Section 1. The Post-bubble Japanese Economy and Domestic Market

Item 1. The Domestic Economy After the Collapse of the Bubble Economy

1st and 2nd medium to long-term profit strategies

Having posted record ordinary income of 838.5 billion yen in fiscal 1990 (ended June 1991; non-consolidated; hereinafter likewise), Toyota Motor Corporation (TMC) suffered a major fall in revenues from the following fiscal year, and ordinary income sank to 244 billion yen in fiscal 1994 (ended June 1995). From the peak period of the bubble economy, a cost structure had developed in which the rate of increase of fixed costs, direct material costs, and labor costs had far outstripped the growth in net revenues, a result of the direct impact on business performance of the stagnant domestic demand following the collapse of the bubble.

All corporate divisions implemented reductions in facilities investment and trimmed research and development budgets, but a further lowering of the breakeven point was required. In May 1992, under the direct supervision of the Senior Managing Directors Committee, the first company-wide Medium to Long-term Profit Strategy Project was initiated to promote more efficient operations. This project aimed to create a corporate resilience such that break-even would still be achieved even if market trends or other factors were to cause sales to fall to the lower end of the range foreseen in world sales projections for the mid-1990s. With Executive Vice President Masami Iwasaki as project leader, the team consisted of the senior managing directors responsible for each of the relevant divisions and one full-time representative from each of eight corporate divisions, including the Product Management Division, Accounting Division, Purchasing Planning Division, and R & D Management Division, with the Corporate Planning Division providing office functions.

At the September meeting of the Senior Managing Directors Committee, following three months of activities begun in June 1992, the project team presented three key tasks: 1) rebuild product lineup 2) reduce direct material costs and 3) adjust facilities investment to an appropriate level and establish an efficient production system adapted to fluctuations in demand. Relevant action began immediately. However, with the subsequent continuing rise of the yen and other ongoing changes in the business environment, it was decided to roll out a second Medium to Long-term Profit Strategy Project from June to October 1993 with the aim of building a resilient corporate structure resistant to fluctuations in the exchange rate.

This second project focused on the securing of profit based on a 1996 worldwide sales projection in the range of 4.6 to 5.2 million units. It also sought to set out strategies for the future based on long-term goals up to fiscal 1998 (ended March 1999). At the same time, it identified six key tasks to be tackled under the leadership of the executive vice presidents responsible for each of the relevant divisions; these tasks included stimulating a recovery in domestic profit, achieving self-supporting operation for overseas businesses, and halting the rapid hollowing out of domestic industry. Fiscal 1995 (ended March 1996) was an irregular period of nine months due to the switch from a July-to-June fiscal year to an April-to-March fiscal year; despite this, ordinary income returned to growth for the first time in five years, rising to 236.2 billion yen. This signified at last that Toyota had emerged from the long tunnel that followed the collapse of the bubble economy.

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