Toyota Stalls
The automaker’s new president, Akio Toyoda, confronts slumping sales, idle factories and an onslaught from the Koreans.
By John Lippert, Alan Ohnsman and Kae Inoue
Bloomberg Markets, August 2009
On a mild day in February, Toyota Motor Corp.’s honorary chairman, Shoichiro Toyoda, summoned 400 executives to the redbrick factory in Nagoya, Japan, where his grandfather had built weaving looms a century ago.
The managers filed in for one of the customary updates from Toyota’s gray-haired, 84-year-old patriarch. What they got was anything but ordinary.
Two months earlier, Toyota had forecast its first operating loss since Shoichiro’s father began making cars in the same factory, now turned museum, in 1937. Then in January, about three months earlier than planned, the company announced that Shoichiro’s son, Akio, would replace Katsuaki Watanabe as president. Akio is scheduled to assume his new job at a shareholder meeting Tuesday in Toyota City.
Even with these signals, the managers were ill prepared for the normally reserved Shoichiro’s litany of the carmaker’s missteps and his dressing-down of Watanabe.
“How many times have you made a mistake?” Shoichiro grilled Watanabe, who sat silently among stunned audience members, according to a person familiar with the meeting.
Shoichiro scolded the president for being so anxious to boost sales and profits that he’d let Toyota emulate now bankrupt General Motors Corp. and Chrysler LLC. Toyota had become addicted to big, expensive cars and trucks and had forgotten the customers’ need to save money, Shoichiro said, according to the person’s account.
Toyota’s Rise
Shoichiro wasn’t just lashing out at Watanabe. He was railing against the threat to everything his family had struggled to create.
The Toyodas built their first car when Henry Ford was turning out almost 1 million a year in the U.S. During World War II, the family opened dry cleaning stores to get by. They adopted kaizen, the making of small and continuous improvements, to fine-tune manufacturing. They enhanced quality and squeezed costs to become one of the world’s most admired companies.
Across the Pacific, Ford Motor Co., Chrysler and GM were gorging on Americans’ car lust. They failed to heed skyrocketing gasoline prices, declining workmanship and escalating pay. Last year, with help from its gas-electric Prius hybrid, Toyota pushed General Motors from its perch as the planet’s biggest carmaker.
In its June 1 bankruptcy filing, GM reported $172.81 billion of debt, more proof of the U.S. industry’s descent.
‘Risk Its Very Existence’
Toyota’s work isn’t done. To avoid the four-decade decline that humbled GM, the Japanese company must fend off rising competitors and adapt to the global reality of slowing sales growth and shrinking profits, says John Casesa, managing partner of auto industry consulting firm Casesa Shapiro Group LLC in New York.
“If Toyota is unable to react to a changing world, it will risk its very existence over time,” says Casesa, who’s covered the industry for two decades. “If the company internalizes the GM lessons, it can maintain its leadership.”
Akio’s challenge is to cut Toyota’s dependence on luxury cars and branch out from U.S. markets destabilized by easy credit. In its race to top GM, Toyota splurged on enough new factories to make 2 million additional cars a year. South Korea’s Hyundai Motor Co. targeted small-car buyers in China, India and other emerging countries, where it sold 55 percent of its vehicles last year compared with 31 percent for Toyota.
‘Scrappy Newcomer’
“Toyota went from being a scrappy newcomer to becoming convinced the market was just there for them to take,” says Maryann Keller, an auto analyst and president of Maryann Keller & Associates in Stamford, Connecticut. “Toyota wrote the playbook and Hyundai read it: Build great cars with great value, and people will come.”
Toyota investors won’t see a quick revival, says Christian Takushi, a portfolio manager in Zurich for Swisscanto Asset Management AG, which owns 1.7 million Toyota shares.
After reporting record net income of $17.7 billion for the fiscal year ended on March 31, 2008, earnings took a $22.2 billion nose dive. Toyota ended fiscal 2009 with a $4.5 billion net loss and the company says it expects to lose $5.7 billion more in fiscal 2010.
Earnings won’t recover for three years, even if sales rebound, since Toyota is still paying for its expansion, Takushi says.
“Toyota has overdone itself with capital spending because they really wanted to be No. 1,” he says. “They’re paying a high price.”
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