Artificial Intelligence
Decryption of FAW Toyota's "zero inventory" rule
FAW Toyota Motor Sales Co., Ltd. occupies two floors of the Kerry Centre in Beijing, featuring a unique circular layout around the elevators. Deputy General Manager Wang Fachang can easily spot his employees simply by walking in a circle. "What are you doing?" he often asks. Within this circular space, Chinese and Japanese staff continue to communicate day and night. However, despite this close interaction, Wang believes there's still much to be discussed—especially during these soft and uncertain times in the auto market.
According to FAW Toyota’s data, as of the eighth month, they had sold 60,000 vehicles, falling short of their target of 105,000 by more than 40,000 units. Completing the goal in just four months seems unlikely. How much can the Chinese market absorb in terms of order sales? Wang explains that while the market environment is indeed challenging, it's not without hope. Their sales model differs from many others. One of Toyota’s core strategies is order-based production and sales. Initially, he questioned whether offering special discounts to big customers would help them get cars earlier, but Toyota was firm on maintaining fairness.
Currently, FAW Toyota uses an A and C card system. A cards represent users who have registered at the store, while C cards are for those who have paid deposits and are entering the order process. Manufacturers produce based on C card data, and dealers are informed three days before the product is shipped. According to Wang, Honda follows a similar model, emphasizing low inventory levels.
When asked if this approach has been distorted in China, especially with fierce competition, Wang says that Chinese dealers have raised some concerns, such as maintaining small inventories. These are voluntary and meet specific consumer needs in a competitive market. However, they don’t fully align with Toyota’s zero-inventory philosophy. Recently, Toyota has allowed some prototypes and small stock at dealerships in China.
Wang also highlights the complexity of the Chinese auto market. FAW Toyota currently has six sub-brands, plus the Crown and other models coming soon. Stores need to accommodate many cars, unlike in Europe or Japan, where stores are smaller and cars are placed outside. He recalls a visit to Hokkaido, where the air was so clear after rain that two rainbows appeared. Even long-distance buses were almost clean. This made him realize why foreign stores can be smaller and still function well.
Regarding the Crown, Wang notes that it's different from other models. It requires government and legal bus support to attract private buyers. The government procurement effect is significant, and the Japanese side agrees. They’ve started promoting the Crown at local fairs, meeting government standards.
When asked about market pressures and communication with foreign shareholders, Wang says macro-control doesn’t stop foreign investment—it creates a bigger opportunity. However, high inventory and reduced purchasing power have increased pressure on dealers. Both parties agree that new product launches attract attention, but demand fluctuates. This market pressure comes from multiple sources.
On the topic of pricing, Wang explains that Toyota’s cars may seem expensive due to logistics costs in China. Transportation inefficiencies, like one-way trips, increase costs. Purchasing cycles for parts also add to the expense. While order-based marketing helps, full system integration remains a challenge.
Finally, when asked about profit margins, Wang emphasizes that accessory costs are critical. There is room for both imported and domestic parts. Labor costs are lower in China, and profit calculations differ from abroad. Despite complexities, manufacturers must find ways to survive in the current market.
FAW Toyota’s recent sales include 26,279 units for the main brand, 23,538 Vios, 20,210 Corolla, 2,345 Costa, 10,030 Land Cruiser, 2,987 Terios, totaling 60,226 units. Delivery times vary: Vios takes 2-3 weeks, Overbearing 2 weeks, Coaster uncertain, and Land Cruisers around 1002 weeks. Some dealers have stock available for immediate pickup.
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