Section 5. Production and Sales Systems Reinforced
Item 4. Expansion of Sales Networks in the United States
The Corolla, which was introduced to the American market in April 1968, was well received and sales volumes quickly increased. In order to bolster sales and service networks in the United States in response to the rising sales of the Corona and Corolla, Toyota decided in September 1968 to double its investment in Toyota Motor Sales, U.S.A., Inc. (TMS) and provided 5 million dollars in additional capital.
Exports to the United States were growing steadily, reaching 95,000 units in 1968 and 150,000 units in 1969. In conjunction with this growth, Toyota vehicles rose in the ranking of imported passenger cars in the United States from eighth place in 1966 to third place in 1968, and jumped past Volkswagen to take the second place position in 1969.
During this period, Toyota established three new distributors (SET, GST, and MAT) with local capital to supplement the two existing distributors (TMD and MST), and they began operations.1 As a result, the sales network in the United States expanded from the initial focus of the West Coast to the entire country.2
Following the Nixon Shock3 in August 1971, the prices of imported vehicles rose in conjunction with the revaluation of the yen and the American automobile market rapidly changed from a seller's market to a buyer's market. To address this situation, Toyota undertook measures to reinforce TMS's management foundations.
In October 1972, a major personnel reshuffling was implemented and Americans were actively put in positions of responsibility in line management. In 1973, Executive Vice Presidents Normal Lean and Yale Gieszl were appointed to these positions.
Toyota then conducted a review of its product policies and decided to make the Corolla, Celica, and Hilux its priority vehicles in place of the Corona and Land Cruiser, which had been the main-selling vehicles until that time. Toyota came to this decision by examining the market from the perspective of vehicles that users wanted but were not being supplied by American automakers. Subsequently, these three vehicle series contributed to rising sales volumes as mass-sales models.
In 1971, TMS entered into an agreement with California-based Atlas Fabricators for local production of the Hilux rear deck, and production began in November of that year. TMS acquired Atlas Fabricators in February 1974, changed the name to Long Beach Fabricators4, and used the entity to respond to higher sales of the Hilux.
Until then, all agreements with dealers had been for periods of one year, but to further strengthen sales organizations, the terms were extended to three years depending on sales performance.5 In addition, a system for reporting on management conditions and a zone management system that divided the United States into four regions were introduced. To reinforce after-sales service systems, depots in Los Angeles, New York, and San Francisco were expanded and their parts supply capacity increased, and the parts warehouses of distributors were supplemented. In the service sector, training for distributors and dealers were conducted to raise service skills.
The American passenger car market experienced an unprecedented boom in 1973, but after the onset of the 1973 oil crisis, plunged to 8.86 million vehicles in 1974, down from 11.4 million vehicles the previous year. In 1975, TMS President Isao Makino traveled to dealers throughout the country and told them, "unless you prosper, we cannot prosper; dealers and Toyota are dependent on each other," emphasizing the importance of relationships built on trust. As a concrete indicator of this thinking, the interest burdens on dealers for vehicles in inventory were reduced. This led to an increased understanding by dealers of the concept of mutual dependence and benefit. TMS also supported the development of distributors. Reinforcement of dealer networks also proceeded at a steady pace, and at the end of September 1976, the number of dealers handling Toyota vehicles throughout the United States exceeded the 1,000 level to reach 1,014.
In December 1975, Toyota's advertising agency was changed and a sales campaign was conducted with a focus on advertising for the Corolla, Celica, and Hilux. To develop logistics systems, port facilities were established at nine sites-including the facility at the Portland site established in January 1977-and vehicle transport using specially-ordered car carriers began. A car delivery center was established in Chicago and linked to Portland, dramatically increasing the pace of vehicle deliveries to the central and northern regions of the United States, which previously had to go through the Panama Canal. At the same time, 11 parts depots were established to achieve the fastest delivery rates for spare parts in the United States. Later, a computer network linking with dealers and a system for determining vehicle delivery sites prior to unloading would be introduced. As a result, operations in the United States were possible with approximately a one week inventory of vehicles during the 1980s.
As TMS was making these efforts, compact cars underwent rapid growth in the U.S. automobile market. Toyota vehicles in the growing compact car market made dramatic advances. In 1975, Toyota sold 258,000 vehicles, replacing Volkswagen, which was experiencing declining sales, to take the number one position among import brands in the U.S. Sales continued to grow, reaching 320,000 vehicles in 1976 and 400,000 vehicles in 1977, with sales of the prioritized Corolla and Celica growing particularly strongly.
As a result of the expansion of sales networks and sales promotion measures undertaken in cooperation with dealers, passenger car sales reached 470,000 units and commercial vehicle sales reached 90,000 units in 1977. A little more than 20 years after Toyota's entry into the United States market-the first and most intense automobile market in the world-Toyota established structures to support annual sales of 600,000 vehicles.