Joint Venture Proposal

submitted by

Toyota Inc.

Why Toyota?

Submitted November 14, 1995

Toyota's long-standing reputation for quality and value.

Dependability/Value: Toyotas high standing for productivity, efficiency and capability, is well earned resulting from Toyota's sophisticated engineering and the company's continuous quest for product refinement.
Comfort/Convince: From its ergonomic interior to the many available features, such as 60/40 folding rear seats, height-adjustable shoulder belts and well placed cupholder, Toyota delivers surprising comfort and accessibility in a subcompact car. Toyota's safety features are placed around impact protection, accident avoidance and personal security.
In all three areas, Toyota provides the driver and the passengers with modern safety engineering and technology.

Styling: Toyota's modern design has an European flair. The smooth lines of our cars sheet metal are also designed to reduce aerodynamic drag for excellent fuel effiiency and surprisingly low noise, vibration and harshness. Toyota Teamwork: It takes Toyota Teamwork to earn the loyalty of our customers.
That's why we're always striving to make a quality product that works smart as well as hard. So it's not surprising Toyota has been ranked as the #1 Truck Line in Customer Satisfaction for four years running. Quality. It's the Toyota Way: Perhaps you've heard about our legendary reliability and staying power.

Commitment: At Toyota, each one of us is absolutely committed to the principle of constant improvement. From the initial spark that ignites a concept in our designers, to the innovative technology of engineering, to our very special manufacturing team, to final delivery. How a Toyota can make your life better and easier, more convenient, more fun.
As you read further, you'll find details about the source of that constant improvement, the process we call the Toyota Way. The process is unique. Recently, other car makers have seen the strengths of this way of building automobiles, and put some of these strengths to work in the creation of their own vehicles. This is , you could say, the process in its infancy. At Toyota the process has been up and running for 40 years. We invented it. We are perfecting it still. And we're using those decades of experience to make every Toyota as close to perfect as possible.
What drives the process is our team members. That's because the Toyota Way is not just an abstract idea. It is a way of life. Team members are dedicated to constant improvement -every moment on the job, and often on their own time. That cockpit is so quiet because someone wanted it that way. The door closes so solidly, the body seams are so tight, the paint looks so lustrous-all this and more because Toyota team members wanted these things that way. At our design center, team members meet in small groups to develop the concepts that will become Toyota's. In the Toyota Way, high tech and creativity operate in harmony.
Interior and exterior clay models help provide accurate pictures of how a design shapes up. CAD operators can look at images of that shape from any angle, and suggest improvements.
Our all new Corolla fulfills the demands of a new generation of drivers and passengers with a superb blend of sophisticated contemporary styling, exciting yet economical performance and quality features.
Corolla was born of a user-oriented philosophy that identified the demands of a new generation of drivers and passengers for enjoyable driving performance, superb design and high functionality. At the same time we paid careful attention to safety and care for the environment.

IMPROVING URBAN ENVIRONMENTS

Toyota is especially concerned about two urban environmental issues: air pollution and noise pollution. Urban air pollution became a major social issue in the late 1960s as populations, industries, and culture gravitated increasingly to urban areas. These concentrations made it ever more difficult to maintain air and water quality in major cities.
The first challenge facing automobile manufacturers in doing their part to improve urban air quality was to develop vehicles with lower emissions, especially of hydrocarbons (HC), carbon monoxide (CO), and nitrogen oxide (NOx). Once these substances exceed certain concentrations, they may cause photochemical smog and other damage to the local environment. As gasoline and diesel engines burn their respective fuels differently, so different methods must be used to reduce the pollutants in their exhaust gases. In this vein, Toyota has developed some very advanced technology to reduce automotive emissions. Toyota is also working hard on the issue of noise. We hope these efforts help create better urban environments.
In 1964, Toyota organized an exhaust emissions study group, which started basic research and technological development. In 1970, the entire company was charged with finding ways to reduce exhaust emissions, and a research and development organization was established. The following year, we organized a project team of specialists to tackle the most difficult issues. Both Japan and the United States set stringent targets of reducing automotive gasoline engine emissions to less than 10% of unregulated levels.
And, because Toyota had already started working on reducing emissions, with extra effort we were able to meet the targets. Since then, our research has led to many new technologies in this field. At the same time, we worked on reducing the emissions of diesel engines. Among other technologies, we developed an electronically controlled diesel fuel injection system and the Toyota Reflex Burn (TRB) combustion chamber. This technology helped us reduce Nox emissions by 70% over unregulated levels, and cut smoke emissions and particulate as well. In 1992, we announced the Toyota Earth Charter, in which we set goals to develop and market automobiles with the lowest possible emissions. To that end, we pursue ever cleaner exhaust gas levels through ongoing technological development.
Part of the automobile's impact on the environment comes from traffic issues and urban congestion. Toyota goes beyond just manufacturing cars. We also work hand-in-glove with government agencies in Japan and abroad, striving for better traffic infrastructure and more detailed driver information.
Toyota Central Research Laboratories, Inc., works with us on analysis of the automobile's biological influence. We constantly monitor the atmosphere near major traffic arteries in Japan, compiling and studying information that will one day lead us to a viable simulation of the emissions dispersion mechanism. And in our Toyota Forest Program, we seek to understand and improve the natural ability of trees to purify the atmosphere.
Today, about 75% by weight of every post-use automobile can be recycled. But we are not satisfied with that high percentage. We want to improve it. Reusing everything possible. And retrieving energy from combustible waste that cannot be reused.
Toyota starts toward a higher recycling percentage at the design stage. We design cars to be easier to disassemble. We stipulate materials that are easier to recycle. We eliminate all waste possible in the production process. And we conduct continuing life cycle assessments, which will help us judge how vehicles are used, what happens after use, and how we can help make automobiles a sustainable product.

Thailand:Implementation of the White Road Project traffic safety campaign

The White Road Project, a campaign to deepen understanding about traffic safety among the public at large, from children to the elderly, has been operating since 1988. Activities include TV broadcast of messages on safe driving, the production of manuals and stickers on traffic safety and safe driving, and traffic safety slogan contests. Particular emphasis is placed on traffic safety education for children, with tools such as stationery bearing the White Road mascot used to attract interest.
The ASEAN Toyota Seminar was initiated in 1978 as Toyota's first large-scale international exchange, with the objective of promoting understanding of Japan and the Japanese automobile industry. Every year since, foreign diplomats stationed in Japan and exchange students from ASEAN countries (Indonesia, Malaysia, Singapore, the Philippines, Brunei and Thailand) are invited to participate in the seminar, increasing mutual understanding through presentations and discussions on Toyota's production methods and product development. In 1991, Toyota held a symposium to commemorate the company's 100th international exchange project.

TOYOTA'S GLOBALIZATION ACTIVITIES

For a quicker and more stable supply of the vehicles that customers want, automobiles must now be manufactured locally. This is why we have pursued local production with such enthusiasm at 36 local companies in 26 countries and regions, At the same time, we are extensively involved with the car manufactures of numerous countries and regions through tie-ups and other affiliations ---- based on our principle of competition and cooperation. As a good corporate citizen of the would, we wand to help local economies by stimulating employment and parts procurement in the community.
Australia is Toyota's third largest overseas market after the U.S. and Thailand. In 1994, Toyota was number one in sales in Australia for the fourth consecutive year and number one in New Zealand for the seventh year in a row. Toyota is also expanding its sales and service outlets throughout the Southern Pacific region. Toyota's two existing assembly plants in Australia were integrated into a sophisticated plant in Altona in 1994.
The new plant started operations in July. Future plans call for further improvements in production efficiency and product quality.
In June 1995, Toyota Motor Corporation(TMC) announced a new global business plan that will provide mid- and long-term direction to its future business activities. The plan was created in response to increased globalization of economies and to the new economic environment resulting from recent rapid valuation of the yen.
The proportion of overseas-produced vehicles in worldwide sales (excluding sales in Japan) will increase as production in foreign countries is expanded further. Specifically, the percentage is projected to increase from the 1994 level of 48% to around 60% in 1996, and around 65% in 1998. The shift from vehicle exportation to local production will accelerate and be most evident in North America. In Europe, Asia, and Oceania, the ratio of locally produced cars will be increased as well, taking into consideration the changes in economic circumstances such as the exchange rate.
Local procurement activities for parts, materials, and equipment will be further strengthened in each region through the seeking of capable suppliers and various support activities for current suppliers. Toyota will also engage aggressively in technology transfer, increased investment, and establishing regional parts complementary programs in areas where localization has previously been difficult. To further strengthen the relationships with overseas suppliers, a "Toyota Global Optimized Purchase System" will also be introduced at various locations worldwide.
The Japanese auto distribution market is open, and its system is run based on fair competition. Toyota supports this distribution system. It has also repeatedly declared that the decision to handle foreign automobiles and auto parts remains in the hands of the auto dealers and parts wholesalers, and has acted accordingly. To further enhance understanding among those in the automobile industry and governmental bodies, however, Toyota will take the following measures:

INVESTMENT IN OTHER INDUSTRIES

The industries into which Toyota has diversified include telecommunications, import and sales of small planes and helicopters in Japan, computer systems, optical electronics engineering and other high-tech areas.
Toyota teaches people how to identify opportunities for improvements. And it gives team leaders and their team members in the workplace the authority to go ahead and make the improvements. So, what matters for us in the people we hire is attitude--the ability and inclination to cooperate, to learn new skills, to keep getting better and better."
"Be a company of the world." That's what our Guiding Principles admonish us to be. What that means is to integrate our operations--our company--with the industries and economies of every nation where we operate. It means making an economic and industrial contribution commensurate with our market presence. It means becoming a real member of the community. In that spirit, we unveiled our New Global Business Plan this spring.
Good cars and trucks aren't so good if they make a mess of the environment. So, minimizing environmental impact is a big consideration in the way we power our cars and trucks, in the way we design them, in the materials we select for them, and in the way we make the vehicles. Toyota is a fuel-economy leader among automakers offering a full lineup of vehicle models, including trucks. And we continue to develop cleaner and greener technologies for powering the vehicles of the future.
Toyota listens--to our customers, and to the pulse of society. With that input, we strive for the best possible balance, for sustainable auto manufacturing. To us that means continual improvement of the basic automotive functions: safety, comfort, and reliability, among others. And it means cleaner emissions and better fuel economy.
These goals can only be achieved with on-going basic research and development of new and improved technology--analyzing and improving combustion, developing new catalysts, devising new body structures, finding new materials, and using the most advanced electronics available to create an integral system to control automobiles.

The Proposed Car

In the joint venture, Toyota proposes to manufacture the Toyota Corolla in China. The Corolla is a compact car with a world renown reputation for quality, affordability, fuel efficiency, and reliability second to none in its class. In the United States alone, over 3 million Corollas have been sold in its twenty-six year history. The engineering innovations incorporated into the Corolla are significant and will be instrumental in the technology transferred required to upgrade the Chinese Automobile industry.
Toyota believes in developing partnerships in the countries that it manufactures automobiles. In the US, Toyota has a total investment of more than $5 billion in the American market that includes investments in design centers, testing facilities, and manufacturing plants. Over 84,000 men and women are employed in the US by Toyota and Toyota dealers. Partnerships with hundreds of American suppliers also have had a significant economic impact across the United States. Toyota is not interested in duplicated the successes of its past partnerships, but only surpassing them.
In the first three years of the project, the joint venture will produce one standard Corolla model: 4-Door Sedan. After the third year, two additional models will be made available: 4-Door DX Sedan and 4-Door LE Sedan. These models will offer a variety of options that will target and satisfy the specific needs of individual consumers in China.
After five years, the 5-Door DX Wagon version will be available to consumers.

The following will outline the features that will be standard on the 4-Door Sedan:
Mechanical:
Brakes: power-assisted ventilated front disc/rear drum
Drive train: front-wheel drive
Engine: 1.6 liter, 4-cylinder twin-cam 16-valve (EFI) Stabilizer
bars: front/rear
Steering: power-assisted rack-and-pinion
Transmission: 5-speed manual overdrive

Exterior:
Bumpers: color-keyed
Glass: tinted
Headlamps: aerodynamic halogen with "auto-off" feature
Mirrors: dual black remote-controlled folding outside
Wheel covers: full
Windshield Wipers: intermittent front

Interior:
Carpeting: full cut-pile
Cup holder: dual
Demisters: side window
Gauges: speedometer, odometer, trip meter, coolant temperature and fuel level
Releases: remote hood, trunk, and fuel-filler door
Seats: reclining front bucket with adjustable headrests
Warning Lights: seatbelts, low-fuel level, battery, door-ajar, engine, oil pressure, brake

The following outlines the Specifications of the 4-Door Corolla Sedan:

Mechanical/Performance:
Brakes-power assisted: front - Ventilated discs
rear - Drums
Construction-body/frame: Unitized body
Engine type: 4 cylinder twin-cam 16-valve with electronic fuel injection
displacement: 1.6 liters (1,587cc)
horsepower: 105 @ 5,800 rpm
Torque: 100 lb.-ft. @ 4,800 rpm
Steering type: Rack-and-pinion
Suspension: front - independent MacPherson struts
back - independent MacPherson struts & stabilizer barbrP> Turning circle diameter curb to curb: 32.2 ft.

Exterior Dimensions:
Height-overall: 53.5 in.
Length-overall: 172.0 in.
Wheelbase: 97.0 in.
Width-overall: 66.3 in.
Width-tread: front - 57.5 in.
rear - 57.1 in.

Interior Dimensions:
Head room: front - 38.8 in.
rear - 37.1 in.
Hip room: front - 51.3 in.
rear - 54.3 in.
Leg room: front - 42.4 in.
rear - 33.0 in.
Should room: front - 54.1 in.
rear - 53.5 in.

Curb Weights:
5-speed manual overdrive 2,315 lbs.

Capacities:
Fuel tank: 13.2 gals.
Interior volume 102.1 cu.ft.
Luggage capacity 12.7 cu.ft.

Tires:
Size: 175/65R14
Spare: temporary
Type: all-season steel-belted radials blackwalls

Mileage Estimates:
5-speed manual overdrive: 27 mpg city/34 mpg highway

In our opinion and from our research we expect this sedan and later-on it's wagon counterpart to be best-sellers in China. This sedan is one of our cheaper ones and it is also rated to be quite reliable. Costs to the consumer will be about $9,000. This is well below our American price of $13,000. You will save on the fact that the car has a manual transmission and will not come with so many extras. As you can see from above the gas mileage is quite good and our consumer satisfaction is excellent with the Corolla model as well as all our other cars. We are looking forward to selling one of our best car models in China.
After reviewing our record of excellence in quality and consumer satisfaction we at Toyota are confident in our future dealings with your country. We understand what you want in a car and we are willing to provide that and more.

The following are our projections for the joint venture:
Initial Cost Analysis
The initial approximate cost of the project is 1 billion dollars for a minimal capacity of 300,000 cars/yr. This will include the building of the new factory and payroll for the first year as well as car production. What we need China to do is put up a stake of about 50% and we will supply 50% as well.

Production Analysis
The factory we intend to build will have an initial production capability of approximately 200,000 cars. Based on our research of the surrounding areas and the needs of your people we find this to be an adequate number. Of course our factory will be equipped to handle a production increase of 100%, to 400,000 cars, within the next 5 years. Seeing as we expect your market demand for cars to rise as time goes by we are prepared to grow with it and expand as necessary. This route of action will allow us to start building as soon as possible and make cars while still in the building process. We believe this to be sufficient given the initial delays in marketing and delivery based on the foreseen demand in our automobile.

Employment Opportunities
We believe that with this joint venture, together, we will help employ a large segment of the population in the Tianjin region. The job opportunities will be limited at first, mostly to less skilled functions, but as we move ahead in our project and substantial training takes place in the plant, the employment prospects will become more varied and innovating. We will need assembly-line managers and equipment men. Most of our cars will be put together by machines, this is, as we have seen in the past, the cheapest and most efficient way to build cars. We trust you will realize our expertise in this area. We will most definitely need personnel as designers and engineers as well as marketers and mangers. We want our company to give a great boost to the region's and your country's economic status. At the beginning of the project we expect most of our own people to hold supervisory positions. However, as the project progresses, we will look for Chinese trained personnel for executive positions, after corresponding training.

Business Contract
We are interested in the free-trade zone located in Tianjin. We also wish to make a proposal for it to be a tax-free zone for us. In other words, we wish to be able to have our revenue untaxed for a fair amount of time, to be discussed in the negotiations. In turn we are willing to redirect a percentage of our income into the local Chinese economy. We also are interested in expanding our ability to export. 25% is ok initially, but as our production increases our we wish our export percentage to increase, perhaps another 5%, as is necessary. For the initial equity we believe we cannot provide 70% of the start up costs. We were thinking more along the lines of 50%, as we mentioned above. Also, we find the Board of Directors to be a bit biased in Newchin's Favor. We would like to have at least 2 more people on that board, and have the Foreign Investment Commission add another member as well.

We look forward to discussing this proposal in detail with you at your earliest convenience.

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