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Looking for the biggest Toyota on the market? You'd do well to skip the Tundra pickups and Sequoia SUVs down at your local dealer. Instead, take a trip to the Toyota factory in Kasugai, a city of 300,000 about three hours west of Tokyo. There, the models on the assembly line don't amount to much in terms of acceleration or horsepower, but boy, are they ever roomy -- as in multiple bedrooms, a living room, kitchen, bath, and patio.
The Kasugai plant is one of three Toyota factories in Japan that make prefabricated houses. Just like Toyota's cars, these come with fancy, foreign-sounding names and plenty of options, such as solar roof panels and keyless entry. For those with a Corolla-size budget, the top-selling, 1,300-sq.-ft. Smart Stage runs about $175,000, excluding land. For the Camry set, there's the 1,800-square-foot Espacio Mezzo, with three bedrooms and a garage, selling for about $225,000, though add-ons can take buyers into Lexus territory: At least one big spender laid out $860,000 for a super-size version.
Even as Detroit's carmakers have shed virtually all of their noncore assets, the world's most successful car company is heading in the opposite direction. Toyota controls dozens of businesses that have virtually nothing to do with automaking, ranging in size from resort developer Nagasaki Sunset Marina (77% owned by Toyota), with just five employees, to Toyota Financial Services Corp., a wholly owned subsidiary with 8,000 workers and $1.7 billion in operating profits in fiscal 2005. All told, revenues for Toyota's nonauto businesses jumped 15.5%, to $10.3 billion, in the year through March, and are up 50% since 2003. While last year's total still represented less than 6% of Toyota's overall sales of $180 billion, if broken out the company's sideline businesses would rank No. 192 among companies in the Standard & Poor's 500-stock index.
Houses are just the beginning. The automaker owns 100% of Delphys Inc., an advertiser with revenues of $660 million. There's Toyota Amenity, a wholly owned subsidiary with 69 employees that provides consulting services for hotels, wedding halls, and restaurants. To profit from the graying of Japan, there's Good Life Design, a 51%-owned company that offers support services to medical institutions. And should its employees go hungry, Toyota could turn to Toyota Bio Indonesia, a grower and processor of sweet potatoes. Established in 2001, the subsidiary is 90% owned by Toyota and aimed for sales of $860,000 in 2005.
Then there's Tokyo-based Toyota Roof Garden. As its name suggests, the subsidiary -- 70% owned by Toyota -- designs and sells greenery for rooftops, using peat from China to create lush spaces high above the streets. Toyota expects the business to grow as governments across Japan promote planting on roofs to combat rising temperatures in cities. And on July 1 the unit began selling a new composting ingredient developed with contact lens maker Menicon Co. that, among other things, removes offensive odors from manure.
What's the point? One clue can be found in Toyota's history. The company started out making power looms for Japan's textile industry. But Toyota founder Kiichiro Toyoda, after dismantling and rebuilding engines on Chevrolets imported to Japan, quickly recognized the potential for autos. In 1935 he built his first car, the A1. Two years later, Toyota Motor Corp. (TM) was spun off. Following that tradition of corporate exploration, since 1986 Toyota has had a New Business Project Committee to look into concepts in five areas, including factory automation, electronics, and biotechnology.
Image is another factor. Just as Toyota has used its Prius hybrid to build an eco-friendly profile -- while churning out ever more big trucks and SUVs -- investing relatively small sums in new technologies can go a long way in the PR stakes. While few of its nonauto businesses are huge profit drivers, Toyota says the aim of such sidelines is to use its technology and intellectual assets to "enrich society."
Not all the investments are totally unrelated to autos. Some of those Indonesian sweet potatoes, for example, are used to make biodegradable plastics that have found their way into Toyota cars. Panasonic EV Energy, 60% Toyota-owned, develops batteries for hybrids. And like many other automakers, Toyota rakes in big bucks from financing its vehicles.
Still, Toyota says it can find synergies in many activities that have nothing to do with cars. At Kasugai, Toyota's houses are 85% completed at the plant before being transported by road and built in just six hours. To improve efficiency, the company borrows knowhow from its fabled Toyota Production System with its principles of just-in-time delivery and kaizen, or continuous improvement. Anticorrosive paint is applied evenly to houses' steel frames using methods adopted from car production. And just as in all Toyota's Japan auto factories, a banner proclaiming "good thinking, good products" hangs from the roof. "We follow the Toyota way in housing," says Senta Morioka, a managing officer at Toyota.
Where possible, Toyota also uses components developed for cars in its houses. One example is the keyless entry system which uses a radio sensor to lock or unlock the doors automatically. And to help keep out burglars, the windows are made of the shatter-resistant glass that Toyota uses in its windshields.
Yet for all that, many wonder what a car company like Toyota is doing in housing, roof gardens, and advertising. For the most part, analysts and investors turn a blind eye. One reason, of course, is that it's difficult to quibble with a company that posted earnings of $12.5 billion last year, enjoys operating margins near the top of the auto industry, and is poised to sweep past General Motors Corp. (GM) as the world's biggest carmaker in the next year or so. "There's a certain amount of complaining about this kind of stuff [from investors], but it's a rounding error when compared with their total spending," says Christopher Richter, an analyst at brokerage CLSA Asia-Pacific Markets in Tokyo.
Kurt Sanger, an analyst at Macquarie Securities, adds that Toyota's wide-ranging interests also mean it will have ample padding if the company's plans for global domination in autos fall short. "If things got really bad one day," he says, "they've got lots of things they could sell." Anyone want a used roof garden?
By Ian Rowley, with Hiroko Tashiro in Tokyo