Have you changed how you manage your working capital?
We will always recognize and reflect on this experience to be sure that we're really diligent about keeping our inventories in line with the market and with what our customers need — not what we think they need. Our business cycle is such that historically and typically, we wholesale the inventory as soon as we receive it from the manufacturing plant.
How is Toyota affected by the U.S. auto suppliers that are hurting right now?
Overall, Toyota's manufacturing side is monitoring our supplier base. In the United States we have about 500 suppliers, and there is a significant portion that overlaps with other [manufacturers] and we monitor their financial health very closely. We have been fortunate not to have an interruption in our supply chain.
Your mind-set as CFO hasn't shifted over the past year?
I've never taken for granted the success that Toyota has had. I've worked at other companies in other industries — apparel, health care, and telecommunications — and all of them have had their downturns. Every industry is cyclical. I've always been prepared and really worked on developing our financial team to be prepared, to support our internal customers with the tools they need to make decisions during more challenging times. I'm not saying that my mind-set hasn't changed; it's just that I think it goes back to Toyota's roots of always being focused on continuous improvement, always looking for ways to make improvement and cut waste. But obviously the level of intensity has increased in this downturn.
What are your priorities?
Returning the company to profitability is the primary focus of everything I'm doing. I'm totally committed to returning Toyota to profitability as quickly as possible.
What needs to happen to get Toyota profitable again?
We are very focused on reducing our fixed costs, but also ensuring that we're staying focused on the customer and customer retention and growing the topline. It's going to be a blend of revenue generation as the market comes back, as well as making sure we revitalize our business model so that it's more cost-effective.
What metrics do you consider to see whether you are getting the company toward profitability?
We're looking at our cost structure and the return on sales. We're benchmarking against our historical trends and trying to set our own cost benchmarks for where we're trying to go in all of our expense categories, as well as looking at gross margin and mix. I'm investing more time on the communication front, through education and analysis with the heads of sales and marketing and our parts and accessories group.
What could other CFOs learn from what you have done to cut costs, particularly when they may feel that every possible cost savings has been made?
I don't think anybody's job is ever done when it comes to cost reduction. There are always opportunities. Look at the major drivers of your business and step back as if looking at a white piece of paper. If you were designing this company today, would you do it the way it currently is done? I'm sure every CFO recognizes that they don't want to waste this crisis as a catalyst for change. I certainly don't.
Has the crisis enabled you to make strategic changes that you weren't in a position to make previously?
I would say yes. Many of our division heads have also recognized that it's a different situation when you're in a period of rapid growth versus when you're in a recovery. There's an opportunity to balance the short term with the future. It's important to not only scrutinize the projects and investments for cost-effectiveness today but also ensure that as we make those adjustments we're still strategically investing for the future. And for Toyota, that's been in new products, in technology, and especially in our core models and luxury but also in youth and environmental. We can't get so caught up in the current situation that we forget that we need to look at our changing demographics of our future customers.
How has Toyota been affected by customers who are unable or find it difficult to get financing these days?
I think we're very fortunate that we have a captive finance organization, Toyota Financial Services, that has strong access to the capital markets because it's well regarded and tied to a strong organization. We're able to offer attractive financing options that meet the needs of our customers. I don't think that has been a barrier of entry.
What is the most significant challenge for you right now?
With high unemployment and the state of consumer sentiment, it's been difficult to have strong showroom traffic. This crisis has made such a huge impression on consumers; there's a lot of focus on frugality, and they're much more modest in their shopping patterns. Hopefully our customers will recognize as confidence grows and unemployment declines — hopefully it looks like it is capped — that we will be there for them.
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