Two top Japanese automakers said they planned to tighten their belts in the years ahead to free up cash to develop electric cars and ride-sharing services, underscoring the hard task ahead as traditional automakers face a rapidly changing industry.

Toyota Motor Corp, the country’s top automaker, said that higher costs to develop new technologies like connected cars was ramping up pressure to generate savings wherever possible, while Honda Motor Co said it would strip down its vehicle line-up to cut production costs.

“We still weren’t able to improve our costs enough last year,” Toyota CFO Koji Kobayashi told reporters, adding that mounting investment required for new technologies and other R&D costs was making cost-cutting efforts more challenging.

Honda CEO Takahiro Hachigo said Japan’s No. 3 auto-maker would cut the number of car model variations to a third of current offerings by 2025, reducing global production costs by 10 per cent and redirecting those savings toward advanced research and development.

Future business model?

Toyota expects cost reduction efforts will help to lift operating profit by 3.3 per cent to ¥2.55 trillion ($23.20 billion) in the year to March 2020.

In the year just ended, Toyota posted an operating profit of ¥2.47 trillion. Toyota also announced a ¥300-billion share buyback. Honda forecast cost reductions would help boost operating profit by 6 per cent to ¥770 billion in the year to March. Profit fell 13 per cent to ¥726 billion in the year ended March due to currency fluctuations and costs related to Honda’s plan to shutter production plants in the UK and Turkey in 2021.

Toyota, Honda and their rivals are facing stiff competition as ride-sharing technology and the race to develop self-driving cars has caused rapid and costly disruption to the auto industry.

These new technologies have opened the industry to tech firms and other players, forcing traditional auto-makers to rethink their strategy of selling gasoline-powered passenger cars to individual drivers, a business model which has been essentially unchallenged for the past century.

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