Business Overview Consolidated Vehicle Sales and Production Vehicle Sales by Region (FY 2006) Consolidated Vehicle Sales (Thousands of units) Other Japan Consolidated Production (Thousands of units) Regions 14.4% 4,684 29.7% Asia 11.0% FY 2006 12.8% Europe 32.1% 1,023 623 2,556 2,364 North America Europe 1,201 880 836 405 Middle East Asia Japan North America 233 122 Central and 251 113 South America 253 132 Oceania Africa Contents 30 Automotive Operations 30 Lexus 32 Japan 34 North America 36 Europe 38 Asia and Other Regions 40 Financial Services Operations 41 Other Business Operations 28 Revenues and Automotive Operations Operating Income (¥ Billion) (¥ Billion) Revenues........................¥19,338.1 billion (+13.0%) 20,000 2,000 Operating income............¥1,694.0 billion (+16.6%) 15,000 1,500 In fiscal 2006, robust growth in vehicle production and sales worldwide pushed consolidated revenues up 13.0%, to ¥19,338.1 billion. Operating income rose 10,000 1,000 16.6%, to ¥1,694.0 billion, because currency exchange rate fluctuations, increases in vehicle production and sales, and cost reduction activities offset a 5,000 500 reduction in net gain on the transfer to the government of the substitutional portion of certain employee pension funds and higher expenses resulting from 00 business expansion. FY ’02 ’03 ’04 ’05 ’06 Revenues Operating income (Right scale) Revenues and Financial Services Operations Operating Income (¥ Billion) (¥ Billion) Revenues.............................¥996.9 billion (+27.6%) 1,000 250 Operating income...............¥155.8 billion ( – 22.4%) 800 200 A 27.6% increase in consolidated revenues, to ¥996.9 billion, resulted from higher financing volume accompanying brisk vehicle sales. Meanwhile, a 22.4% 600 150 decline in operating income, to ¥155.8 billion, was due to such factors as the 400 100 valuation losses on interest rate swaps stated at fair value and the gain in fiscal 2005 to record prior-year adjustments relating to accounting for loan origination 200 50 costs by a sales finance subsidiary in the United States. 00 FY ’02 ’03 ’04 ’05 ’06 Revenues Operating income (Right scale) Revenues and Other Business Operations Operating Income (Loss) (¥ Billion) (¥ Billion) Revenues..........................¥1,190.3 billion (+15.5%) 1,200 40 Operating income.................¥39.7 billion (+17.8%) 900 30 Revenues increased 15.5%, to ¥1,190.3 billion, while operating income was up 17.8%, to ¥39.7 billion, due to such factors as favorable production and sales in 600 20 the housing business. 300 10 0 0 –300 –10 FY ’02 ’03 ’04 ’05 ’06 Revenues Operating income (loss) (Right scale) 29 Business Overview Automotive Operations LEXUS Lexus Vehicle Sales Since its 1989 launch in North America, Lexus has won overwhelm- ing praise from customers and established an unassailable position (Thousands of units) 500 as a prestige brand. To build a truly global premium brand, Toyota is taking new measures to catapult Lexus forward. 400 Market Strategy network of approximately 10 deal- 300 Move from North America to Europe, ers through stepped-up develop- Asia, and Japan ment of the network in China. 200 Aiming to take Lexus to the next In Japan, approximately 15,000 level as a global premium brand, vehicles were sold between August 100 we stepped up marketing in Europe 2005, when Lexus debuted, and and Asia to supplement the brand’s March 2006. Plans call for expan- 0 August 2005 launch in Japan. The sion of the network of dedicated FY ’02 ’03 ’04 ’05 ’06 North America Europe Japan standing of Lexus as the number Lexus dealers from the initial 151 to Others one luxury brand in North America about 180. is unquestioned, with the region accounting for almost 80%, or Product Strategy 319,000 units, of the 415,000 Lexus Pursue true luxury to create vehicles sold worldwide in fiscal unmatched products 2006. Now, we will expand sales The Lexus GS and the Lexus IS, networks to increase Lexus business which we fully remodeled in time in regions outside North America. for the premiere of Lexus in Japan, In Europe, we will rapidly lift posted solid sales in the mainstay sales past the 60,000-vehicle North American market. In April mark—from the fiscal 2006 level of 2006, we remodeled the Lexus ES, 35,000 units—by strengthening which features enhanced comfort, and adding to our network of dedi- safety, and driving performance. cated Lexus dealers and bolstering Under the Lexus badge, our mis- Lexus debuted in Japan advertising. sion is to create high-end automo- In Asia, particularly in China’s biles with new value that is in step fast-growing automotive market, with the 21st century. To that end, we will open additional dedicated we are eagerly incorporating hybrid Lexus dealers. By targeting major systems into Lexus models to achieve cities, we will expand our existing radically differentiated driving and 30 LS GS (Hybrid model) ES IS environmental performance. We Europe, we unveiled the Lexus IS introduced hybrid versions of the featuring an advanced clean diesel Lexus RX SUV, in May 2005, and engine to heighten the presence of the Lexus GS sedan, in April 2006, Lexus in the market for diesel vehi- and both models have already cles, which is becoming the region’s earned strong market support. mainstay. Further, we have slated a complete In the quest to redefine luxury, transformation of the flagship Lexus Lexus will continue raising the bar for Lexus dealer (United Kingdom) LS model in time for its September all facets of luxury-brand sedans, 2006 debut in Japan. Spring 2007 from service quality to design, driving will witness the launch of an LS pleasure, environmental perfor- hybrid model. In February 2006 in mance, and safety. Leading-Edge Technology Built into Lexus The Lexus brand aims to realize new value that goes beyond traditional ideas and benchmarks for luxury automobiles. As befits the brand’s mainstay model, the LS is full of the very latest technology. ■ World’s First Eight-Speed Automatic Transmission The last word in electronic control technology, this new transmission achieves seamless acceleration and outstanding fuel efficiency and quietness unobtain- able from conventional automatic transmissions. ■ World’s First Rear Pre-Crash Safety System A millimeter-wave radar in the rear bumper scans vehicles approaching from behind and determines the probability of a collision. If the system determines that a collision is unavoidable, it lessens the impact on the heads of passen- gers by moving the front-seat headrests forward until they touch the passen- gers’ heads. ■ World’s First Pedestrian Recognition Stereo Camera This is a pre-crash safety system employing an upgraded millimeter-wave radar to detect the presence of pedestrians, recognition of which was problem- atic with the previous generation of technology. If the system detects a high possibility of collision, it sounds an alarm. If corrective maneuvering does not take place, the pre-crash brakes are activated to reduce the collision speed. 31 Business Overview Automotive Operations Japan Vehicle Sales in Japan Toyota will maximize growth opportunities by developing and offering products with enhanced appeal amid steady trends in its home market. (Thousands of units) –1.9% 1,769 2,500 –0.7% Market Conditions Toyota Group, including Daihatsu 2,364 Steady demand in domestic market Motor Co., Ltd., and Hino Motors, 2,000 as automotive market undergoes Ltd., vigorously marketed vehicles. structural change However, domestic vehicle sales of 1,500 Fiscal 2006 saw total new vehicle 2.36 million units on a shipment sales rise slightly to 5.86 million basis came up just short of the 1,000 units, while sales excluding minive- previous year’s results, and our hicles edged down to 3.91 million share of the non-minivehicle mar- 500 units. In recent years, demand in the ket adjusted slightly, from a high- non-minivehicle market has held water mark of 44.5% to 44.3%. 0 steady just below 4.00 million units Nevertheless, Toyota claimed more FY ’02 ’03 ’04 ’05 ’06 Unconsolidated while demand has shifted toward than 40% of the market for the Consolidated minivehicles and used vehicles. In eighth straight year. fiscal 2007, the non-minivehicle Looking at sales trends by market is projected to stay around model, the Vitz, which was fully Market Share in Japan the 4.00-million-vehicle mark. remodeled in the previous fiscal (%) year, and new models, such as 50 Performance Overview the Ractis and Belta, sold briskly. 44.3% Toyota keeps market share above 40% despite slight decline in vehicle sales 40 In tough market conditions, the 40.9% Domestic Lineup Highlights 30 2005 October Launch of the Ractis compact passenger car November Full remodeling of the RAV4 small SUV Launch of the Belta compact sedan 0 December Full remodeling of the bB compact 2-box FY ’02 ’03 ’04 ’05 ’06 2006 January Full remodeling of the Estima high-end minivan Excluding minivehicles Launch of the Rush compact SUV Including minivehicles Full remodeling of the Camry high-end FF* sedan * Front engine front drive 32 bB Estima Rush Market Strategy Further, we will continue restruc- Step up development of attractive turing sales channels to cater to vehicles to stimulate demand customers with diverse needs and In the domestic automotive market— values. Having already consolidated which has trended steadily in the past sales channels from five to four and several years—we will actively take launched the new Netz sales chan- measures to invigorate the market nel in 2004 through the advance- and achieve medium-to-long-term ment of a revised product and Ractis growth. To spur replacement de- channel strategy, we differentiated mand by creating new value in cars, sales channels more sharply by Toyota will offer products that cus- launching new visual identities for tomers find even more appealing Toyota dealers, Toyopet dealers, and move forward with technology and Corolla dealers in March 2006.