admit that and accept what the index scores suggest. Toyota's relationship with its regions and dealers means we should give good customer service as a joint effort. Maybe we have said this in the past, but this time we are serious. We are simply going to put it in the Toyota approach, to incorporate it as part of our business process. To change the perception could be just a PR exercise. (But) our energy is not going to be spent in that arena. It will be in the business process. Already every Toyota regional manager has been given the objectives or target numbers for customer satisfaction on the sales side and service side, product quality, delivery indices - all the various measurements. This year is the first year we have done this.

How do you implement it? Some companies have cash or travel as incentives, but others simply penalize for not hitting objectives

We will link results in one way or another to recognition. Whether or not we penalize for failure is another matter. We are working on how to design the encouragement and how to put it in Toyota's business process. That's especially true now that we have measurements between headquarters and the region. In the past it was just words, where everybody says, "We want good customer satisfaction." So now we're focusing more on the deed, not the words.