TOYOTA DISCUSSES AUTO MARKETS, HOPES FOR U.S.

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 000228 SIPDIS STATE FOR EAP/J, EEB, AND OES PASS TO USTR FOR BEEMAN COMMERCE FOR KEITH ROTH AND DANIEL LEE EPA FOR CHRISTOPHER GRUNDLER E.O. 12958: DECL: 01/27/2018 TAGS: EIND EFIN PGOV SENV KGHG JA SUBJECT: TOYOTA DISCUSSES AUTO MARKETS, HOPES FOR U.S. STIMULUS PACKAGE REF: TOKYO 174 Classified By: CDA James Zumwalt, Reasons 1.4 (b) and (d) ¶1. (C) Summary: Toyota hopes Congress will pass the proposed economic stimulus package quickly and act to "save" the Big Three automakers, Toyota Vice Chairman Katsuhiro Nakagawa told EMIN. Toyota and other automakers are hit by both tight markets for commercial credit and problems consumers have in obtaining auto loans. A particular concern for Toyota is that crisis in one of the top three U.S. auto companies will result in more severe problems for key auto parts manufacturers with negative impacts for Toyota. Toyota is coping with its own downturn-induced economic woes by making selected budgetary cuts, but has thus far refrained from laying off permanent workers or reducing its investment in eco-friendly vehicles. Nakagawa also urged the U.S. to provide incentives to bolster sagging demand for hybrid vehicles and bluntly stated Toyota's interest in selling its energy-saving technologies to other auto makers. He noted Toyota's seven plants in the U.S. have created an estimated 386,000 jobs, counting dealers and parts suppliers as well as direct Toyota employees. End summary. The Need to Kickstart America's Auto Sector -------------- ¶2. (SBU) Toyota's auto markets around the world, including Japan, the U.S., and even China and India, have shrunk dramatically with the global economic crisis. The industry is hit both by constricted commercial credit markets and auto buyers' inability to obtain auto loans, Toyota Vice Chairman and Member of the Board Katsuhiro Nakagawa told EMIN January ¶26. The current situation is unprecedented and took Toyota by surprise, Nakagawa said. ¶3. (C) Nakagawa bluntly stated the USG needs to keep acting to reopen credit markets and to facilitate greater availability of auto loans. Toyota is encouraged, he said, by President Obama's decisiveness in dealing with the economic crisis. Nakagawa made clear Toyota does not want the Big Three automakers to fail; "the U.S. government should save the Big Three." He specifically noted the negative impacts of the collapse one of the top U.S. automakers could have on manufacturers' parts suppliers, since Toyota uses the same parts suppliers as the Big Three automakers. For all these reasons, Nakagawa hopes the Administration's economic stimulus package will pass and restore consumer confidence. ¶4. (C) Toyota operates seven plants in the U.S. and has created an estimated 386,000 jobs there since 2005, including dealers and parts suppliers. Nakagawa reiterated the Toyota position that the firm sees its employees as assets and does not want to lose them. When asked about press reports regarding lay-offs at Toyota and other companies in Japan (reftel),Nakagawa stated Toyota has not cut any permanent employees. Rather, the company has let contracts for "non-regular" workers lapse when up for renewal. To assist these workers, Toyota allows them to stay an extra month in the company dormitory and also provides return transportation to the workers' home province, he explained. Toyota is considering what other kind of measures (e.g., work-sharing or buy-outs) would be prudent. (Comment: Nakagawa was doing his best to put a positive spin on what Toyota is doing; press and reports out of ConGen Nagoya suggest Toyota and the other Japanese automakers are drawing down the numbers of Brazilian Japanese and non-permanent workers. Suppliers may also be letting employees go due to the tight conditions in the industry. End Comment.) ¶5. (SBU) Asked about the Japanese unions' push this year for a wage hike, Nakagawa said it would not be possible given the recent unprecedented challenges facing Toyota. ¶6. (C) Note: in a separate meeting with econoff, Toyota TOKYO 00000228 002 OF 002 Global External Affairs Division Project General Manager Takashi Tsurusawa said Toyota is contemplating cuts in every area of its business. Company executives are cutting travel expenses and flying economy class, and the company is reviewing its investments and management costs. In December, the company canceled its lavish annual end-of-year party in Nagoya. (Comment: Given attractively printed cancellation letters delivered in person, expensive "consolation" presents, follow-up phone calls, and hotel cancellation fees, some estimate the cost of not hosting the party might have run nearly as much as if Toyota had actually hosted the event. End comment.) Tsurusawa also noted that with U.S. plants providing so many jobs, Toyota does not anticipate the current economic crisis resulting in the sort of bilateral trade frictions the U.S. and Japan saw in the auto sector in the 1980's. End Note. Energy Efficiency, Greenhouse Gases, and Toyota -------------- -- ¶7. (SBU) Toyota is a leader in developing fuel efficient vehicles, but needs increased demand for its product, said Nakagawa. Recent hybrid vehicle sales have dropped approximately 70 percent in tandem with the much weaker economy. While the public is interested in eco-friendly vehicles, the credit crunch deters purchases, Nakagawa noted, adding the U.S. should offer similar tax incentives as the EU and Japan to encourage consumers to buy eco-friendly cars. Toyota developed its hybrid auto technology without Japanese government assistance and is willing to share this technology with other companies that pay appropriate royalties, he said. Comment -------------- ¶8. (SBU) Toyota has propelled itself into its current position as the world's largest and best-selling automaker, by, among other factors, efficiently using cutting-edge technology and just-in-time manufacturing, supported through generally close relations with employees and suppliers. However, some of Toyota's competitive advantage is also its Achilles' heel in the current economic environment: a small interruption in the supply chain, for example, can stop the company's entire production line, as happened during the 2007 Niigata earthquake and 1997 Aishin fire. Toyota too has over-expanded its business and needs to streamline its capacity. Declining auto sales in Japan have added to the importance of international markets for Toyota. A possible bright spot for Toyota is that the current downturn also provides an opportunity to reassess its overall business strategy and to undertake the necessary restructuring cuts. ¶9. (SBU) Consulate Nagoya contributed to this cable. ZUMWALT