Toyota not blinking in the face of slowdown

(It's not letting go of the 4,500 workers, though; they're keeping busy by doing everything from training programs to filling in at assembly lines elsewhere or volunteering in local communities.) And for the first time, its hot-selling Prius gas-electric hybrid will be built in the U.S., at a plant in Mississippi — a move that will help it meet a target of selling 1 million hybrids a year early in the next decade.

Back in Japan, Toyota is finding ways to trim spending. To counter the rising cost of raw materials, Toyota has begun working with steelmakers to reduce the 4 million metric tons of steel it uses each year. That's led to a 20 percent reduction in the steel sheets it buys from suppliers, the company says. Toyota has also asked group companies and suppliers to submit ideas for lowering costs.

Perhaps more important, though, is Toyota's pipeline of new vehicles, which will incorporate more hybrid models. A new Prius next year will likely be shown at the North American International Auto Show in Detroit in January, and two more hybrid models, along with hybrids for the luxury Lexus lineup, could be available by 2010. "There's no magic formula to cope with the sudden changes in the business environment," says Tatsuo Yoshida, an analyst at UBS (UBS) in Tokyo. "But Toyota has one of the widest product portfolios, and it invested heavily in hybrids as well."

Toyota's not betting solely on hybrids. It has high hopes for its new $14,000, 1-liter iQ ultracompact car, which it will begin selling on Nov. 20 in Japan and early next year in Europe. The company is wagering that the iQ — slightly longer than the Smart Fortwo but with seating for three adults — can change the perception that small vehicles are lower-quality. That's important if the world's car buyers shift to smaller vehicles, which tend to offer lower margins than larger models.

The iQ is the result of a five-year project to find new ways of creating more space in smaller cars. The result is a host of new technologies that make the tiny car feel roomy on the inside. The iQ, for example, saves space by placing its flatter fuel tank under the floor instead of the rear seats. Its air-conditioning and heating system is 20 percent smaller than the model used in the Yaris compact car. Hiroki Nakajima, chief engineer of the iQ, says applying the know-how to other cars built on the same platform might produce the unthinkable — a compact car that seats seven people.

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