Sunday, May 10, 2009

A Toyoda for Toyota

Akio Toyoda, the grandson of the man who founded the world’s largest automobile company, will take the wheel of a racing Lexus in an automobile endurance contest later this month, just a few weeks before he takes the wheel of the troubled Toyota Motor Corp.

It won’t be the first time that Toyoda has spelled the other drivers in the 24-hour Nurburing endurance race in Germany. This year, like last, he’ll put Toyota’s much touted Lexus LF-A luxury car through its paces. Toyota hopes to officially unveil the car at the biannual Tokyo Motor Show in October.

That’s assuming that there is a Tokyo Motor Show. America’s Big Three automakers, including the now officially bankrupt Chrysler, have declined to participate this year in order to save money and try to ride out the crisis in the automotive industry. So too have several smaller Japanese automobile companies, such as Hino Motors Ltd. It is likely to be a truncated affair.

It is, of course, just one more sign of the severe crisis that is impacting the automobile industry, at least that in the United States and Japan, who together dominate global automobile sales. The downturn has not spared Japan, and Toyota, which recently announced a net operating loss of $4.4 billion for fiscal 2008, its first since 1950.

Consequently, to turn things around or at least try to ride out the crisis, the Toyota board of directors has turned back to the family. Earlier this year it announced that Toyoda, 52, will take over as president in June, replacing Katsuaki Watanabe. He is the first member of the Toyoda family to head the company in 14 years.

Like Ford Motor Company in the U.S., Toyota is family concern, though the actual family ownership is now quite small. It was founded in 1936 by Kiichiro Toyoda, who served as its president until 1950, when, ironically, he stepped down after the company posted its operating first loss - and last one until this year.

The family spells its name with a “D” and the company with a “T”. It changed its name to “Toyota” in 1937 believing that the Chinese characters for the name were easier to write and pronounce. The name also means literally “rice fields”, which was not thought to be an appropriate moniker for a car company.

It can hardly be said that the non-family managers, who headed Toyota for the past 14 years, ran the company into the ground. These were, in many ways, the best years for the venerable car company, which, ironically, enjoyed in its most profitable year ever in fiscal 2007. It current troubles were of very recent vintage.

They led the company into opening “transplant” factories in the US and elsewhere, introduced the Prius, the world’s first mass-produced hybrid car and who presided over Toyota’s displacing GM as the world’s largest car maker last year.

Toyota’s climb to the top of the auto heap had been a long-time coming, but was kind of anti-climatic, considering the sorry state of General Motors and the automobile industry as a whole. In 2008 Toyota made 8.9 million cars compared with GM’s 8.3 million units – too many by most measures. The company hopes to cut production by about a million this fiscal year to avoid overproduction.

Since at least last December, when it projected its first operation loss, the company has been in an emergency mode. It has coped with the marked downturn by delaying the introduction of new plants at home and abroad, such as one planned for the state of Mississippi, suspending production for short periods of time and laying off “contract” workers.

The latter are temporary workers that Japanese manufactures of all stripes have turned to in recent years faced with growing competition from Asia. They do not have the “lifetime” commitment of other workers. Many are from Japanese communities in Brazil, and the government recently urged them to go home, offering them free one-way tickets so long as they promised not to come back.

So far, Toyota has managed to avoid outright plant closings, including any of the seven assembly plants located in the company town, Toyota City, near Nagoya. Some commentators believe that one reason for turning to the family to head the company is that it might make any such closings more palatable to the Japanese. Two older plants in Toyota City that make cars for the Japanese market are considered prime candidates.

One thing that the company probably won’t do is follow the example of the Honda Motor Co. (which is changing its president in June also) and drop out of Formula One and other international auto racing competitions. The new president is known to be a racing enthusiast.
In other ways too, Akio Toyoda is what they call in Detroit, a “car man”. As a scion of the family he has spent years working in various departments of the company, and he is known to get his finger nails dirty. By all accounts he approaches his greatest tasks optimistically.

Says Michael Smitka, an expert on the Japanese car industry at Washington and Lee University: “Toyota faces tremendous challenges. As an organization it has not had to deal with a down cycle before, and this is not just a cycle in one country but in virtually all of its markets.”The company, he argues, invested heavily, possibly too heavily, in exports and failed to read the “bubble component” of the marketing correctly.

“But then who did?”

They also bet that the yen would stay weak, when last year it rose, with every appreciating yen costing the company about $200 million in lost profits.

Toyota must adjust to a rapidly changing market in the US. As the Detroit car makers shed their burdensome legacy costs of universal health care and pensions, Toyota will be losing some of its pricing power and cost advantage. But far from cheering on the demise of the big American assemblers, they have been arguing in favor of bailouts.

In March Jim Lentz, President of Toyota Motor Sales (US), met with the Obama Administration’s auto task force to argue that auto parts suppliers needed a bailout every bit as much as the assemblers. The reason: Japanese transplants depend on the same suppliers and would be hurt of too many went bankrupt.

Like all automakers Toyota faces monumental difficulties, but, unlike the American behemoths, they start from a position of significant financial reserves accumulated through years of rising profits. Last year the company reported a profit of more than $17 billion.



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