Toyota Motor Corp expects to accelerate its cost-cutting efforts next year to save more than $2.7 billion annually, its president said on Tuesday, as the world's biggest carmaker seeks to offset rising commodity and development costs.

We would expect to exceed what we've done under the previous plan, Katsuaki Watanabe told Reuters in an interview at the company's headquarters in Toyota City.

That amount should grow every year along with rising sales, he said, as cost reductions would be made on a per-vehicle basis.

Since 2005, Toyota has been working on a new cost-saving strategy dubbed VI for Value Innovation, which seeks to lump some of the tens of thousands of components in a car into modules and systems. The first car to incorporate the new scheme, a remodeled Crown sedan, is due out early next year.

I believe the strategy is basically proceeding as planned, Watanabe said.

Toyota has given scant details on the program's target, saying only that it expected the impact to be faster and bigger than a previous plan to cut the price of individual parts.

That plan, called CCC21 (Construction of Cost Competitiveness in the 21st Century) and led by Watanabe as purchasing chief, shaved $9 billion off costs over five years, and executives have said it had the capacity to eliminate 300 billion yen in costs every year. That is equivalent to around 13 percent of Toyota's operating profit of 2.24 trillion yen last year.

The ability to reduce costs has been Toyota's forte, allowing it to pour money back into developing new models and attract drivers around the world. Toyota began selling the Prius, the world's first gasoline-electric hybrid car, 10 years ago and is still one of just a handful of carmakers to mass-produce the gas-sipping vehicles.

The fact that they're planning to build on the CCC21 plan is remarkable, and attests to Toyota's unique strength as a high-volume carmaker and its group companies' solidarity, UBS Securities auto analyst Tatsuo Yoshida said.

It'll give them a free hand to use their resources flexibly, including securing even more customers by building more attractive features into their cars, he said.


Slashing production costs is even more important as commodity prices keep climbing, environmental and safety standards rise and consumers migrate towards smaller and lower-margin compact cars to get better mileage.

At the same time, Toyota has promised to reach and sustain a 10 percent operating profit margin. Already its margin is the highest in the sector, at 9.3 percent in the year to March 2007.

Watanabe said reaching the 10 percent margin was crucial to be able to invest to the tune of 1.5 trillion yen a year each on facilities and R&D to develop safer and more environmentally friendly cars.

The VI project will be incorporated into each new model that Toyota rolls out from early next year, meaning the effect will grow from year to year, Watanabe said.

The full impact will be seen probably around 2010, he said, adding that Toyota would step up its cooperation with North American and European suppliers to expand the cost-cutting activities beyond Japan.


Watanabe, known in the company for his big-picture vision, is looking beyond the ambitious VI project.

By 2010, the 65-year-old executive said, Toyota will likely have crafted a new scheme to replace the VI plan.

By then we'd be looking at the car's design as a whole, for example by using lightweight materials, he said.

I don't want to divulge too much, because this is really a corporate secret, he said, but added that there was a hint in the 1/X concept car shown at the Tokyo Motor Show which weighs just 420 kg -- one-third of the Prius, with twice its fuel efficiency.

Toyota is the world's most valuable automaker, with a market capitalization of more than $200 billion. Its revenue reached $215 billion last business year as sales grew in North America, Europe and China, although Toyota is conspicuously behind in the budding Indian market.

Toyota has forecast sales of 9.34 million vehicles this year, including units Daihatsu Motor Co and Hino Motors Ltd, likely toppling General Motors Corp as the world's top seller of automobiles. Excluding GM's minority-held Chinese joint venture, Toyota ranked first in 2006.

By 2009, Toyota aims to expand sales to 10.4 million a year.

(Additional reporting by Aiko Hayashi and Nelson Graves)