Akio Toyoda: Japan's automotive jobs vital to culture

TOKYO — Consider it Akio Toyoda’s “Japan-First” strategy.
As the COVID-19 pandemic pummels profits and production plans worldwide, the head of Toyota Motor Corp. is reaffirming his commitment to keep Toyota’s Japanese factories turning out at least 3 million vehicles a year.
“I am referring to defending to the very last our system for domestic production of 3 million vehicles a year,” Toyoda said at the company’s financial results announcement this month.

The lofty target represents a 30 percent chunk of Toyota’s global production at a time when its overseas markets and plants are growing. It also comes as Nissan Motor Co., the country’s No. 2 automaker, is crafting a turnaround plan that reportedly may cut as many as 20,000 jobs, though relatively few of those are expected in Japan.
Toyota has been defending its line in the sand since the 2009 global financial crisis — partly to protect jobs in its role as Japan’s biggest automaker and one of the country’s top industrial employers. Toyota’s payroll in Japan has grown to 74,000, from 66,000 in 2001.
When asked if Toyota might consider a similar commitment to protect production levels in big Toyota markets overseas, such as the U.S., where it makes about 1.2 million vehicles, Toyoda demurred. Toyota’s home base for manufacturing is Japan, he said; overseas output will increase in tandem. Toyoda’s outlook is not as jingoistic as it might sound.

The trials of fighting COVID-19 have underscored the importance of safeguarding a domestic stronghold of manufacturing firepower and production knowhow.
In his address, Toyoda bemoaned that Japan had trouble getting medical face masks when the pandemic hit because most were produced overseas. This was the result, Toyoda suggested, of a misguided strategy of offshoring production to make goods at lower costs.
Reducing waste and costs is a core tenet of Japan’s manufacturing philosophy. But it becomes self-defeating when companies start cutting jobs, he suggested. If companies cut too deep, they lose knowledge and innovation along with employees.
“People are not costs,” Toyoda said. “People are the source of continuous improvement and a driving force for the growth and development of monozukuri,” he said, using the Japanese word that conveys the culture of manufacturing.
He pointed out that many Japanese companies, including those of the Toyota Group, were able to rally to fight the pandemic by turning their production resources to face shields, protective gowns and face masks. Why? Because they had protected jobs and the monozukuri culture.
“What we have been defending to the very last has not been ‘3 million vehicles,’ ” Toyoda said. “What we have been continuing to protect have been people who have acquired the techniques and skills that enable them to make what is necessary when the world needs it.”
It is especially important for Japan’s auto industry to pull its weight, he said, because the auto industry employs about 5 million people — approximately 10 percent of the country’s working population.
In his presentation, Toyoda showed a slide outlining Toyota’s domestic output over the years. As overall production by all automakers in Japan shrank from more than 10 million vehicles in 2000 to around 9.68 million in 2019, Toyota’s remained basically unchanged at 3.42 million — except for two blips below 3 million during the 2009 financial crisis and the 2011 earthquake-tsunami.
Finding new markets for Japan-built vehicles helps. Just last week, Toyota unveiled the Venza crossover for the U.S. . It is a rebadged version of the Harrier, sold and made in Japan.
One slide summed up Toyoda’s thinking succinctly. Toyota, it said, would “maintain production of 3 million units and employment, no matter how severe the economic environment becomes.”

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Lucid Motors

The postponement of the New York auto show meant California-based EV startup Lucid Motors didn’t hold the global debut of its first production car, the Lucid Air, in April as planned. It offered a sneak preview in Silicon Valley for reservation holders in February before shelter-in-place rules went in effect.
CEO Peter Rawlinson told guests that construction of the company’s Arizona factory had progressed significantly and the initial Dream Edition of the executive sedan was on schedule. Lucid updated that in a May 1 release: “We haven’t had to modify ambitious plans to complete our factory for upcoming Lucid Air production … later this year.”
Road testing of the Air, which is expected to compete with the long-range Tesla Model S and break the $100,000 barrier on the top trims, was suspended due to the coronavirus crisis. The company said in mid-May that it had built more than 40 “beta” prototypes to continue its evaluations once the lockdown lifts.
Lucid is in better shape than some peers. Just over a year ago, it closed a $1 billion investment from the Public Investment Fund of Saudi Arabia. Rawlinson told Bloomberg in February “there is room for Lucid to thrive alongside Tesla” and compete with the likes of Mercedes-Benz.
Lucid has not announced a new date for the Air’s public reveal.

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Carvana's losses tell the real story

I find Automotive News’ coverage of Carvana to be shallow and backwards. In “Carvana says it’s gained market share during pandemic” (May 11), the last sentence, on the company’s net loss, should have been the first. This is a company that lost $183 million in just a quarter. You treat it almost as an afterthought.
And let’s remember what Carvana does — it sells used cars, something that has been done by dealers, who make money, for years. CEO Ernie Garcia excels at putting himself in front of the investment world, peddling a narrative that he is reinventing the used-car business. The vending machines are a marketing delight.
But any dealer with those massive losses would be out of business. The investing community has been fed a false narrative. Buyer beware.
RON BARON, President, Baron Honda, Patchogue, N.Y.

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Waymo’s timing was prescient. In early March, when the severity of the crisis ahead had not yet become apparent, the company announced the creation of Waymo Via, a brand focused on goods delivery.
From long-haul trucking to one-off deliveries with its Chrysler Pacifica minivans, Via collects the company’s delivery ambitions within a single business division.
During the coronavirus pandemic, interest in delivery has soared.
“The reality right now is that goods delivery is a bigger market than moving people,” CEO John Krafcik told Reuters this month. While the company won’t be commercializing its delivery services immediately, it has a burgeoning partnership with UPS Inc., started in January, that involves Pacificas specially outfitted for delivery. The partnership bears watching over the long term.
While Waymo has explored the delivery market in recent months, it has also raised its first external funding. In early March, Krafcik said the company had received $2.25 billion from investors in a round led by private equity firm Silver Lake Partners. In May, the company added to those coffers, with $750 million from T. Rowe Price, Perry Creek Capital and Fidelity Management and Research Co.
On the passenger-carrying side of its business, Waymo One, the company had suspended its driving operations in early March because of COVID-19 concerns. Those operations resumed in Phoenix on May 11. Working with AutoNation, another partner, Waymo says it is cleaning vehicles multiple times per day. Operations in San Francisco, Detroit and Los Angeles will restart in a matter of weeks.

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Lenders may owe thanks to strip club

The financial security of small U.S. auto lenders during the COVID-19 crisis may be owed, in part, to the advocacy of a Michigan strip club.
A U.S. district judge sided with the owner of the Little Darlings topless club in Flint, declaring the business eligible to participate in the federal Paycheck Protection Program. The decision could open the gate for auto lenders and other financial institutions that were excluded from the program on the basis of recent guidance from the U.S. Small Business Administration.
It is unclear how many auto lenders took funds through the SBA or how many returned them by the May 18 deadline. Under the most recent guidance, businesses won’t be penalized for returning the funds.
An April revision to the loan criteria retroactively excluded a variety of businesses — including auto lenders. The change also targeted businesses that feature live performances or sell products of a “prurient sexual nature,” leading to a federal lawsuit from the Little Darlings owner.
U.S. District Judge Matthew Leitman issued a preliminary injunction May 11 barring the SBA from excluding private clubs.
The American Financial Services Association wrote in a blog that the ruling may offer clarity for lenders about whether returning the funds is required.
“While that is obviously not the business that AFSA members are engaged in,” the association said, “the judge also said the SBA cannot exclude other businesses, i.e. banks, because Congress intended to support all qualified small businesses, including those it might have ‘disfavored’ before the pandemic.”

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Sonic moves ahead with used-vehicle stores

Sonic Automotive Inc. isn’t letting off the accelerator on its growth plans for EchoPark, its standalone used-vehicle chain — even in the midst of a global health crisis.
The nation’s sixth-largest new-vehicle retailer opened its 10th EchoPark store in April in Tampa, Fla., and plans to open two more by the end of the year, with plans for another three or four in 2021.
That sets Sonic apart from three other public retailers that have pulled back, at least temporarily, from growing the number of their used-vehicle stores during the coronavirus pandemic. Penske Automotive Group Inc. and CarMax Inc. both have halted new store projects, while AutoNation Inc. has pushed back a decision on whether it will resume expanding its AutoNation USA used-only business.

Sonic President Jeff Dyke told Automotive News in late April that the retailer would open two more EchoPark stores yet this year but that the planned 2020 opening for an EchoPark location in Atlanta is now pushed to first quarter of 2021.
“It’s a much bigger project,” Dyke said. “We’ve got two other locations that are going into facilities that we already own.”
Dyke didn’t identify those locations but this month told CBT Automotive Network that one of the EchoPark store openings would happen this summer in Nashville.
Sonic executives aim to expand EchoPark to 25 or more locations through 2024. Other EchoPark target markets include Miami/Fort Lauderdale and Orlando, Fla.; Los Angeles; Philadelphia; Phoenix; and Washington, D.C.
Sonic executives have said the retailer can open an EchoPark location for much less than a new franchised store and that the financial effects of the coronavirus may provide new options.
“There’s going to be new opportunities, great opportunities to grow EchoPark, where we’ll be able to grow it at a much less expensive way, whether it’s lower construction costs or opportunities for different real estate locations that weren’t out there before,” CEO David Smith said in an April 30 phone interview. “So we’re excited about that.”

Meanwhile, Penske — which has six used-only CarSense supercenters in the U.S. and 10 CarShop locations in the United Kingdom — said May 6 it had halted construction on four supercenter sites and moved likely completion dates to 2021.
CEO Roger Penske said the retailer has experienced permitting delays as government offices have been closed and that construction isn’t allowed in many areas. Of the four interrupted projects, two were slated for U.S. sites in New Jersey and Phoenix. At least one of the U.S. projects was targeted for completion by the end of 2020.
“I don’t want to promise it, but my goal would be to get one open and we’d be focusing on the other ones in ’21,” Penske said.

CarMax, the nation’s largest used-vehicle retailer, also halted store openings and remodels amid the pandemic.
CarMax had planned to open 13 stores in its current fiscal year, which ends Feb. 28, 2021, and a similar number of locations in its fiscal 2022.

AutoNation CEO Mike Jackson told analysts in a May 11 earnings call that AutoNation, the country’s largest new-vehicle retailer, had put off capital decisions, including whether it will build more AutoNation USA used-only stores.
AutoNation executives indicated in February that such an expansion was a possibility after the five-store AutoNation USA business turned a profit for three consecutive quarters. At one point, in 2016, Jackson said the retailer was considering an additional 20 AutoNation USA stores, but expansion was put on hold in 2018.
Jackson said first-quarter results for AutoNation USA were “very respectable” but were affected by the pandemic.
“The performance of the stores has been fine. I have no issues there,” Jackson told analysts. “But it’s a big decision to build more, and we’re not prepared to make that at the moment.”

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Fair's new CEO eyes big market expansion

The new CEO of used-vehicle subscription service Fair says the company needs to expand across the U.S. and offer consumers options beyond a month-to-month commitment.
That could include more services for customers with different used-vehicle needs, such as multiyear leases and loan financing for customers who later want to buy their vehicle, said Brad Stewart, 43, who joined Fair this month after leading XOJet, a provider of on-demand private aviation services.

“We want to be a national player,” Stewart told Automotive News. “We want to be in many, many markets — dozens, if not hundreds.
“We want to provide an extensive product lineup that meets our customers where they’re at. And all of that is just an extension of the hard work that this company has put in so far.”
Stewart takes the CEO slot as the company tries to make its subscription model profitable, something that has been difficult to achieve so far.
Fair operates on a mobile app that allows consumers to drive a vehicle on a subscription basis after paying a “start” fee, followed by a monthly payment.
Roadside assistance, limited warranties and routine maintenance are included.
Fair was founded in 2016 by Scott Painter, who resigned as CEO in October 2019 but remains its chairman. Painter told Automotive News last fall that the company needed a management change to become profitable. That followed a decision in October to lay off 40 percent of its staff.
The company operates only in California and Florida after leaving a number of markets, but Stewart said it must expand over the next year.
Stewart brings a background in private equity and served as a consultant for McKinsey and Co. and Deloitte.
Fair, which purchases its vehicles from dealerships, is a capital-intensive business, Stewart said. Despite raising a “substantial amount” of money to date — including a $385 million funding round in 2018 led by SoftBank — the company needs to pursue more outside funding from more diverse investors to grow, he said.
“Ultimately, we need to have a long-term capital road map that is more refined than ours is now,” he said.
Fair’s subscription model is attractive to digital-savvy consumers and an alternative to traditional auto loans and new-vehicle leases, he said.
But the company also could provide more flexibility to more consumers, he said, including those looking for a discounted monthly payment in exchange for a two- or three-year commitment on a used vehicle, and those who want to keep their car and need loan financing.
“I think we should not prejudge our customer base to say that everyone’s going to be in the month-to-month bucket,” Stewart said.
He added that the coronavirus pandemic could slow some of these efforts if customers are not ready to engage with Fair.

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