Toyota
Essay Preview: Toyota
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Yoi kangae, yoi shina! thats Toyota-speak for “Good thinking means good products.” The slogan is emblazoned on a giant banner hanging across the companys Takaoka assembly plant, an hour outside the city of Nagoya. Plenty of good thinking has gone into the high-tech ballet thats performed here 17 hours a day. Six separate car models — from the Corolla compact to the new youth-oriented Scion xB — glide along on a single production line in any of a half-dozen colors. Overhead, car doors flow by on a conveyor belt that descends to floor level and drops off the right door in the correct color for each vehicle. This efficiency means Takaoka workers can build a car in just 20 hours.
The combination of speed and flexibility is world class. More important, a similar dance is happening at 30 Toyota plants worldwide, with some able to make as many as eight different models on the same line. That is leading to a monster increase in productivity and market responsiveness — all part of the companys obsession with what President Fujio Cho calls “the criticality of speed.”
Remember when Japan was going to take over the world? Corporate America was apoplectic at the idea that every Japanese company might be as obsessive, productive, and well-managed as Toyota Motor Corp. (TM ). We know what happened next: One of the longest crashes in business history revealed most of Japan Inc. to be debt-addicted, inefficient, and clueless. Today, 13 years after the Nikkei peaked, Japan is still struggling to avoid permanent decline. World domination? Hardly.
Except in one corner. In autos, the Japanese rule. And in Japan, one company — Toyota — combines the size, financial clout, and manufacturing excellence needed to dominate the global car industry in a way no company ever has. Sure, Toyota, with $146 billion in sales, may not be tops in every category. GM is bigger — for now. Nissan Motor Co. (NSANY ) makes slightly more profit per vehicle in North America, and its U.S. plants are more efficient. Both Nissan and Honda have flexible assembly lines, too. But no car company is as strong as Toyota in so many areas.
Of course, the carmaker has always moved steadily forward: Its executives created the doctrine of kaizen, or continuous improvement. “They find a hole, and they plug it,” says auto-industry consultant Maryann Keller. “They methodically study problems, and they solve them.” But in the past few years, Toyota has accelerated these gains, raising the bar for the entire industry. Consider:
— Toyota is closing in on Chrysler to become the third-biggest carmaker in the U.S. Its U.S. share, rising steadily, is now above 11%.
— At its current rate of expansion, Toyota could pass Ford Motor Co. (F ) in mid-decade as the worlds No. 2 auto maker. The No. 1 spot — still occupied by General Motors Corp. (GM ), with 15% of the global market — would be the next target. President Chos goal is 15% of global sales by 2010, up from 10% today. “They dominate wherever they go,” says Nobuhiko Kawamoto, former president of Honda Motor Co. (HMC ). “They try to take over everything.”
— Toyota has broken the Japanese curse of running companies simply for sales gains, not profit. Its operating margin of 8%-plus (vs. 2% in 1993) now dwarfs those of Detroits Big Three. Even with the impact of the strong yen, estimated 2003 profits of $7.2 billion will be double 1999s level. On Nov. 5, the company reported profits of $4.8 billion on sales of $75 billion for the six months ended Sept. 30. Results like that have given Toyota a market capitalization of $110 billion — more than that of GM, Ford, and DaimlerChrysler (DCX ) combined.
— The company has not only rounded out its product line in the U.S., with sport-utility vehicles, trucks, and a hit minivan, but it also has seized the psychological advantage in the market with the Prius, an eco-friendly gasoline-electric car. “This is going to be a real paradigm shift for the industry,” says board member and top engineer Hiroyuki Watanabe. In October, when the second-generation Prius reached U.S. showrooms, dealers got 10,000 orders before the car was even available.
— Toyota has launched a joint program with its suppliers to radically cut the number of steps needed to make cars and car parts. In the past year alone, the company chopped $2.6 billion out of its $113 billion in manufacturing costs without any plant closures or layoffs. Toyota expects to cut an additional $2 billion out of its cost base this year.
— Toyota is putting the finishing touches on a plan to create an integrated, flexible, global manufacturing system. In this new network, plants from Indonesia to Argentina will be designed both to customize cars for local markets and to shift production to quickly satisfy any surges in demand from markets worldwide. By tapping, say, its South African plant to meet a need in Europe, Toyota can save itself the $1 billion normally needed to build a new factory.
If Cho gets this transformation right, hell end up with an automotive machine that makes the Americans and Germans quake. Cost-cutting and process redesign will chop out billions in expenses. That will keep margins strong and free up cash to develop new models and technologies such as the Prius, to invest in global manufacturing, and to invade markets such as Europe and China. New models and new plants will build share, which will build more clout. And if theres a hiccup — well, theres a cash-and-securities hoard of $30 billion. “This is a company that does not fear failure,” says Cho.
Roadblocks?
Can anything stop Toyota? There are some potential roadblocks. Toyota doesnt always get it right: Its early attempts at the youth market, minivans, and big pickup trucks all disappointed. It remains dependent on the U.S. business for some 70% of earnings. Its Lexus luxury sedans are losing ground to BMW, though Lexus strong SUV sales are keeping the division in the game. The average Toyota owner is about 46, a number the company must lower or risk going the way of Buick. And most of Toyotas big sellers arent exactly head-turners.
Meanwhile, Toyotas rivals are hardly sitting still. GM is finishing up a $4.3 billion revamp of Cadillac, and a revival is in the works: Overall GM quality is on an upswing too. “Toyota is a good competitor, but theyre not unbeatable,” says GM Chairman G. Richard Wagoner Jr. Over at Nissan, CEO Carlos Ghosn doubts Toyotas big bet on hybrids will pay off. “There will be no revolution,” he predicts.