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Toyota Toying With Cars of the Future

TOKYO -- Kumiko Maekawa, a 65-year-old housewife and grandmother of two, says she is tired of having the same old argument with her husband every time they go for a drive in the country.

"He refuses to look at a map when we get lost. And let me tell you, we get lost often," she says, tossing a piercing glance toward her husband, who is busy checking out the latest sports car in a jumbo, two-story Toyota Motor (TM) showroom in Shinjuku, one of Tokyo's busiest shopping districts.

To relive this chronic annoyance, the Maekawas are looking to buy a car navigation system. These systems, known by the abbreviation carnavi in Japanese, are nothing new. They've been around for nearly a decade and are prominently featured in many high-end autos and taxis in Tokyo. The driver can consult maps, locate the closest noodle shop or listen to cable radio over the dashboard units. Some systems even allow drivers to play videogames, though an avid thumb jockey might tempt a fate worse than getting lost.

Since the advent of carnavi, dozens of accessories have been introduced to satisfy the gadget-crazy Japanese. The latest is Hotalk, a product that allows drivers to talk on their mobile phones without holding the actual handset. It hit the shelves -- and the roads -- two weeks ago.

With the Japanese government banning drivers from talking on handsets while they're cruising the streets last November, Hotalk appears set to become a hit product, a Mr. Microphone for adults. Victor Company of Japan, which makes the units, wouldn't release current sales figures, but a spokeswoman said the original plan to produce 30,000 units is already being re-evaluated. Hotalk sells for the un-Japanesely low price of 8,800 yen ($81.50) -- less than some of the famous melons trotted out as evidence of the country's fabulously high prices.

The interest among highway chatters is good news for Toyota, the exclusive retailer of Hotalk. By getting motorists into its showrooms, Toyota may be able to drive up sales of higher-end products, like the navigation systems. Those systems too are made by outside manufacturers, like Pioneer (PIO) and Fujitsu. But Toyota pockets 155,000 yen on each system sold -- 25,000 yen more than it spends on sales promotions for each car it peddles.

Analysts say it's all part of a strategy to diversify the company's revenue stream from just cars to high-end electronics and technology services.

"Pretty soon, I'm going to have to focus more on Toyota, so my days of tracking Nippon Telegraph & Telephone (NTT) may be close to the end," jokes Merrill Lynch technology analyst Kiyoshi Ota.

Hotalk and navigation systems aren't the only products Toyota, which declined to comment for this story, is trotting out to diversify its product line.

About two years ago, Toyota, Japan's No. 1 carmaker, launched its Gazoo Web site, which sells not only auto supplies, but books and travel tickets. It also runs its own Internet service provider and will soon peddle financial services. With sluggish domestic passenger sales starting to cramp Toyota's profits, the firm is expanding into e-commerce at breakneck speed in hopes of finding a new revenue stream, as well as linking every Toyota car and truck driver to the Net.

The aggressive push to diversify has paid off. The company has continuously posted profits for 12 years and boasted pretax profit of 541.82 billion yen ($5 billion) in fiscal 1999. The company's shares are up 16% over the past year. Rival Honda Motor (HMC), by comparison, is down 19.4% and Nissan Motor (NSANY) is down about 15% over the same period.

Unsurprisingly, Toyota is also a favorite of international mutual funds, like (MAFGX) Merrill Lynch Fundamental Growth Fund , up 33.1% over the past year, and (EGIAX) Evergreen Growth & Income Fund , up 7.8%. The funds are the top two holders of Toyota American Depositary Receipts, according to adr.com , a research site.

"What's been impressive about Toyota is its ability to generate profits and rapidly upgrade its models at the same time. What we're seeing is that they are quickly adapting to the Net, and not just transforming seat belts or other classic car parts," says Masato Ogasawara, analyst at Daiwa Institute of Research.

To be sure, Toyota was an early participant in the Net craze. In November 1997, the company began offering Monet Net, a Toyota-only service that allows drivers to check email, headline news and access their home-based personal computers for the modest cost of 600 yen a month. While the service is still limited in scale, Toyota is looking to boost its popularity by tapping into the network of cellular phone operator IDO, which owns a minority stake in Monet.

Japan's No. 1 carmaker is also looking to use the technology of its from its Crosswave Communications ISP unit, which is co-owned by Sony (SNE) and Internet Initiative Japan (IIJI), on the system. Crosswave recently filed an application to the U.S. Securities and Exchange Commission to list on the Nasdaq Composite Index. Next year, the company is expected to unveil its own credit cards, which will likely be useable with the online shopping features it already offers.

Pretty soon, car navigation systems are expected to be so advanced -- they'll be equipped with laser and radar guidance -- that automobiles will slow down or speed up as the systems monitor the surrounding traffic. Routes will be programmed into the onboard computer, eliminating the role of the driver. Passengers will be free to chat and cruise the Net.

When that day arrives, Mrs. Maekawa won't have to worry about her husband getting lost. But she may need to consider how she'll pay for all the purchases she and her husband make while traveling to Mount Fuji for a day trip.

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