Toyota Sustainability - Presidents Q & A

During the past 12 months we continued to focus on maintaining the strength of the balance sheet and reducing costs, resulting in a profit before tax of $122 million. After tax, including a tax adjustment to prior years, the result was a loss of $13.242 million.

Many factors contribute to a profit result. The overall number does not reflect the significant efforts undertaken to maintain business competitiveness during difficult market conditions. During the financial year, global recall activity, increased competition from car importers and price increases impacted the company's financial performance. In particular, Toyota Australia's manufacturing competitiveness continued to be impacted by a number of adverse economic factors such as the strong Australian dollar and the high price of raw materials, particularly steel. Despite this, our high intensity supplier development program delivered process improvements that enhanced the safety, quality and cost of our locally-made vehicles.

Toyota confirmed its place as the best-selling automotive brand in Australia during the 2010 calendar year with a market share of 20.7 per cent.

What impact did the Japan earthquake and tsunami have on Toyota Australia's operations?

The March 2011 Great East Japan Earthquake had a major effect on Toyota Motor Corporation's global operations, including Toyota Australia. Its impact was unprecedented and it placed significant pressure on our people, suppliers, dealers and customers.

Following the earthquake and tsunami Toyota Australia began working closely with Toyota Motor Corporation and suppliers to study parts supply levels and if required, develop alternate supplier arrangements. In mid-April 2011 Toyota Australia announced that the Altona manufacturing plant would adjust May vehicle production volumes to manage available parts supply. From 9 May to 8 June the plant operated on a reduced schedule of around 50 per cent. Due to the tremendous efforts of employees, suppliers and Toyota Motor Corporation in securing parts, the plant resumed producing vehicles at pre-earthquake levels on 9 June, much earlier than expected.

Production cuts at Toyota manufacturing plants in Japan and Thailand impacted shipments of Toyota vehicles to Australia. From April to June the amount of new stock arriving in Australia was significantly reduced, leading to weaker than usual sales. However from July, overseas production levels began to normalise and vehicle imports started to return to normal. Toyota Australia appreciates the patience and understanding of customers who were affected by delays in deliveries that were outside the control of the company or its dealer network.

What measures does Toyota Australia have in place to ensure the quality and safety of its vehicles?

Toyota Australia has been delivering quality vehicles to its customers for more than 50 years and we have every confidence in our ability to continue to do this. During the past year Toyota Australia participated in several vehicle recalls, however none of the recalls affected Australian built vehicles.

Toyota Australia's 4,623 employees and the thousands of people at our dealers and suppliers are very proud of the quality cars we build in Australia. We drive them ourselves, our families drive them and we believe they are among the safest on the road.

Our employees share the recognition that there is always a better way and their commitment to continuous improvement has led to a number of quality improvements at the Altona manufacturing plant. In the past year we have continued to implement initiatives under our 'Customer First' program to enhance existing activities and to maintain customers' confidence in our products. We have strengthened quality controls across our operations by boosting the number of vehicle checks and engineering evaluations. A quality program called Hawk Eye has been introduced to encourage every employee to be a vehicle quality inspector. We have also further developed our Customer Quality Engineering Group to strengthen on-site information capabilities for suspected quality problems. And through the creation of two Regional Product Safety Executive roles, Toyota Australia now has a greater voice in making safety decisions and representing Australian consumer safety interests to Toyota's Chief Quality Officer.

Our determination to enter a new era for Toyota in Australia is supported by our parent company. In March 2010, Toyota Motor Corporation established a Special Committee for Global Quality, which is headed by Toyota Motor Corporation President, Akio Toyoda. The committee meets regularly to exchange insights and to tackle safety issues constructively by developing policies and initiating action. The committee's charter can be summarised as ensuring all Toyota companies do better at listening to customers. This mindset will help spearhead comprehensive improvements to the company's operations and it will promote quality improvement activities around the world.

What is Toyota Australia's view on climate change?

Scientific evidence supports the need for change. Responding to climate change is a complex subject, one that is evolving now, and one that will evolve for years to come. Climate change response is an issue of risk management - something that business understands very clearly. Toyota Australia believes that taking prudent steps now to lower greenhouse gas emissions is the right thing to do, which is why Toyota Australia started acting years ago to reduce our emissions.

What is Toyota Australia's position on the proposed carbon tax?

Toyota Australia in principle supports action on climate change that motivates the community and business sector to reduce consumption and to support future investment choices that favour low emissions alternatives.

I have participated in the Federal Government's Business Roundtable on Climate Change to represent Toyota and the Australian automotive industry's views on the proposed carbon tax. During discussions I have emphasised that any future policy settings need to take account of climate work already being done, the impacts of providing offshore competitors with an unfair advantage and the link with other proposed policy directions.

Policy-makers need to examine all available policy options, be thorough in the assessment of the impacts and consequences, and be open to revisions later on if unintended consequences appear. Whatever the eventual policy, it should first maximise energy efficiency and conservation opportunities for mitigation emissions.

What affect will the carbon tax have on Toyota Australia's operations?

Toyota Australia supports action on climate change. We support the vision of a clean energy future and are already on track to achieve the five per cent reduction in CO₂ emissions by 2020 (from 2000 levels).

We estimate that the $23 per tonne tax on carbon will increase Toyota Australia's costs by up to $15 million a year or approximately $112 per locally manufactured vehicle.

The local automotive industry is currently facing difficult business conditions including the high Australian dollar, increased overseas competition and a fragile local supply chain. In light of these conditions and in the absence of transitional assistance for trade exposed non-energy intensive industries, such as the automotive industry, Toyota Australia would have preferred a lower starting price to ease the transition process and free up capital to invest in low emissions technologies.

The adoption of a carbon tax before other countries will have an adverse effect on our business, because in addition to the financial cost, Toyota Australia is trade-exposed, both as an exporter and because we face actual import competition. Our business is already under competitive pressure from overseas vehicle importers and the carbon tax will impact our profitability.

How many Camry Hybrids has Toyota Australia sold since launching the vehicle?

The Camry Hybrid was made available to the market in February 2010. Up to the end of May 2011 8,684 vehicles had been sold. Toyota Australia believes this is a solid sales performance given the vehicle's brief time in the Australian market.

Toyota is a pioneer with Camry Hybrid and it takes time to build widespread public understanding and acceptance of new vehicle technologies. With the Camry Hybrid, Toyota Australia hasn't just launched a new car; it has launched a new way to drive and we expect sales to increase as hybrid technology begins to become more widely available. This is certainly the case globally, with total hybrid sales approaching three million.

Furthermore, car production has a long cycle. Therefore it is important to view Toyota Australia's investment in hybrid technology as a long-term strategy and not judge it on short-term sales reports. Finally, Toyota Australia's successful production of the Camry Hybrid was a key factor in securing a further $300 million of investment to build the next-generation four cylinder and hybrid engines at Altona and for export. This is a very large vote of confidence in the future of hybrid technology.

What needs to be done to accelerate the uptake of hybrid and other low emission technologies in the Australian vehicle fleet?

The Australian Government committed in 2009 to reducing economy-wide greenhouse emissions by 5 to 15 per cent from 2000 levels by 2020 and 60 per cent by 2050. Unlike many other industry sectors, the automotive industry currently has all of the technologies necessary to achieve a low to zero-carbon vehicle fleet by 2050. These include hybrid vehicles, plug-in hybrid vehicles and full electric vehicles. I have little doubt about the sustainable future of this industry. From a social perspective the pathway to 2050 is also important and our industry does not control that. Experts agree that it is better to make steady progress toward long-term carbon targets and aim to stabilise emissions by 2020, rather than a rapid decline in the final decades.

While plug-in hybrids and electric vehicles will soon be available in Australia, it is predicted they will not have a significant market impact for 10 or more years. Meeting 2020 targets is about how the market responds to the vehicles available today. There is sufficient hybrid and low emission vehicles in our market to significantly lower fleet carbon emissions, but to achieve a 5 to 15 per cent fleet emission reduction, incentives are required to accelerate their uptake and shift the market preference to lower emission technologies. So while I think it is important to encourage the development of electric vehicle infrastructure, this is not a short-term solution. It is more important to develop incentives such as toll reductions, registration and stamp duty reductions and rebate schemes to shift the market to a low emission trajectory as soon as possible.

What are Toyota Australia's plans for future low emissions vehicles?

Many governments around the world including Australia have set targets to reduce greenhouse gas emissions. To meet these reduction targets it is necessary to accelerate the move to new technologies that increase fuel efficiency and decrease carbon emissions. Toyota Motor Corporation believes this acceleration can be achieved by investing in the development of advanced technologies such as Hybrid Synergy Drive and plug-in hybrid systems.

Hybrid vehicles produce lower and cleaner emissions than standard engine technologies, reduce fuel consumption and reduce the demand for oil. Toyota developed the Prius hybrid in 1997 and introduced it to Australia in 2001. Globally almost three million hybrid vehicles have been sold.

In the transition the company sees hybrid systems as the key future vehicle technology and as such has committed to having a hybrid version for each model in its line up by the 2020s. In the,transition that needs to occur first to low then to near zero emissions fleet, the company foresees that Hybrid Synergy Drive and plug-in hybrid systems will be the dominant technology by 2025.

In February 2010, Toyota Australia launched the locally-built Camry Hybrid. This was followed by an announcement in September 2010 that from late 2012 Toyota Australia will begin manufacturing new-generation engines for Camry and Camry Hybrid sedans. This project represents a shift to leading edge and environmentally sustainable engine manufacturing technology. Furthermore, in October 2010 Victorian drivers became the first in Australia to trial Toyota's plug-in hybrid concept vehicle during the Victorian Electric Vehicle Trial. The trial allows Toyota Australia and the Victorian Government to gather real-world information on vehicle usage and driver experiences to better understand the opportunities and issues for electric vehicles in Victoria.

What about actions not relating to vehicles?

Toyota Australia has a significant presence in Australia through the manufacturing, logistics, dealerships and non-production operations. We take a whole of lifecycle approach to reducing our environmental footprint. Across the company we are embedding environmental sustainability into everything we do - from every aspect of our manufacturing operations; to the energy efficiency of our vehicles; to the places where we sell our cars.

Guided by a three year Environment Plan, during the past 12 months Toyota Australia pursued actions to reduce greenhouse gas emissions, reduce waste, increase recycling and reduce water use. With a strong focus on continuous improvement, significant results were achieved across Altona's Engine, Press, Weld, Paint and Assembly shops.

A key activity for the year was the installation of a tri-generation plant at our corporate headquarters in Port Melbourne to produce electricity, heating and cooling from gas and reduce our carbon footprint by 25 per cent from 2006/07 levels.

A second was the launch of the Toyota Environmental Dealership (TED) program to help Toyota dealerships embed environmental thinking and sustainable business practices into their daily operations. Three dealerships in Queensland, New South Wales and Victoria have been awarded a 5 Star TED award.

We also continued to implement our award-winning Toyota Environmental Management System (TEMS) across the company. TEMS is a key business system used to manage environmental risks, ensure legal compliance and promote continuous improvement.

Furthermore, the locally built petrol-electric Camry Hybrid was awarded the Drive Green Innovation Award in 2010 as well as the People's Choice Award.

How did Toyota Australia contribute to the community during the past year?

Toyota Australia's corporate citizenship program, Toyota Community Spirit, provides opportunities for Toyota to participate in issues and activities that are important to the Australian community.

During the past year key partnerships were strengthened with environmental groups Conservation Volunteers Australia and Friends of Lower Kororoit Creek. Toyota Australia developed a pilot partnership with Rotary Youth Driver Awareness (RYDA), a national road traffic safety awareness organisation and continued to partner with the communities of Hobsons Bay and Port Phillip.

In January 2011, Toyota Australia contributed $100,000 to the Queensland Premier's Flood Relief Appeal along with a loan of five Toyota vehicles to assist flood recovery efforts. The company also hosted a free concert at the Tamworth Country Music Festival to raise funds for the flood relief appeal. Other substantial donations were provided by the Toyota Dealer Network and other companies in the Toyota family. Toyota Australia also contributed $50,000 to the Red Cross Victorian Floods Appeal.

Toyota's Community Spirit Gallery hosted three diverse art exhibitions, including one that showcased works from 21 Victorian and interstate Indigenous artists. The Toyota Community Spirit Gallery partnered with Victoria's Koorie Heritage Trust to bring Aboriginal culture to mainstream Melbourne.

Toyota also continued to support iconic local and national initiatives including National Tree Day, Toyota Good for Footy Program, Toyota Cup - National Rugby League, CanTeen, and Clean Up Weekend, Australian Paralympic Committee and Toyota Star Maker.

What is the greatest challenge facing Toyota Australia today?

After more than 50 years in Australia, Toyota has grown to be Australia's leading manufacturer, importer and exporter of cars. We have been the No.1 force in domestic market share for the past eight years. However, Australia has a mature and very competitive vehicle market. There are more than 60 brands and 380 models sold in Australia and in recent years, increased competition from overseas car makers and a shift from large to small cars have created challenges for Toyota Australia.

In January the Green Car Innovation Fund (GCIF) was abolished by the Federal Government. Toyota Australia had been the beneficiary of two significant grants (Camry Hybrid [$35 million] and AR Engine [$63 million]) from the GCIF. Toyota Australia was disappointed at the Government's decision to abolish the GCIF because it had been pivotal in securing critical investment from our parent company. Australia is competing with dozens of other vehicle manufacturing economies and we will continue to meet with Government to discuss the need for clear and consistent industry policy that will allow us to continue to invest strongly in Australia.

Personally, I believe sustaining and growing Toyota Australia's manufacturing operations at the Altona plant during today's open and internationally competitive environment is challenging, but it is achievable. If local manufacturing is to remain viable, then new approaches are needed. That is why everyone at Toyota Australia is working hard to achieve a strong, sustainable local automotive industry by looking for ways to improve our business and by working closely with local parts suppliers and State and Federal Governments.

What stands Toyota apart from other Australian automotive manufacturers?

Toyota Australia's people are its main asset and every employee helps to set us apart from other automotive manufacturers. I can easily say that the hard work by all of our Toyota people and our efforts to continuously produce high quality products that meet the needs of Australian motorists have been the main factors in fostering goodwill towards the company. This is the reason why we have continued to grow stronger during our 50 year history in this country.

Other differences include our strong sales results. In 2010, we sold more than 214,000 cars in Australia, accounting for more that 20 per cent of total new cars sales. No other Australian car company has sold more than 200,000 cars in one year. We are also the number one vehicle manufacturer and exporter in Australia. In 2010, we exported 82,670 cars to more than 12 export destinations and expect demand to steadily grow this year as market conditions improve significantly in the GCC (Gulf Cooperative Council) markets.

We are also helping the local car industry become an integral part of the global car making industry and a leading operator in the Asia Pacific region. We are a fully integrated car making business, unlike most car making operations around the world. In Australia we have the ability to plan, design, build and sell all under the one roof. With such a diverse business portfolio, we have all of the ingredients to be an important contributor to Toyota's global business.

We also play an important role in contributing to local society. Through the provision of jobs, innovation, investments, skills and training - we are focused on contributing to the development of a prosperous society through the manufacture of automobiles.

How many Australian manufacturing companies does Toyota Australia work with and is that figure likely to change during the next two years?

Toyota Australia has approximately 70 local original equipment (tier 1) companies supplying product to our Altona manufacturing plant. There are also multiple tier 2 companies supplying sub-components to our tier 1 suppliers. We also have approximately 40 local companies supplying a large range of aftermarket accessories.

Our supplier base levels are expected to remain stable during the next two years. We are well into our preparation for our next new models and our supplier plans are in place to support the introduction and ongoing production of these vehicles.