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Getting Back to Black Drives Toyota CFO

As the automaker waits for consumer demand to spike, the finance chief for its U.S. sales and marketing arm works to keep costs low and efficiencie...
Sarah JohnsonSeptember 3, 2009

Editor’s note:
Toyota
Motor Sales U.S.A. CFO Tracey Doi will be a featured speaker at the CFO Rising West conference, September 21-23, 2009, in Las Vegas. For more information, click here.

The word “excess” isn’t in CFO Tracey Doi’s vocabulary. As the finance chief of Toyota Motor Sales U.S.A., she is tasked with keeping costs down for the sales, marketing, and distribution arm of the Japanese company.

But excess is what automakers had on their hands late last year as consumer demand severely declined and inventory levels rose — even at the world’s number-one auto company. For the first time in decades, Toyota Motor Corp. reported an annual loss of 437 billion yen ($4.4 billion) for the fiscal year ended March 31, 2009, and it expects to also be in the red this fiscal year. The parent is expecting further reductions in fixed costs throughout the company in the months ahead.

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Things are looking up a bit though, as dealers are still feeling rosy from the federal Cash for Clunkers program, which was especially helpful for Toyota sales. Nearly 20% of sales made under the project were Toyota vehicles — the largest share for any of the automakers. It helped give Doi’s Toyota subsidiary a 10.5% bump in August sales compared with August of last year. Now Toyota is “ramping up production” again, says Doi, who joined the company nearly a decade ago. She previously held finance positions at AT&T Wireless, L.A. Cellular Telephone Co., and L.A. Gear.

At Toyota Motor Sales, Doi splits her duties between supporting her “internal customers” — the department heads — and the needs of her own department, the finance and administrative group. The group handles the corporate, finance, tax, and accounting for the U.S. sales and marketing operations for Toyota, Lexus, and Scion brands sold at 1,400 U.S. dealerships. She’ll talk more about how Toyota has managed through challenging times at the CFO Rising West conference, which will be held September 21-23 in Las Vegas. An edited version of a recent interview with CFO.com follows.

Why has Toyota been able to avoid the same kind of fate as GM and Chrysler?
I’m not going to comment specifically about our competitors, but I can share what Toyota is focusing on. Obviously with the economic downturn, the auto industry overall has been hit very hard. If you were to compare 2007 to 2009, there’s been about a 40% drop in the overall industry in just two years. Toyota wasn’t immune to that.

We have taken advantage of the downturn to embrace our core values, one of which is continuous improvement. We’ve gotten everyone at Toyota involved in really cutting muda, or waste, and trying to look at everything that we’re doing to become more efficient. It’s not just us; our dealers are rightsizing their organizations under the umbrella of the global “emergency profit improvement” activities that Toyota has talked about publicly. We launched a companywide initiative here called GAME ON, which stands for gain advantage, maximize efficiencies, and overlook nothing. Our focus is staying true to our customers and developing the products they’re looking for. I’m confident we’re going to come out of this stronger. So we’ve got some work to do.

 

DoiTracey Doi, CFO, Toyota Motor Sales U.S.A.

How have you had to cut back in the finance department?
We’ve been on this journey for quite a while. I’m very much a student of the Toyota way and trying to evaluate how you take the practices that we have on the plant floor of identifying waste and moving that philosophy to finance and administrative functions. We do a lot of visualization of our processes end to end — a map if you will — and identify where there are opportunities to scrutinize and eliminate redundancies, and streamline our activities. That’s been very helpful for us in increasing our efficiencies.

How is this process driven in the company? By each business leader, or does it start with the finance department?
It’s not only a top-down effort. There are ideas that are coming from the top, and there are also ideas coming from the working floor. Some departments are doing it as a teambuilding activity with informal contests.

How does Toyota balance supply and demand, and what is your group’s responsibility in communicating demand?
We have a production-planning process and distribution process that go hand-in-hand with the manufacturing arm, both in Japan and in the United States. One of our primary focuses is to provide the customers with the product that they’re looking for and when they want it. It’s not always easy, especially when there’s such a significant downturn as the one in the last quarter of last year. Inventory built up all across the industry. We did a very good job of working together with the production-planning group to make quick adjustments in our production levels and get the inventory level back in line with customer demand.

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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