TOKYO – Toyota (IW 1000/8) on Thursday announced plans to overhaul production to slash development costs, with a top executive describing the shakeup as crucial to navigating "sudden and drastic changes" in the auto sector.
While the Japanese car giant is on track for a record $18 billion fiscal year profit, largely due to a weak yen and strong North American sales, the world's biggest automaker said it needs to go further to protect its bottom line in a fast-changing market.
"Sudden and drastic changes in the business environment mean that conventional ways of thinking and doing business can no longer help us grow sustainably," Toyota President Akio Toyoda said in a statement.
"We are at a crossroads where we must now build a new business model."
The company said it would boost the fuel efficiency of its powertrains -- the engine and transmission -- and build more new models on common platforms, as its rivals also boost the number of shared parts on different vehicle models.
Toyota said the move, aimed at cutting development costs by 20%, would start with mid-sized, front-wheel-drive vehicles this year. It wants half of vehicles it sells globally by 2020 to fall under the new platform strategy.
Toyota vehicles are currently built on more than a dozen platforms.
The automaker said it was aiming to cut the cost of starting new production lines by half, and the amount of investment required for new plants by 40% from 2008 levels.
"Through these combined projects, Toyota aims to shift to plants that are always competitive, rather than plants that depend on volume," it said.
Analysts at IHS Automotive predict companies including Toyota and General Motors (IW 500/5) will cut the number of vehicle platforms they use by more than half by 2021, according to Bloomberg News.
Volkswagen embarked on a similar platform-reduction strategy several years ago.
"This is Toyota's version of a cost-saving business model first launched by Volkswagen (IW 1000/6)," Shigeru Matsumura, analyst at SMBC Friend Research Center, told AFP.
"The strategy, including using more common parts, is quite efficient and has become a global trend."
But Matsumura warned the moves could result in huge recalls if the same defective part was found across a company's vehicle models.
Major automakers are reeling from the recall of millions of cars globally for various problems, including an exploding air bag crisis at embattled supplier Takata.
The scandal has sparked the recall of more than 20 million vehicles worldwide by 10 major automakers.
"This strategy... can be a double-edged sword," Matsumura said. "So Toyota and its rivals are likely to boost their investment on improving quality control."
Toyota is now reportedly set to lift the three-year freeze on new plants with the construction of a Mexican factory worth more than $1.0 billion. The ban was imposed following an aggressive expansion over the past decade.
Copyright Agence France-Presse, 2015