Senior Managing Director Kazuo Okamoto, General Manager of the Second vehicle development center. Prius gasoline-electric hybrid is a First vehicle center product. Small car Vitz subjected to an offset crash against a deformable barrier. Japanese regulations do not require such a test.

Yet, Okamoto's "Second" vehicle center (these centers are referred to as First, Second, or Third) developed the Corolla-based Spacio tall-box vehicle. The Second will soon launch the mid-engine, rear-wheel-drive MR-Spyder sports car. This center is also responsible for the Prius gasoline-electric hybrid car and its continuing development.

Had a "Corolla Motor Corporation" been spun off from Toyota, it would have been the world's eleventh largest automaker, observed a former vehicle center general manager some years ago. The Corolla is still one of Toyota's largest-volume car models along with the Camry, with each vehicle line reaching half a million units per year. "There are certainly many manufacturers who produce that number and those who aspire to attain it. However, this is the age of the "Four Million Club," reminded Okamoto.

When asked if the role of a compact car was a CAFE necessity, Okamoto responded, "Not at all, we are very comfortable with our CAFE performance in the U.S. True, the segment is on a gradual decline; however, Corollas and Honda Civics are doing well. We are not giving up this segment. In fact, the new-generation Corolla is being developed, aiming at a higher market penetration."

Toyota's most ambitious new car project is known as "NBC," short for new basic or B-segment, small car. It currently produces the Japanese Vitz, which today is the hottest merchandise in the otherwise bleak marketplace. The Vitz is also known as the European Yaris and the U.S.-bound Echo. "The NBC project represents a true global strategy. It is the car to assert our presence in Europe, in this increasingly competitive market segment and against the best of Europe. In America, their (marketing-sales) initial reaction was 'make it sleek, sleek;' however, as the American marketing-sales team experienced the tall Echo sedan's spaciousness, versatility, and ride comfort, they began accepting the vehicle concept. We can expect larger sales volumes, especially in the value-conscious Canadian market," Okamoto said.

Small cars in the B-segment have been no great profit makers. The Vitz/Yaris/Echo are literally all new, including the powertrains and chassis. Why go to that length? "Europe is the toughest battleground for small cars. You cannot hope to win with what you have been doing for years. The car has to be superior to its competitors in every aspect. That requires an all-new design and dedicated components," Okamoto said. "The important thing is how we direct our engineering and materials to attain the goal of building a world-class small car. We are not exactly short of resources. And the NBC must contribute to filling our corporate coffers."

Toyota is building a new factory in France for the NBC production. "It is nothing like you have seen from us previously. We cannot afford to have a factory that cannot return profits. The production lines will be compact and ultra-efficient. We are departing from our previous procurement practices; for example, in the case of the UK factory, we sought suppliers in the factory's vicinity. Not in France. We looked for the most suitable and competitive suppliers all over the continent, obtaining quotes no higher than what we would pay in Japan."

Okamoto added, "If you try very hard to look for these types of suppliers, you find some very promising ones in Europe. Obviously, Japanese suppliers excel in many areas; however, there are many Europeans who are very good in their own fields."

On the emergence of global mega-suppliers and the new relationship between them and automobile manufacturers, Okamoto said, "They are here and they are powerful, no doubt about that. They are individualistic and innovative, and their new products interesting and significant. On the other hand, I think they are still behind Japanese suppliers in the area of product quality." He recognizes that the trend is toward "systemization" and "modularization." "It is no longer individual bits and pieces, but now suppliers must offer systems. The more complete the systems that suppliers can offer, the stronger they become. Consolidations into major- and mega-suppliers should occur," he added.

Would fewer suppliers of enormous scale and strength hamper the manufacturers' choice of components? Would it not result in a "take it or leave it" attitude? Okamota replied, "That kind of reaction is diminishing, at least as far as we are concerned as in the case of European procurement. Toyota's vehicle output in Europe accounts for only 3%. However, viewed globally, we are a force to reckon with. Mega-suppliers have the world in their view, and they must know of our significance. More suppliers must think that doing business with Toyota is wise if they must globally expand in the industry."

The mega-suppliers' strength is in basic research; however, so is Toyota's. Wouldn't they duplicate work and clash? "No, not at all," Okamoto answered. "We do not duplicate. Their strength and our strength add to each other. Toyota's quality standard is universal. We may modify products to suit certain markets, such as the European market. But we would never compromise the Toyota standard of reliability and durability. An automaker with a mere 3% market share must try harder to grow. Doing the same as anyone else just would not do. Were we to build cars using what components were offered by suppliers, our quality reputation would have seriously suffered. Reliability and durability are our most valued assets. I believe our suppliers recognize that. We work together to ensure our assets are built into our products."

Toyota must value its Japanese "keiretsu" (affiliated) suppliers in which they have capital participation and have sent human resources in the area of engineering. Recent cases in point are Aisin and Denso. Akihiro Wada, former Executive Vice President in charge of engineering, has been appointed as Chairman of Aisin, and former-EVP Akira Takahashi has assumed the position of Vice Chairman, Denso. The keiretsu suppliers may want more freedom, selling their products to other manufacturers. Denso supplies electronic and electrical components including the engine control module for Honda's Canadian-built Odyssey minivan, a direct competitor to Toyota's own Sienna.

It is not just Toyota-affiliated suppliers. On the other side of the town, JATCO, a transmission specialist in which Nissan has a sizable stake and whose president is a former Nissan engineering executive (Kenichi Sasaki who directed the development of the VQ V6) chose the British Rover as its first customer of the brand new transverse five-speed automatic. A fascinating tug of war is in progress because of this.

Toyota's R&D activities are highly centralized, within its engineering sanctum at No. 1 Toyota city. It has overseas centers such as the Toyota Technical Center facilities in the U.S. Okamoto explained that all vital information and data come from all over the world into the Toyota center. Add the latest flow, to what the company has accumulated over the years, and it is one gigantic data bank. The engineering staff benefits greatly from this information bank, and is among the most proficient in the world in conceiving, designing, and developing products, according to Okamoto. "Move your base of operation a few hundred kilometers east to the Higashi Fuji center and the development pace would visibly slow down. The Toyota center is power unto itself; however, its efficiency is unparalleled," asserted Okamoto.

Engineering and styling design are two different worlds. Design is sensitivity, emotion. "Speaking bluntly, we engineers can work anywhere. We live and work using our accumulation of knowledge and experience. On the other hand, designers may find it hard to draw lines and shape surfaces in a run-down or remote location. At present, our most active design center is the EPOC European center. Before then, it was the CALTY California center. We must give our designers freedom, opportunities to taste fresh air, to see towns, villages, and cities unlike our own," said Okamoto.

The European center has recently relocated from Brussels to the outskirts of Nice, France. Okamoto conceded the same may apply to the engineers. "But as I said before, it is more efficient to work at the centralized R&D facilities in Toyota city. We are constantly reducing product design and development time, which is essential in the fiercely competitive environment. The centralized and fully integrated R&D entity functions best."

Okamoto recognizes the value of the overseas centers such as the TTC in the U.S. and the TMEE in Europe. "We must coordinate and work together with overseas suppliers more closely for our manufacturing operations but we must be careful not to overstuff these centers. They must be as lean as we are in Japan. A balance must be maintained between the home and overseas bases,"said Okamoto.

Will Toyota remain globally Toyota and Japanese? Toyota has recently entered an agreement with General Motors Corp. on the development of a future electric vehicle, an IC-electric hybrid, and a fuel cell vehicle system in the next five years. Okamoto says this is one example of Toyota's cooperative efforts. He points out difficulties in integrating two different automotive cultures, as in a merger or affiliation, which may consume all the energy of the parties involved.

On the subject of the fuel cell vehicle, Okamoto's view is that it would be extremely difficult to offer a marketable product, even in the modest scale of the Prius (1000 to 2000 units per month) by the years 2003-2005, which is the timetable some industry sources optimistically predict.

What is Toyota's outstanding strength? "We are at the top in developing and launching superior products within a certain time span. When it comes to a vehicle's performance, including manufacturing performance, we are among the top group of manufacturers. We are striving to be the top manufacturer in all aspects, including the latter qualification including performance and emotional appeal. "

Okamoto was the Chief Engineer for the second-generation Lexus LS400. He is content that this Lexus is now perfected over the first generation vehicle because of the development team's relentless pursuit of refinement. "The first- and second-generation LS400s established the beachhead in the world's luxury car market." The LS400 belongs to his old home, the First vehicle center. Okamoto wants the next-generation LS to make a giant leap forward in its concept, style, and performance.