Toyota Cuts Marketing Budgets To Fuel Research
Toyota has begun slashing costs, starting with sales and marketing, and shifting resources into research that will help it keep up with new competitors.
One of the company’s first moves was to cancel contracts with the China unit of its long-term communication and advertising agency, Dentsu Inc, the sources said.
Chief executive Akio Toyoda and chief financial and risk officer Koji Kobayashi want to follow the example of Tesla, Google and Tencent – all of which rely heavily on cheaper, often more innovative non-traditional marketing.
They said the savings should be plowed into investment in emerging technology such as autonomous vehicles.
“We may be posting record profits, but we don’t think we are keeping up with their pace of investments,” one of the sources, a senior Toyota official, told Reuters.
To do that, Kobayashi wants to tap into money once earmarked for automotive marketing and general expenses, which for the year that ended in March totaled 2.72 trillion yen ($24.66 billion).
The company reported 2.4 trillion yen ($21.68 billion) in operating income in the same period, making Toyota one of the world’s most profitable automakers.
The company’s profit margin is about 9 percent. But companies like Google and Apple – now competing directly with Toyota in automotive technology – boast numbers several times larger.
Toyoda and Kobayashi see a sharp contrast between Toyota’s hyper-efficient factory side and its more wasteful sales operation, the sources said.
Barring Beijing Dentsu from new business with the automaker next year, and scaling back work already approved, shows the effort to cut spending is serious, the sources said.
Although the company may bid for Toyota contracts again in 2020, it will be a hard sell, they said. Beijing Dentsu had been doing about $50 million worth of business for Toyota annually.