January 16 2008: 4:02 PM EST
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Toyota flexes its muscle

President says company will sell 1 million hybrids a year by 2010, and they'll be smaller, cheaper -- and profitable.

By Alex Taylor III, senior editor

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Toyota President Katsuaki Watanabe

DETROIT (Fortune) -- The race to see who was the largest auto company in the world in 2007 remains undecided, but that hasn't stopped Toyota from flexing its muscles at the Detroit auto show.

President Katsuaki Watanabe, making his first appearance in Detroit since attaining his post, headlined a Toyota (TM) reception Sunday night at the show and turned around to hold a 90-minute news conference Monday morning beginning at 7 a.m..

In the face of competition from General Motors, Watanabe repeated his promise to be selling one million hybrid vehicles annually in the 2010s, and to make hybrids available to Toyota's entire product lineup by 2020. "We have not changed our strategy at all," he said. "Hybrid technology is versatile and can be applied to all those powertrains."

To the amazement of many in the industry, Watanabe also declared that Toyota is making money on hybrids -- and could soon expect to make more. "As of today, there is no problem with the profitability of hybrids. Of course there is room for improvement. The next generation will be one-half the size and one-half the cost."

Watanabe turned surprisingly deferential when discussing the issue of Toyota's quality challenges in the face of international expansion and increases in production. "That's something that is very shameful to share with you," he said. "We had quality inspections that were not fully carried out." As the cost-conscious former head of purchasing at Toyota, he made it clear that improving quality was close to his heart, if only because of its impact on the bottom line. "Once the quality is enhanced, the cost comes down."

Finally, Watanabe revealed that, like the rest of the industry, he has been paying close to attention to the development of a $2,500 car by India's Tata. "Since I became president, I have been asking the engineers to come up with enabling technology for a low-cost car that wouldn't be limited to emerging markets. We should be able to offer a reasonably priced vehicle to customers." Watanabe said that he had driven an early prototype last year. He hasn't issued a go-ahead for production yet because of design and performance problems but added, "Development is very close to a go sign."

But in a disappointment to bargain hunters, Watanabe added, "We will not be offering the vehicle at the price of $2,500 or under 300,000 yen." That, he suggested, would be below the price that even Toyota could offer a modestly-competent vehicle.

An earlier version of this story incorrectly stated that Toyota promised to be selling one million hybrids annually by 2010. Toyota actually expects to reach that goal sometime in the 2010s. To top of page

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