Toyota finds success is a bitter-sweet pill

This is the first in a series of business features by Reuters focusing on some of the world's biggest brands and most innovative companies. Toyota has risen to the top ranks of the world's car makers through its revolutionary production process, cost controls and attention to quality. But as Toyota President Katsuaki Watanabe told Reuters Asia auto correspondent Chang-Ran Kim: "The moment we let down our guard, the fall could come very fast."

By Chang-Ran Kim, Asia auto correspondent

TOKYO (Reuters) - General Motors Corp CEO Rick Wagoner boasts about the number of markets where the U.S. automaker is number one. Toyota Motor Corp President Katsuaki Watanabe emphasizes where his company trails.

Listening to the leaders of the world's biggest automakers, you might think Toyota was the one playing catch-up.

Yet, though GM begs to differ, Toyota has been ahead for the past two years. In 2007, the Japanese group sold about half a million more vehicles than GM, excluding cars from a Chinese company in which the American firm holds only a minority stake.

The gap may very well widen this year as Toyota seeks growth in emerging markets. So why does Toyota's 65-year-old chief sound so worried?

"I'm constantly trying to drive home the message that long-lasting success is elusive," Watanabe, a music lover and chorister, told Reuters recently. "Our corporate DNA is about always challenging ourselves to do better. The moment we let down our guard, the fall could come very fast."

Failure is not normally a word associated with an auto company that's in a league of its own. For years, Toyota has led the industry by nearly every corporate yardstick: profits, market value and cash reserves. Outselling GM, which held the No.1 spot for the previous 75 years, was largely a symbolic milestone.

But as Toyota began adding roughly half a million cars a year to its output and extended its reach, it has faced new problems. Vehicle recalls have hit record levels in recent years and Toyota has slipped in quality rankings.

That has not helped the company's share price, which has fallen by around 20 percent in the past six months due to fears of a slowdown in the key U.S. auto market, in line with its Japanese peers.

BIGGER, HARDER

The snags have yet to slow Toyota's sales. It expects to sell almost twice as many cars this year as it did a decade ago.

To keep up with soaring sales, Toyota has doubled its work force to 310,000 over the same period, and that's where Watanabe's quality headaches have come from.

A visit to a Toyota plant in Japan shows how difficult it is for Toyota to maintain its high standards as it moves production offshore to booming markets and engages new workers.

At the Tsutsumi factory, the home of Toyota's Prius hybrid car, elderly workers move components around at a speed that encapsulates Japan's unique work-centric culture.

The pace of work picks up across the factory floor every time overhead displays are updated with the day's vehicle quota, reflecting in real time new orders received at dealerships.