Wednesday, May 5, 2010

Toyota Motor Company

Fact File:

Founder: Sakichi Toyoda.

Distinction: Revolutionized automobile production for the global age.

Primary Products: Cars, pickups, minivans and SUVs.

Annual Sales: $105.832 billion.

Number of Employees: 183,879.

Major Competitors: DaimlerChrysler, Ford, General Motors.

Honorary chairman: Shoichiro Toyoda; Chairman: Hiroshi Okuda;

President: Fujio Cho.

Headquarters: Toyota City, Japan

Year founded: 1937.

Website :

When Eiji Toyoda first came to Detroit as a brash young engineer in

1950, Ford was producing 8,000 vehicles a day and his own family-run

auto business in Japan was turning out just 40. A half century later, his

business—which actually started as a textile mill—has grown into an

international conglomerate that manufacturers cars in 24 countries and

markets them in 160. Like others in its home nations, however, the

company has experienced significant setbacks of late. But much as Eiji

Toyoda saw only opportunities when he examined the competition during

that first trip to the United States, his predecessors see innumerable

opportunities remaining today.

Toyota Motors, as the company was subtly renamed just before that

Motown visit, is now Japan's biggest carmaker and the fourth largest in the

world. A multi-dimensional behemoth, it sells more than $100 billion worth

of automobiles, automotive parts, industrial equipment and prefabricated

housing every year. Its gas-powered cars, pickups, minivans and SUVs

carry some of the top nameplates in the industry, such as Camry, Land

Cruiser, and various ritzy monikers in the upscale Lexus line. It is now also

producing the closely watched Prius, a five-seater sedan powered by a

much heralded new hybrid gas-and-electric engine.

Yet times are tougher at Toyota than they have been in decades. Eiji

Toyoda saw what large-scale production could accomplish when he

stepped into that Ford plant some 50 years ago. In partnership with his

cousin Kiichiro (and Kiichiro's son, Shoichiro, currently the company's

honorary chairman), he helped adapt it for a new era. The moves

identified Toyota as one of the most innovative companies in the world,

and helped make it one of the most successful. But in recent years it has

been losing market share. Capital is drying up. Younger buyers find its

offerings old-fashioned. And the company that wrote the book on auto

manufacturing in the global era may be in danger of suffering the same

fate as other once-pioneering operations. Insiders can be excused if they

aren't unduly worried, however; they've seen similar negatives turn

positive before.

Cousins Eiji and Kiichiro Toyoda spent much of their youth in the

family's textile mill in western Japan. Established as the Toyoda Spinning &

Weaving Company in 1918, its fate relied largely on the ingenuity of

Sakichi Toyoda—Kiichiro's father and Eiji's uncle—who for decades had

been tinkering with looms to improve their efficiency. When a British

textile concern offered an impressive sum in 1929 for the rights to his

latest, the Toyoda family saw an opportunity to shift gears entirely and

convert to automobile production.

Ford and General Motors were already assembling some vehicles in

Japan, but Sakichi Toyoda had visions of a true Japanese car. Kiichiro

helped set up the family's new manufacturing operation, while Eiji was

sent off to Tokyo Imperial University to study mechanical engineering. In

1934, the Toyodas produced an engine so identical to a Chevrolet model it

accepted Chevrolet parts. Under Kiichiro's leadership it also found

revolutionary ways to boost efficiency. Improved factory design was one. A

new system of material supply—in which parts were delivered to the

assembly line only as they were needed, or "just in time" as the widely

copied practice is called today—was another.

After receiving his degree in 1936, Eiji returned to the business. The

family's first passenger car, the Model AA, was to go into production that

same year. But the Japanese government needed trucks for its nascent

war effort, so the Toyodas switched modes again and were soon producing

1,000 a month. Supplies dwindled as the military campaign faltered,

however, and truck production dwindled as well. Then, on the day

immediately before the War ended, a bomb destroyed a large portion of

the family plant in what is now Toyota City.

As the Toyodas were wondering what business ideas they should

next pursue (fish paste and chinaware were among those considered) U.S.

occupational forces asked them to manufacture buses and trucks to aid

the post-war recovery. Kiichiro, Eiji, and Shoichiro rebuilt their plant and

resumed production, but promised payments failed to materialize. To win

support from nervous creditors, Eiji created a separate company to

coordinate orders, deliveries, and payments. He visited Detroit to study

the competition, and came away with inspiration and ideas. He also

developed his first yearning for international expansion, which led to

exports to a half-dozen countries including the United States by the end of

the decade.

Innovations up and down the line—usually aiming for efficiencies

similar to those achieved by Sakichi Toyoda's original looms—culminated

on New Year's Day 1955 when Toyota's first passenger auto, the Crown,

was driven from the plant by a tuxedo-clad Eiji Toyoda. It quickly proved

popular in Japan, but not in America where it was introduced two years

later. The Toyodas once again retooled though, and came back in 1960

with the Corona. This model became a huge seller in the United States,

and put Toyota on the automating map.

By deploying assorted labor-conserving strategies, the company

smoothly increased production to meet demand. By implementing various

unconventional management practices—such as encouraging assembly line

personnel to catch and correct all defects on the spot—it continually

improved its reputation along with its operation. For these and other

forward-thinking practices, Toyota was awarded the prestigious Deming

Prize in 1965. It was rewarded in a more tangible way in 1966 when its

second mass-produced model, the Corolla, became an instant hit upon

release in the United States. The following year, Eiji Toyoda was named to

head the company.

Toyota now had solid products to go with experienced leadership and

trailblazing ideas. And in the 1970s it got something new: Huge gasoline

prices hikes. This suddenly made its tradition-laden Detroit competition

look a log less attractive. Americans turned in droves to the smaller fuelefficient

cars offered by Toyota and a smattering of others such as Datsun

(later renamed Nissan) and Honda. Car buyers in Japan also were

increasingly choosing Toyota, which remained under the day-to-day

leadership of Eiji Toyoda until 1982. (By tradition he then moved over to

the company's Board of Directors, where he sat until 1994. That year, at

age 81, he was enshrined in the U.S. Automotive Hall of Fame near his

long-time idol Henry Ford.)

U.S. automakers, stung by the insurgents, hit back with a page or

two from Toyoda's own book. They introduced Japanese-style inventory

control, for example, and started programs to increase workermanagement

unity. And then the giant, General Motors, stepped

completely out of the box by building a subcompact in cooperation with

Toyota. It was modeled on the Corolla, and assembled at a shuttered GM

plant in California with half of all parts—including the engine and drive

train—made by Toyota in Japan. Many observers initially doubted the

partnership would work, and newspaper accounts called it "improbable."

Nonetheless, when the resultant $7195 Chevrolet Nova debuted in 1985, it

found instant support among both value-conscious "buy American"

consumers and those who by now staunchly preferred imports.

Toyota's remarkable ascendance continued throughout the decade.

GM—which once dismissed it, along with fellow Japanese automakers, as

merely a purveyor of flimsy little cars who got lucky during the oil crisis—

saw its U.S. market share drop from nearly one-half to one-third despite

repeated remedial efforts. Toyota, on the other hand, boosted its slice of

the pie considerably by introducing the pricey Lexus line in 1989. It also

kept turning out appealing new models and smart updates for its long-time

audience. The combination helped it sell more than 1 million vehicles in

the United States, and capture 43 percent of all car sales in Japan. In

1990, Fortune magazine acknowledged that Toyota was "the best

carmaker in the world."

It couldn't last, of course. By the mid-1990s car buyers in Japan

were increasingly turning to imports, just as those in America had done

two decades earlier. In the United States, Toyota was caught unprepared

as consumer tastes shifted toward minivans and sport utility vehicles. In

Europe and China, it still lagged badly behind other manufacturers. And

the Asian economy itself was about to tank, sending sales of everything—

especially cars—into a tailspin.

With that backdrop, Hiroshi Okuda was named president in 1995.

The 63-year-old Okuda, who had been with Toyota for 41 years, felt

substantial changes were immediately needed. He launched a major

advertising campaign at home, vigorously attacked the company's onerous

cost structure, and got even busier updating and redesigning. Okuda,

considered a "new generation" business leader in Japan, also speculated

that the telecommunications or housing industries would one day integrate

with the auto industry. Accordingly, he pushed for further diversification

into those areas.

Autos remained the focus, however, and efforts on their behalf were

publicly on display at the 5,400 dealers that comprised Toyota's worldwide

network as the new millennium dawned. They were evident as well from

the leadership of new president Fujio Cho, who took over when Okuda was

elevated to the role of board chairman. Now, he oversees Toyota's latest

reinvention. To flight the company's "mid-life crisis," as Newsweek called

it, he is targeting younger drivers with hotter cares. To grab a piece of the

e-commerce potential, he is beefing up the company Web site. And to

attract the multi-age "green" crowd, he is offering the gas-and-electric


It may have once been a simple family-run textile mill. But he

Toyota of today remains a very modern company, always ready to try

some very fresh ideas.

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