Taking the Wheel as Toyota Skids
Daniel Acker/Bloomberg News
Imported vehicles sit at the Port of Newark, waiting for their turn to gather dust at dealerships. Toyota Motor is starting to feel the downturn that has hobbled its American counterparts.
Published: February 14, 2009
DETROIT
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Akio Toyoda
Alex Wong/Getty Images
Toyota believes alternative cars, like the Prius hybrid, above, will dominate the roads by 2030.
Kimimasa Mayama/European Pressphoto Agency
Toyota’s leaders, from left: Katsuaki Watanabe, president; Akio Toyoda, future president; and Fujio Cho, past president.
THE Japanese phrase genchi genbutsu translates as “go to the spot” — in other words, “see it for yourself.” Few executives embrace that philosophy as completely as Akio Toyoda, who is slated to become the next president of the Toyota Motor Corporation.
Last summer, during a trip so secret that Toyota’s public relations staff didn’t know he was here, Mr. Toyoda visited a dealership in Ann Arbor, Mich., and decided to satisfy his curiosity about a pickup truck recall.
Still wearing his business suit, he got down on his hands and knees on the warm blacktop to examine the undercarriage of one of the trucks, shocking his American hosts, who didn’t expect a corporate V.I.P. to be so hands-on.
They, and everyone else at Toyota, had better get used to it.
In June, Mr. Toyoda will take charge of a renowned company facing its most serious setback since a crisis in the early 1950s forced his grandfather, Kiichiro Toyoda, to give up control of the carmaker he founded in 1937.
The momentum that allowed Toyota to become the world’s biggest and richest carmaker is screeching to a halt. It’s set to report billion-dollar losses for 2008, a stunning reversal from the record annual profits it earned earlier this decade.
In the United States, its biggest car market, unsold Toyotas are piling up on storage lots while dealers, once used to waiting lists of eager customers, grapple with sales that have plunged by a third.
Inside Toyota, the situation is being referred to as “the emergency,” with top management canceling routine meetings and trips to focus on overcoming a global auto slump. On Thursday, Toyota said worker buyouts, possibly shorter workweeks and executive pay reductions would be part of urgent cost-cutting.
At a news conference last month announcing his appointment, Mr. Toyoda put managers on notice that he will pop up everywhere, just as he did in Ann Arbor. “I have assumed the huge responsibility of steering Toyota at a time when we’re facing a once-in-a-century crisis,” he said. “Given the circumstances, I take my responsibility very seriously.”
All of this is far more challenging than anyone at Toyota anticipated even a year ago. Early this month, Toyota forecast a $3.9 billion net loss for the 2008 fiscal year, which ends in March, the first time it has lost money since 1950. It expects an even deeper operating loss of about $5 billion, its first since it was founded.
The dismal financial news came only days after Toyota confirmed rumors that Mr. Toyoda, after a 25-year apprenticeship, would finally become its next president, replacing Katsuaki Watanabe, who has held the job since 2005, and who will become vice chairman.
The prospect of deep losses and the abrupt announcement that a Toyoda would return to power, after people from outside the family had run the company for 14 years, have jolted the auto giant in the same way that looming bankruptcy has rattled Detroit automakers.
“The financial crisis and the economy are intertwined, and the crisis is expanding significantly faster, wider and deeper than we expected,” Mr. Watanabe wrote in an e-mail message in response to questions.
Even before Mr. Watanabe hands off the top job at the company to Mr. Toyoda, pieces of Toyota’s response to the crisis are being rolled out.
Toyota, which has been on a steep growth curve this decade, has put new plants on hold, including a factory under construction in Blue Springs, Miss., that was supposed to open next year. The company plans to cut spending by 10 percent and is letting many temporary workers go; permanent workers thus far have been protected by a lifetime employment policy.
Toyota is also rethinking its lineup of cars for every region of the world and accelerating offerings of more environmentally friendly vehicles. And it’s already planning for 2030, when it envisions a world in which hybrid vehicles — and other types, like those that run on hydrogen — dominate the roads as traditional internal combustion engines fade in importance.
Toyota doesn’t plan to seek government support, either in Japan or elsewhere, Mr. Watanabe said. That fact alone illustrates the gap between Toyota and its American counterparts.
“G.M., Ford and Chrysler are trying to survive,” says John Paul MacDuffie, an associate professor of management at the Wharton School of the University of Pennsylvania. “All Toyota is trying to do is survive a downturn.”
To do so, Toyota will rely on someone who has been groomed for this job for much of his adult life.
ALONG with his last name, reminders of Mr. Toyoda’s heritage are ubiquitous in Japan. A bust of his look-alike grandfather sits in front of Toyota’s soaring glass headquarters in Toyota City, about 30 miles outside Nagoya.
The original office building where Toyota was founded is near Nagoya’s bustling train station, while the traditional Japanese home of the company patriarch, Sakichi Toyoda, is on display in Toyoda City.
These days, the Toyoda family — which spelled its companies’ names differently so they would be easier to write in Japanese characters — holds only a small fraction of Toyota stock.
But the family still wields a powerful influence at Toyota. Mr. Toyoda insists that nepotism was not behind his elevation, and he is also quick to point out that he is captive to his family’s legacy.
“I really did not have a choice to be born with the Toyoda surname,” he said on the day he was named as Toyota’s next president.
Even if his last name were different, Mr. Toyoda’s appointment would set him apart, however. At 52, he is still relatively young to become a Japanese chief executive. (Mr. Watanabe, who turned 67 on Friday, was 63 when he was promoted.)
Mr. Toyoda is fluent in English, perfected when he earned his M.B.A. at Babson College in Wellesley, Mass., and during the years he spent in New York, working as an investment banker and management consultant and living around the corner from the Frick Collection.
Unlike other Japanese executives, who rely on interpreters even when they understand a foreign language, Mr. Toyoda is content to operate in English, using it in speeches, interviews and, according to Professor MacDuffie, even at the training programs that Wharton conducts in Japan.
At one recent Wharton session, Mr. Toyoda cracked jokes and eschewed a formal presentation for an off-the-cuff talk. He seemed “very much a part of the younger generation,” Professor MacDuffie said.
Not surprisingly, Toyota’s American executives, who are struggling with their deepest sales decline in a generation, can’t wait for him to take charge.
“Akio is a very, very good leader,” says James Lentz, president of Toyota Motor Sales U.S.A., the company’s sales arm here. “He’s passionate about the company, and passionate about the people at the company.”
Mr. Lentz met Mr. Toyoda in 1995, when he was general manager of Toyota’s San Francisco region, and Mr. Toyoda was a planner and administrator at a plant in Fremont, Calif., that was a joint venture with General Motors.
Late one Friday night, there was a quiet knock on Mr. Lentz’s office door. Not expecting a guest, he opened it to find Mr. Toyoda, who had come from Fremont to pick up a car to use for the weekend.
Mr. Lentz got another surprise when he discovered that Mr. Toyoda was accompanied by his father, Shoichiro, then Toyota’s chairman, who had traveled to America, unannounced, to visit his son.
Drop-ins continue to be part of Mr. Toyoda’s routine. In recent months, he has frequently called on Mark Templin, the general manager of Toyota’s Lexus luxury division, and one of the company’s most prominent American leaders, to discuss the future of Lexus.
In January, Toyota announced that Lexus would develop its first vehicle to be exclusively designed as a hybrid. Mr. Templin hinted that other dedicated hybrids, and perhaps a premium small car like the Mini Cooper, also may be in store for Lexus.
Mr. Templin, who regularly visits Mr. Toyoda in Japan, describes the Toyota headquarters desk of his boss as “full of paper.” Mr. Toyoda’s office is much smaller than those favored by American chief executives, says Mr. Templin, who adds that he has been impressed by Mr. Toyoda’s effort over decades to learn all aspects of the company’s operations.
Along with his assignment at the Fremont joint venture, Mr. Toyoda has run Toyota’s operations in China and Japan and started a Web site aimed at young Japanese consumers called Gazoo.com. The site, originally meant as a way to market Toyota’s used cars, has since morphed into a popular social network.
Mr. Toyoda was named to the company board in 2000, which put him in regular contact with all of Toyota’s senior leaders, and joined their ranks in 2005, when he became an executive vice president. (The ascent hasn’t been without a few glitches. Not long after becoming a board member, Mr. Toyoda lost the gold lapel pin bearing the original Toyota emblem that all directors wear each day. His status as a family member won him no special treatment, he confided last year in an interview: like everyone else, he had to pay for a replacement.)
Mr. Toyoda also acquired a deep interest in his company’s automobiles, spending hours each month for the last decade testing new cars. In 2007, he even drove a four-hour stint as part of a Toyota racing team in Germany.
“The Toyoda family is still kind of golden” in Japan, says Jeffrey K. Liker, an engineering professor at the University of Michigan and the author of a series of books about Toyota. “The president is the face of the company, and this time, it may be important to have the right kind of face.”
ALTHOUGH Mr. Toyoda plans to respect Toyota’s corporate traditions as the company’s new president, he intends to be his own man.
“I also will not be tied to the past,” he said during the news conference. “I will do my utmost to be as bold as possible.”
His first moves are expected to include naming a new management team. One adviser could be Yoshi Inaba, the former head of Toyota’s North American operations.
Also fluent in English, Mr. Inaba played a role in Mr. Toyoda’s tutelage and became a familiar figure with Toyota’s dealers in the United States. Once considered a leading candidate to become president himself, Mr. Inaba left Toyota to become an airport executive after he lost the job to Mr. Watanabe.
Mr. Toyoda also is expected to call on his father for advice, although Shoichiro Toyoda is expected to leave Toyota’s board when his son becomes president. (Inside Toyota, Mr. Toyoda is called Akio-san to distinguish him from his father, now a robust 84, who is known as Dr. Toyoda or merely Dr. T.)
The relationship between the two men has not always been easy. Mr. Toyoda, who is Shoichiro Toyoda’s only son (he has one sister), did not show an interest in joining the company until he was 28, or several years after most new hires.
Mr. Toyoda, whose father was president from 1982 to 1992, said in an interview in Toyota City last year that he had a complex, dual relationship with the man who was both his father and his supervisor at Toyota.
But senior company executives, who asked not to be identified because they were not authorized to speak for the company about board matters, speculated that there were two reasons the father believed the time was right for his son’s promotion: The elder Mr. Toyoda wants to be in good health when his son takes over so he can provide counsel, and he wants his son to manage the company through a downturn, and potentially enjoy the reputational benefits of a rebound.
Akio Toyoda is not expected to turn the company upside down. Toyota is governed by a series of management principles that collectively represent the “Toyota Way” — practices that focus on consensus management, continuous production improvements and in-depth investigations before any strategic shifts occur.
For all of its sophistication as a company, Toyota embarked on its global expansion only about a decade ago. Two successive presidents, Hiroshi Okuda and Fujio Cho, who preceded Mr. Watanabe, set the company on a trajectory that made it the world’s largest auto company, a title it took from G.M. last year.
Mr. Watanabe continued the push during the last few years, opening new plants in Texas and Ontario, and starting construction on the plant in Mississippi.
But critics say Mr. Watanabe misjudged the economic downturn, and shouldn’t have pursued new initiatives like the Mississippi factory. Mr. Watanabe, however, insists the factory, intended to build the hybrid-electric Prius, was not a mistake.
He said by e-mail that Toyota still expected the American market to grow, and that there was “no doubt” that it will recover at some point. “For this reason, Toyota believes its investment in the Mississippi plant is essential,” he said.
Even though it cut Toyota’s debt rating this month, Standard & Poor’s Ratings Services said the company could withstand a one- to two-year sales slump, as long as its cash, believed to be around $55 billion, holds out.
“Toyota boasts a formidable degree of competitiveness among global auto manufacturers,” Osamu Kobayashi, an analyst with the agency, said in a research report. “We view Toyota as being better positioned than other global auto manufacturers to cope.”
During Mr. Watanabe’s tenure, Toyota posted successive years of record profits, including about $18.8 billion in earnings in 2007. At that time, Toyota had a market capitalization of nearly $200 billion; it’s now about half that, but still dwarfs all of the Detroit auto companies combined.
Some of Mr. Watanabe’s other efforts will make it easier for Mr. Toyoda to run things. He revamped quality controls after a spate of recalls and reorganized engineering operations to design cars for a global marketplace rather than simply taking Japanese models and adapting them for buyers overseas.
Mr. Watanabe cites 11 research and development centers around the world, including a new safety facility in Ann Arbor, as important parts of his legacy.
“Toyota’s R.& D. investment is based on expected returns over the medium to long term, rather than from a short-term perspective,” he said. “Technology, including design and product development, is necessary for Toyota’s growth.”
Mr. Watanabe, long an advocate for environmentally friendly vehicles, said Toyota was watching how the world’s governments act on climate change.
“Toyota does expect that policies that promote growth with a balance between economics and the environment, such as the Obama administration’s green initiatives, will be implemented not only in the U.S. but also in other countries around the world,” he said.
AS Mr. Toyoda prepares to become president, one critical change awaits: opening Toyota’s management doors to outsiders.
Despite its rapid growth in the United States and Europe, and an increasingly global viewpoint, Toyota remains a Japan-centric company, dominated by Japanese managers, who have yet to give significant, lasting authority to their foreign counterparts.
Two Americans who rose to high-ranking positions this decade — James E. Press and Gary L. Convis — left for top jobs at other companies, Mr. Press at Chrysler and Mr. Convis at the Dana Holding Corporation, an auto supplier.
Mr. Toyoda, schooled overseas, may push for more diversity, says Professor Liker. He also expects Mr. Toyoda to be a much more visible presence internationally than Mr. Watanabe, who never had a major assignment outside Japan before becoming president and made relatively few trips overseas while in the job.
By contrast, Mr. Toyoda’s learning curve has included trips to Washington. And he has dined with influential lawmakers like Senator John D. Rockefeller IV, a friend of his father and a West Virginia Democrat whose state is home to a Toyota engine plant.
Professor Liker predicts that Mr. Toyoda will be a globe trotter. Beyond that, his ascent signals that his family wants to return to basics as it confronts an uncertain future.
Despite the gloom surrounding the industry, Mr. Toyoda has the opportunity to “take everything that looks bad, and use it as an opportunity to learn,” Professor MacDuffie said.
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