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Toyota cutting fat from costs

Foundry workers at a Toyota Motor Corp. plant in Troy, Mo., laughed out loud back in 2003 when Toyota Executive Vice President Kosuke Shiramizu traveled from Japan and gave them a new assignment: Cut in half the cost of building V-6 engines for the company's Camry sedan by 2005.

"We were thinking they were either crazy or didn't really mean it," says Robert Lloyd, 51, who, as president of Toyota's Bodine Aluminum Inc. unit, would be expected to deliver on Shiramizu's goal.

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Shiramizu had a secret weapon. Back in Japan, 300 engineers were working on a new technology for pouring molten aluminum into molds to create parts for engines. The new equipment, part of a larger Toyota cost-cutting program called Simple Slim, allows Toyota to use smaller and cheaper molds.

The new engine technology is now in use not only at Bodine but also at foundries in Japan and China. Partly as a result, the cost of building an engine for the redesigned Camry that was scheduled to go on sale in March will be about $1,000, half the cost of an engine for the previous generation of Camrys, says Gary Convis, executive vice president for North American manufacturing.

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Toyota's latest cost-cutting push is one more piece of bad news for executives at Ford Motor Co. and General Motors Corp. Around the world, Toyota is going from strength to strength, increasing sales and profits, streamlining production and ringing up healthy returns for investors. Its Tokyo-listed stock was up 51 percent to an all-time high of 6,210 yen for the year ended Feb. 3.

Together with Honda Motor Co. and Nissan Motor Co., Toyota has pushed GM and Ford to the wall. The three Japanese automakers captured a combined 28.2 percent of U.S. sales in 2005, an increase of 2 percentage points. Ford and GM captured a combined 44.8 percent of sales, a 2.3 percentage point decline.

"Toyota is already one of the most efficient producers," says Dan Luria, an analyst at the Michigan Manufacturing Technology Center in Plymouth, Mich. "If they can improve this much, that spells big trouble for everybody else."

Saving money in production will help move Toyota toward a grander goal: to become the world's biggest car company. In 2001, management set a target to increase output 50 percent during the next decade. Toyota is well on its way toward meeting the goal: It expects to sell 8.85 million vehicles worldwide in 2006, up from 5.9 million in 2001. That could be enough to pass General Motors - which ranked as the world's largest automaker in 2005, with sales of 9.17 million - if GM's sales decline. In November, GM announced plans to close five North American assembly plants by 2008.

Amid this success, Toyota executives continue to push for new savings in the face of sharp increases in the cost of raw materials such as aluminum, and as new competitors like Korea's Hyundai Motor Co. drive down prices, manufacturing chief Convis says. Toyota sold 431,703 Camrys in the U.S. in 2005, making it the country's best-selling car for the fourth year in a row. Reducing manufacturing outlays on such high-volume models, Convis says, is the only way to stay on top.

Bodine Aluminum is an important part of that effort. Bodine uses dies to cast aluminum engine blocks, which make up the lower two-thirds of an engine, and cylinder heads, the top third, and then delivers them to Toyota factories such as the one in Georgetown, Ky., for assembly into complete engines.

Bodine's Lloyd says that since 2003, his factories in Jackson, Tenn., and Troy have cut the cost of building the blocks and cylinder heads by more than half, to $99.44 per engine. Bodine achieved these savings even though the cost of aluminum is at a 17-year high.

The manager of the Jackson plant, Dan Robbins, wants it to be a showcase. His job as a sensei, or teacher, is to maximize efficiency. Among other things, he and his staff look for wasted effort in the way foundry workers use their hands, feet and eyes as they move from engine block to engine block. Such attention to detail pays off. Since it opened in November, the Jackson foundry has reported defects in 0.7 percent of its engine blocks. That compares with 2 percent at Troy, which Lloyd says is competitive with Toyota's Japanese foundries that use the old casting methods.

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Every week, Lloyd receives a report that compares the quality of his work with that of Toyota foundries in Australia, China, Japan and the United Kingdom. "We're one of the best," Lloyd says.


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