Toyota’s growth model turns on services – Automotive News (subscription) (blog)

Posted: Monday, November 07, 2016

TOKYO — For eight decades, Toyota Motor Corp.’s business model was straightforward: Sell more cars, make more profit.

But in recent weeks, top Toyota executives have warned that approach won’t cut it anymore. Toyota, they say, has entered a bold, new era in which growth will come not from selling more vehicles but from selling services that let owners use the vehicles like mobile phones.

Just as phone makers pivoted from hand-held hardware to software and apps for higher profits, Toyota aims to transform itself into a “mobility service platform provider.”

“As vehicles become information devices, the car business’s value added will be shifting to the cloud in the future,” Shigeki Tomoyama, point man for the metamorphosis, said last week while outlining the carmaker’s new push. “Toyota hopes to create a new growth strategy.”

Behind the shift are a sudden explosion of new high-tech cloud computing and a saturation of auto markets, especially in mature markets.

Internally, executives are convinced Toyota is butting against diminishing returns in longtime anchor markets such as the U.S., Japan and Europe, where overall sales are plateauing.

Tomoyama’s task is to find ways to use the Internet of Things for higher margins.

How serious is Toyota about the challenge?

In April, President Akio Toyoda restructured the company in large part just to tackle it.

At the time, Tomoyama was named president of a new Connected Company business unit that aims to harness the power of cloud computing, artificial intelligence and new mobility.

As part of the overhaul, a new board-level post, chief competitive officer, was created for the purpose of reading the tea leaves and keeping the company one step ahead of the changing times. That job went to Executive Vice President Didier Leroy.

Three arrows

Leroy agrees that Toyota will continue to tap growing volume from emerging markets. But the real money will come from selling high-tech apps in mature markets.

“We are sure that if you consider the next 20 years, the growth of the business for the automotive industry will not come from more and more and more sales,” says Leroy. He also heads Toyota’s operations in developed markets, including North America, Europe and Japan, as well as Africa.

“It will come from a lot of auto services, and the services are not just traditional services like maintenance,” Leroy said at a separate event last month. “Much more owner services associated with the car, like connectivity or data management.”

Tomoyama, a close confidant of Toyoda, will play a key role charting that future. A technophile who likes to read presentation notes off his iPad Mini rather than a teleprompter, Tomoyama has a taste for slim-cut suits that match his combed back hair and hipster eyeglasses.

Six months into his new job, he offered the first glimpse into his “three arrows” vision:

1. Standardize Toyota’s connected car technology across all vehicles by 2019 and deploy it in almost every new Toyota and Lexus vehicle in the U.S. and Japan by 2020.

2. Harness so-called big data, the reams of information generated by a car as it rolls down the road, from speed and location to traffic conditions, weather and breakdowns.

3. Collaborate with other industries and information technology companies to develop new mobility services that can be tailored to Toyota products.

New products

Toyota is already moving ahead on the first arrow. This year, it built a partnership with Japanese telecommunications company KDDI Corp. to develop uniform data communications modules for use in any vehicle worldwide. They are the units to be deployed by 2020.

The new modules will enable vehicles to connect automatically with telecommunications carriers in different countries, allowing drivers to bypass global roaming services.

Toyota, through another new unit called the Toyota Big Data Center, is also dissecting the vast store of big data it has accumulated.

The company got a head start in the home market of Japan where it introduced rudimentary connected car systems in the early 2000s. Today it tracks thousands of cars in real time. But the big goal is parlaying all that into new services.

Toyota unveiled one last week: Smart Key Box, a gadget that turns a person’s mobile phone into a car key. Toyota pitches it as the “key” to simplifying car sharing because it bypasses the hassle and risk of handing over a physical key. Instead, a cellphone with the password connects to the car-share vehicle via Bluetooth, unlocking the door and starting the ignition.

Toyota will begin piloting the Smart Key Box in January in San Francisco with the U.S. car-sharing company Getaround. That was just one idea floated by Tomoyama.

Another was April’s launch of Toyota Insurance Management Solutions USA, or TIMS.

The Toyota Big Data Center collects vehicle data about driving behavior and sends it to TIMS for analysis. TIMS then offers it to insurance companies to assign driving scores to customers.

Tomoyama also demonstrated new connected services it offers in Japan in the new-generation Prius PHV, the plug-in version of the Prius called the Prius Prime in the U.S.

In Japan, it is equipped with a smartphone app that can remotely control the air conditioning and heating as well as monitor the battery charging. Also offered is e-Care Service, which remotely monitors the plug-in Prius and can predict when a problem, such as an undercharged auxiliary battery, will crop up.

E-Care then connects the driver with a dealer to supply a fix.

In Japan, Toyota is offering the Prius PHV connected services at no additional cost for the first three years. After that, the company will start charging customers yearly.

Rivals or allies?

Partnerships will be an important bridge in making it all happen.

For starters, Toyota and other automakers will have to rely on tech companies to supply the backbone networking system to enable car connectivity, Tomoyama said, because doing it alone “requires massive investment.” Toyota has joined Nissan Motor Co. and other automakers, for instance, in partnering with Microsoft Corp. to use its Azure cloud-based network. Automakers will differentiate themselves with the apps they layer on top of the network.

Automakers worldwide are stepping up their investments in these fields even as Google, Apple, Uber and others jump in.

Tomoyama said it is too early to say whether those tech interlopers will be rivals or allies, partly because the new players are not completely transparent with their long-term plans.

One trump card established automakers have over wannabes is a long track record of relationship building with its customer base. That’s especially true for a company such as Toyota, which can boast industry-leading customer loyalty rates, Tomoyama noted.

But it’s Leroy’s job to be on guard, and he is keeping a watchful eye on Silicon Valley.

“Of course, it’s a completely different competition,” Leroy said. “Do you believe we will just open the door and say, “Please, go ahead?’ No. We will not let them go inside like this.”


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