B U S I N E S S

H I G H L I G H T S

CATEGORY I BUSINESSBusiness Summary
Business in Category I is composed of 3 business
units: the Automobile assembly, the Engines and theFoundry. Sales from these business units account for
approximately 50% of our consolidated sales. Thisbusiness category is closely related to production ofTOYOTA cars and plays an important role in theentire Toyota Group companies, whose core businessis the manufacturing and sales of automobiles.
Automobile assembly business unit
The Automobile assembly business unit isresponsible for manufacturing TOYOTA compact
passenger cars. We currently assemble 2 models, the“Vitz” (exported as the “Yaris”)* and the “SprinterCarib” (exported as the “Corolla Wagon”). The annual
production capacity is over 200,000 vehicles in total.
Toyota Motor Corporation (referred to as “TMC”) isengaged in the development and design of the basemodels for each of these cars, in cooperation with ourdevelopment team. Development of various models
derived from a base model and of modified models tomeet the variety of customer needs is assigned to us,too. We maintain the highest level of quality and costeffectiveness among the numerous assembly plants of
the Toyota Group companies, which in turncontributes greatly to maintaining the superiority ofTOYOTA cars in the global market.
* Production of the “Starlet” was terminated in July 1999, as production of the“Vitz”, replacement model of the “Starlet”, has started in January 1999.

Engines business unit
The Engines business unit is responsible fordevelopment, design and manufacturing of diesel andgasoline engines for TOYOTA cars and industrial
vehicles. We currently manufacture more than 10
types of engines: the major types include dieselengines (C-type) and gasoline engines (S-type) for2000 cc class cars, diesel engines (H-type) andgasoline engines (F-type) for 4000 cc class RVs, aswell as diesel and gasoline engines for the 1500 cc to5000 cc class industrial vehicles. TOYOTA car engines
are manufactured by other companies such as
Daihatsu Motor Co. Ltd. and TMC
itself. We are mainly developing
and manufacturing rather small
diesel engines. For gasolineengines, we manufacture about
170 thousand units annually inour distinctive Flexible
Production Line*. We areconsidered a main producer ofdiesel engines, with a share of about
30% of all those manufactured by
1HD-FTE Diesel EngineToyota Group companies. To overcome the recent
decline in diesel engine demand in the domesticmarket, we have developed direct injection diesel
engines designed to save on fuel consumption and toincrease power. These new engines have been on salesince the fiscal year ending March 2000. The first units
have already been shipped to Europe.
* The Flexible Production Line is a process line designed for simultaneous
production of up to 4 different models of engines by simply replacing fixtures.

Foundry business unitThe Foundry business unit manufactures mainly castparts for engines, such as cylinder blocks and heads.
This business unit is a basic materials supply center,supplying high-quality low-cost products mainly to
our Engine business unit and also to engine plants ofTMC. At our Obu plant (in Obu City, Aichi Prefecture)
we also manufacture aluminum die cast parts for car
air-conditioning compressors (classified as a part ofCategory II as described below), and we manufacture
cast parts for valves of industrial equipment, and also
cast parts for textile machinery frames.
Business Performance for Fiscal 1999 andFuture Business Plans
Business as a whole for the fiscal year 1999, ended
March 1999, was below the previous year level. Thiswas due to a decrease in sales by the Automobile
assembly business unit, influenced by sluggish car
demand in the domestic market. However, sales by
the Engine business unit increased slightly thanks to
the introduction of new models.
Automobile assembly business unit
The total number of cars sold for fiscal 1999 was
199,557 which is 24.3% less than the previous year,
when 263,449 vehicles were sold. Despite suchcircumstances, sales of the “Vitz”(“Yaris”), a 1-literclass car whose production started in January 1999
grew more than expected both in the domestic andEuropean markets. Orders are expected to continue toincrease for the fiscal year ending March 2000.
Additionally, 1.3-liter type and 4WD type will be
added to the production line in August 1999 so as toexpand the variety of this car. This is expected to help
further increase sales of this car. We plan in the future
to maintain our position as a reliable supplier to TMC,by achieving top level quality and cost effectivenessamong the automobile assemblers in the Toyota
Group. Our development team will seek to expand
the variety of products by planning and developing
new versions based on the “Vitz” to satisfy thecustomers and at the same time to increase car sales.

“Vitz” (“Yaris” for Europe)

Engines business unit
Production of 2000 cc class S-type gasoline engines
reached its full capacity during fiscal 1999, asrequested by TMC in January 1998. The total numberof engines manufactured by this business unit reached383,635, increased by 12.9% from the previous year,
despite a continuing decline of diesel engine
production in recent years. In the fiscal year ending
March 2000, the manufacturing of S-type engines will
be replaced by the E and Y-types and our production
capacity will decline during the replacement period.
However, the number of engines to be produced will
increase further in the future through utilization of theFlexible Production Line. As for diesel engines wehave focused on the development of a direct injection
type and intend to expand production with a coreproduct line of 2000 cc class engines whose
production started in June 1999.

AUTOMOBILESENGINES(thousand units)(thousand units)

Vitz
34

Carib
43

TOTAL
200

Starlet123

Gasoline
176

TOTAL
384

Diesel208

T O Y O D A
1 9 9 99