2007 Automotive News World Congress

January 16, 2007
As Prepared for:

Jim Lentz
Executive Vice President
Toyota Motor Sales U.S.A.
2007 Automotive News World Congress
January 16, 2006
Dearborn, MI


What if I told you that just one industry dominates the Fortune 500 playing a key role in the business of all top-12 companies?

And that it's a massive economic contributor buying more metals...plastics ... rubber...and textiles than any other business...including more computer chips than the computer industry?

Or that it spends in excess of 15 BILLION dollars a year on research...more than any other industry...to make its products safer, cleaner and better?

And finally, that this industry has a tremendous positive impact on human lives EVERY DAY. In fact, its products are...so admired...that people talk to them...give them pet names...and carry pictures of them around in their wallets.

I'm not talking about iPods...athletic shoes...or soft drinks. I'm talking about the automobile industry...our industry...and it's time for us to help it get it back on track.

Well...good morning everyone...and welcome to another fascinating year in the automotive business...still the LEADING industry on earth. Can you imagine working in any other field?

Few industries have the scope, reach and ability to help others as ours does. And, we should be proud of the part we play in touching so many lives.

Now…I'm told I don't look the part... but I've been in this business for nearly three decades...and yet today...I'm sort of the new "guy" on the block.

This is my first opportunity to speak at the Automotive News World Congress and I'm honored to be here and spend some time with you.

Today...I want to borrow a line from our Toyota advertising and talk about how we can all "Move Forward" during 2007...and beyond.

You see, I firmly believe that...2007...will be a stellar year for Toyota AND for the auto industry.

First, I'm proud to say this year marks Toyota's 50th anniversary of doing business in America…and... together with our dealers...we've invested a lot of time, effort and money getting ready for the market we see ahead.

To us, it's been a great partnership with America...and we've learned a lot.

It's funny...but because of our success today...many people don't realize that the first product we introduced here...the Toyopet Crown sedan...was a big flop.

That fact is never far from my thoughts. I framed the Toyotpet brochure and hung it in my office. It reminds me that we're NOT invincible … that we must always listen to our customers … and always consider what they want.

Toyota survived for seven years by selling our trusty Land Cruiser until we developed a car that met the needs of America's drivers.

We launched that car...the Corona...in 1965. It was an overnight sensation...our business took off...and we've never looked back.

Today, Toyota has a HUGE manufacturing presence in the United States, operating 10 major vehicle and parts plants, with a new Camry production line set to open this spring in Indiana.

Having key manufacturing plants in 8 states...and one each in Canada and Mexico... means nearly 3 out of 5 vehicles we sell here are made...here...in North America.

In fact, we directly employ 33-thousand Americans...more than General Mills...Texas Instruments...or Cisco Systems....and our dealers and suppliers create another 177-thousand jobs.

When you add other spin-off employment resulting from our presence, the Center for Automotive Research estimates Toyota is responsible for nearly 400-thousand American jobs... roughly equivalent to a city the size of Miami.

Toyota also purchases $28 Billion in parts, materials and services annually from 400 suppliers in 35 states, led by Michigan.

In addition, we're proud of the positive "non-tangible" benefits we've contributed to American business and culture.

I'm talking about things like:
- new fuel economy, safety and hybrid technologies ...
- lean manufacturing processes...
- kaizen improvements...
- solid, win-win relationships with dealers and suppliers...
- close cooperation with government agencies...
- and community education programs like family literacy centers.

So…over the past 50 years…Toyota has come a long way from its difficult early days here. And just as this year marks Toyota's golden anniversary, I believe 2007 will be a GOLDEN period for our industry, marking the start of …"the great turnaround"…in America's automotive business.

And that's what I want to talk about this morning...the powerful forces driving our bright future...some key trends impacting our business...and what we need to do to take full advantage of the better days ahead.

Let's start with our promising future.

Now we all know 2006 wasn't what we had hoped it would be, but it WAS a solid year. Until a decade ago, the industry would have delighted selling 16 million vehicles or more. Indeed, 2006 was the eighth best sales year in history...and a good foundation to build on.

There are challenges...of course...the slowing housing market...volatile energy prices...labor negotiations...production cutbacks by some automakers...and the rising costs of raw materials. But overall the industry is responding well and the demand for cars and trucks will continue growing.

Ford, General Motors and Chrysler are all taking bold steps to re-structure and re-deploy resources around the world...and there are signs those measures are working.

It will take some time, but we firmly believe that all three will bounce back and be successful. And that's important because they are vital to our industry and our national economy. It also bodes well for American consumers because the increased competition will result in even better products in the future.

Now…last week at the Detroit Auto Show…I must admit some people were asking... "Jim…how can you say the future is so bright when 2007 is projected to be a flat sales year?"

And I say...don't be fooled. This is a set-up year...a year we take time to re-flect, re-organize and re-dedicate ourselves to the people we all serve…the calm before the storm of ENORMOUS new growth.

As such, we see a slightly better year ahead. We believe the positives will outweigh the negatives and that total industry sales will improve.

It may be a modest gain...but it will provide a solid foundation to take the next big leap in growth that is surely around the corner.

In fact, we see the potential for a run-up in sales…each year…as we approach 2010.

Specifically, we think it's possible for industry sales to grow by as much as one hundred thousand vehicles per year...eventually reaching 18 million sometime in the 2010s.

So...why are we so optimistic?

Because an incredible population boom...sound economic fundamentals...and great products will fuel the greatest automotive market we've ever seen in America during the next decade...and beyond.

Let me lay it out for you.

With regard to the population boom...before too long...we will be doing business with customers from FIVE different generations of Americans...all who want and need our products.

The first generation is the "traditionals"…including those that Tom Brokaw calls "The Greatest Generation." They were born before 1945...and experienced World War II...the Korean War...the advent of television...the birth of rock and roll...and the start of suburbia.

Many started driving in the 1950s and fell in love with cars during their teens. They will represent about 10% of the driving population between now and 2015.

Next are baby boomers...the 78 million people born during the post World War II boom. They grew up in the 60s...discoed in the 70s...and built their careers in the 80s and 90s. They've helped drive sales since they turned 16 and still represent more than a third of America's drivers.

And the best part is...people are living longer and driving longer so they'll keep buying cars for many years to come. CNW Research found that 7 vehicles...more than half the 13 cars the average American buys in a lifetime ... are purchased AFTER the head of the household turns 50.

Considering one third of the U.S. population will be 50 or older in the next three years, we'll have lots of opportunities to continue building our business with boomers.

Third is Generation X, the 61 million people born between 1965 and 1979. They grew up with MTV...saw the fall of the Berlin Wall... and experienced the boom and bust of some hot dot-coms.

Today, they're maturing and moving into their prime income-earning years. They're buying more than a fifth of all new cars...and purchasing cars for their children.

Then comes Gen Y...also known as echo boomers...or millennials. They were born between 1980 and 1994 and are 63 million strong. More diverse than past generations, they grew up during positive economic times and witnessed an explosion in technology from the launch of CNN and compact discs...to the birth of the Internet and digital music.

Gen Y consumers first started getting their driver's licenses in 1996...and the last won't turn 16 until 2010.

That's an average of 4.5 million new drivers per year...over a span of 14 years!

They already have more than 200 billion dollars in buying power...and that's before many of them have even entered the workforce!

They also stand to inherit an estimated $17 TRILLION dollars from their boomer parents. I guess the "Bank of Dad" NEVER closes!

Even better...in four short years...they will be buying one of every four new cars.

But Gen Y is just part of the surge of future customers.

Right behind them is another amazing group of consumers...Generation Z.

It's hard to believe, but the oldest members of Gen Z ...are now 12 years old ... just 4 years away from driving themselves.

They're already 48 million strong ... (pause)... that's a third larger than the population of California...and they're growing at the rate of over 4 million a year.
Even more astounding...these young Americans already have an estimated $18 BILLION in direct buying power...not to mention powerful influence over their parents' buying decisions.

Think about it. For the first time in history...around 2011...FIVE different generations, will be our customers all at once...and they will continue positively impacting our business through most of the NEXT decade.

In addition to a strong birth rate...immigration will be strong during the next decade because America is still the land of opportunity for people all around the world.

As a result of all these factors, the U.S. economy is now adding one new person every 13 seconds! So, even without trying, we've gained 350 potential new customers just since breakfast this morning.

And, census projections call for us to stay on that pace for at least ANOTHER 50 years!

What a country! ... and what a great time to be in the auto industry. We're about to experience a boom like we've never seen before.

Now...along with great natural growth...economic drivers are on our side, too.

Our gross domestic product is growing ...consumer spending is positive... jobs are increasing...business investments are rising...and we still enjoy historically low inflation levels.

Plus...there are many experts who believe a new technology boom will stimulate our economy as information systems expand...mature...and become an even bigger part of our everyday life. This "adoption" phase of the Information Age… together with the coming revolutions in biotech and nanotech… will further stimulate our economy in the future.

So fundamentally, our economy is strong...resilient...and starting a new stage of growth.

On top of that, cars are more affordable than they've been in 26 years...and a record number of new products are due this year. It's the perfect formula for a great turnaround in our business.

So...now that we know the future is bright...let's take a look at a couple of fascinating trends that will impact our business in the years ahead.

The first is what we call the "new urbanism"...an influx of population back to major cities around the country.

This is quite a reversal from the past two or three decades when downtown and inner-city areas began to age and decay. Residents began fleeing to the suburbs in search of a better, safer life for themselves and their families.

But an interesting thing started happening in the late 1990s. People, mostly young professionals, began re-discovering depressed downtown areas and started moving there because of the affordable housing, shorter commutes and easy access to cultural and entertainment centers.

New businesses soon followed and the revival was on. As a result, major cities from coast-to-coast have seen double-digit growth in their downtown residential populations...many for the first time in four decades. For instance...Denver... where I went to college...has experienced a 51% increase in its downtown population last decade.

And the trend is still in full swing as people re-discover loft apartments and vibrant city life. Today, there are over 500 "new urban" projects planned or in progress in the United States.

Why is this new trend so important to us?

Well...as wonderful as this new lifestyle sounds...it also creates some new challenges for residents. For instance, limited and smaller parking areas and narrow and crowded streets make large vehicles impractical. Services such as supermarkets are also less available, and transporting purchases is more difficult.

As a result, many residents will want personal use vehicles and new transportation options, like shared-use car programs. There's also an opportunity for creating smaller, more efficient vehicles...perhaps mini-cars...compact SUVs...and even more efficient compact luxury vehicles. Hybrids and pure electric vehicles will also play key roles in these areas during the future.

These are great opportunities for all of us.

Along with the new urbanism, there's also a strong movement among our customers toward living healthier and more environmentally conscious lives.

This trend is called LOHAS...short for Lifestyle of Health and Sustainability. It encompasses products and services in five key areas:
- Sustainability...like renewable energy and alternative transportation...
- Alternative healthcare...like acupuncture and herbal remedies...
- Healthy lifestyles...including organic food...
- Environmental consciousness...like using recycled paper and eco-friendly appliances
- And...personal development...activities like yoga and meditation

At first, LOHAS was a niche market. But...today...its gone mainstream, encompassing 10% of U.S. consumers who spend 229 billion dollars each year on LOHAS products and services.

Did you know that one out of four Americans now practices yoga or another form of mind-body fitness?

Or that Wal-Mart now offers more than 400 organic products?

The LOHAS movement is for real and will have a strong impact on the direction of the country and business in the future.

And LOHAS customers aren't typical. They see themselves as consumer-citizens who take action, supporting advocacy programs and play active leadership roles. In other words, they are highly influential. You want them on your side.

So, what are the implications for the auto industry?

Well, first we need to continue creating and marketing products that meet both "green" and conventional product needs. Hybrids certainly fit that bill, but so do clean diesels...ethanol flex-fuel products...and eventually...fuel cells.

We also need to continue our efforts to be good corporate citizens. That means using green building methods for our facilities...creating zero-waste plants...and increasing re-use and recycling in all of our operations.

OK. We see a new business boom around the corner...we know about some important consumer trends...so how do we take full advantage of the future?

Well...I think...it goes back to the fundamentals of this business....improving our products and improving the retail experience of our customers.

With regard to products, fresh cars and trucks with innovative designs have always driven our industry's success.

And we're making some amazing progress. Cars are cleaner, safer and more comfortable than they've ever been...and they're getting better every year.

For instance...in California...where I'm based...there are 37 car models from 14 automakers rated Partial Zero Emission Vehicles...including our Camry and Prius.

These vehicles are not only the cleanest gasoline engines ever produced, they're built to maintain near zero emissions throughout their entire life on the road.

But that's not enough... so we're inventing a new wave of powertrain technologies.

Right now, more than 46 hybrid or alternative fuel vehicles are on sale in the United States and over 9 million are on the road. Plus, another 36 models are in development or are being considered for the U.S. market.

We're also making great progress on the safety front.

Thanks to computers, sensors and other advances… cars are safer today than ever before…and we're adding new safety equipment all the time to ensure the safety of vehicle occupants as well as pedestrians...

And it's paying off. The death rate on U.S. roads is among the lowest since the government began tracking them in 1966…40 years ago.

Much of the credit is due to better roads, greater use of seat belts and stronger drunk driving laws, but experts agree that safer cars have played a strong role in promoting this positive trend.

So...how can we make today's great cars even better in the future?

Well, the answer is pretty simple...we need to listen to our customers. That's really the key.

The more we listen, the more we'll learn about their needs, wants and desires for tomorrow. Then we can design and build vehicles to meet those needs.

A prime example is our new Tundra full-size pickup...set to go on sale within a few weeks.

We've had very good success with the current Tundra…selling more than we could make every year it's been on the market. But when it came time to create the new one, we went direct to our customers to find out what they wanted in a full-sized pickup today.

They told us they loved the ride and feel of the current Tundra and that it performed admirably in recreational and light duty use. Some customers, however, told us they considered it a "city" truck and not a "work" truck.

They said they needed more power…more pull…and more payload to get their jobs done.

So…with that in mind…we decided to hit the road and observe how real people were using their trucks to earn a living.

Our Japanese and American designers, engineers and product planners didn't just "go and see" the market... they "lived the market."

You name it and they did it. I'm talking about customer visits to... construction sites…mining camps…ranches…farms…truck stops…tack stores…drilling operations… car carrier companies…and even the world's largest snowplow manufacturer.

We also sent them out for two weeks at a time in 5th-wheel trailers on 1,000-mile camping trips where they did what typical American families do on vacation.

They also spent time with personal and recreational use truckers…saw trailer hitches installed... hopped into cabs of big rigs…and even drank stale coffee in out-of-the-way diners.

They did everything they could to live in the shoes of work customers and then used that knowledge in developing the next Tundra.

For instance…during ranch visits…they noticed the difficulty drivers encountered lining up their tow hitch with trailers. Many needed another person on hand just to guide them through the process.

So …on the new Tundra … we'll offer an available wide-screen rear backup camera hidden in the tailgate handle to serve as an extra pair of eyes, making trailer hookups much easier and smoother.

As a result, we're hopeful the new Tundra will meet the needs of today's pickup buyers and be a big hit. But it all starts with listening to our customers.

The other way we can increase our business in the future is by doing a better job of taking care of our customers when they come into the showroom.

Although all automakers have been working with their dealers to improve the retail experience, we're still way behind other professions in our reputation for fair dealing.

A recent Gallup Poll about the honesty of various professions was quite eye-opening. Nurses and doctors were No. 1 and 2. Journalists were in the middle of the pack.

And car salesmen?

Car salesmen were ranked at the very bottom of the list... below building contractors...below lawyers... below even Congressmen. After this last election...that's hard to believe!

In fact, only one profession was rated lower on ethical standards than car salesmen...can you guess who that was???

It was telemarketers! ...well...at least you can hang up on them!

Now...to be sure...most car dealerships today take good care of their customers ...and perhaps car salesmen are easy targets or the victims of old perceptions. But...whatever the reason...we need to do everything within our power to reverse that poor image.

At Toyota, we're working hand in hand with our dealers to re-design their stores to make them more exciting, comfortable and easy to do business. In fact, Toyota and Lexus dealers have already spent $1 billion of their own money to improve their dealerships and will spend close to $2 billion more in renovations over the next two years.

We're also working with them to speed deliveries and smooth the steps it takes to purchase a new car. And, to improve service through such measures as 24-hour service teams and extended weekend hours.

It will take some time...but if we all work together to raise the image of the car buying and ownership experience...we will raise the stature and importance of our industry in the eyes of society.

And the best way to do that is by listening to our customers more...and wasting less of their time.

I know we've covered a lot of things this morning, so let me summarize our positive prospects for 2007...and beyond.

First...our industry is going through a major upheaval, but we'll come through it and emerge stronger than before.

Second...thanks to population growth and a strong economy...our business will improve SIGNIFICANTLY between now and the end of the decade and reach new heights thereafter.

And third...to prepare for better days ahead, we must continue carefully listening to our customers, using those insights to make better products and improve the total ownership experience.

By doing these things...and doing them better than ever before...we will not only ensure our bright future...but also grow...succeed...and prosper for MANY years to come.

Thank you...and have a great year.

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