Decryption of FAW Toyota's "zero inventory" rule

FAW Toyota Motor Sales Co., Ltd. occupies two floors within the Kerry Centre in Beijing, featuring a unique circular layout centered around the elevators. Deputy General Manager Wang Fachang can easily spot his employees by simply walking around the space. "What are you doing?" he often asks, as the ever-growing team of Chinese and Japanese staff continues to communicate day and night. However, despite the daily interactions, 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 actually absorb in terms of order sales? Wang explains that while the market environment is indeed challenging, it doesn’t mean there’s no hope. Their sales model differs from many other manufacturers. One of Toyota’s core strategies is order-based production and sales. Initially, Wang didn’t fully understand this approach. He suggested offering special discounts to big customers to let them pick up cars earlier. But Toyota strongly opposed it, insisting on maintaining fairness. Now, FAW Toyota uses an A and C card system. The A card represents users who have registered at the store, while the C card is for those who have paid deposits and are officially in the order process. Manufacturers produce based on C card data, and dealers are notified three days before the cars are shipped. Wang notes that Honda follows a similar model, with small inventory levels. In China, however, there are additional challenges. For example, FAW Toyota has six sub-brands, plus several models like the Crown, which will be launched next year. These cars need to be displayed in stores, making them larger than in Japan or Europe, where cars are often placed outside. During a visit to Hokkaido, Japan, Wang was struck by how clean the air was and how little mud was on long-distance buses. It made him realize why foreign stores could be smaller and still function well. In China, the situation is different. When asked about the impact of imported cars on models like Overbearing, Wang explained that the import license for Overbearing was significantly reduced, leading to a wider price gap between domestic and imported models. This affected demand. However, after Sichuan Toyota adjusted prices, orders gradually recovered. The Land Cruiser is now produced locally, and Corolla's performance hasn't met expectations. With increased production capacity at Tianjin Toyota, the order-based model should help. Regarding the Crown, Wang emphasized that it needs government support first to attract private buyers. The Japanese side agrees, as it meets procurement standards. They’re promoting it at local fairs. On the topic of market pressure, Wang said that macro-control hasn’t stopped foreign investment—it’s actually created new opportunities. However, high inventory levels and reduced consumer purchasing power have put pressure on dealers. Both sides of the joint venture agree that new product launches generate excitement but also market pressure. When asked about the cost structure of Toyota cars, Wang noted that logistics costs are significant, especially in China. One-way transport leads to inefficiencies. While order-based marketing helps, full system integration remains a challenge. Finally, regarding profit margins, Wang acknowledged that while labor costs are lower in China, other factors like raw material prices and economies of scale affect profitability. Despite the complexity, manufacturers must find ways to survive and thrive in the current market. In August alone, FAW Toyota sold 26,279 units of its main brand, 23,538 Vios, 2,345 Corollas, and 10,030 Land Cruisers. Some models like Vios and Overbearing have shorter waiting times, while others like Coaster and Terios may require longer waits. Dealers do have some stock available.

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