TOKYO May 9 For three years, Akio Toyoda has
had to steer Toyota Motor Corp through one crisis after
another, from a damaging safety recall that took up to 10
million cars off the road to last year's devastating earthquake
Now, the 56-year-old grandson of the automaker's founder is
ready to go on the offensive.
With Toyota's U.S. dealerships humming again, Toyoda and his
aides have sketched out a strategy in recent weeks aimed at
stripping costs from everything - from production lines in Japan
to Mississippi to the years of design and engineering that go
into producing new vehicles and parts.
The goal is to push up profit margins even as Toyota rides a
wave of recovering demand while tapping into its tradition of
incremental improvement - or "kaizen" - the corporate creed that
once made it the world's most feared and studied manufacturing
At stake is Toyota's ability to keep building some 3 million
vehicles a year in Japan - roughly triple the equivalent output
at Nissan Motor and Honda Motor and about 40
percent of the cars and trucks Toyota builds globally.
The first down-payment on Toyota's emerging plan comes on
Wednesday with earnings for the just-ended fiscal year and its
forecast for the current year.
Senior executives pull no punches about both the scope of
the challenge Toyota faces and how it lost its way when demand
was booming. In the key markets of China, Brazil, Russia and
India, "we've let Volkswagen and Hyundai Motor
take the lead," Toyota Executive Vice President
Atsushi Niimi said recently.
In the United States, a market where Toyota's reputation for
quality with vehicles like the Camry was once unassailable, the
Japanese firm is under pressure from both the rapid rise of
South Korea's Hyundai and the recovery of the Detroit
automakers, Niimi said.
And in Japan, Toyota is handcuffed by a strong yen,
costly labour regulations, high corporate taxes and an energy
policy deadlock that has shut down all Japan's nuclear reactors,
driven up costs and raised the prospect of summer blackouts.
But the failure that stings most for Toyota executives was
When Toyota was racing to add factories to meet booming
demand in the last decade, it stopped finding new ways to make
the process better. "We hardly achieved any innovation in
production engineering," said Niimi, noting a more flexible
assembly line design promises to cut by 40 percent the time it
takes to switch models on the floor.
Skeptics believe Toyota will have to take more drastic
action than turn around by a thousand cuts.
"What we need to see now from Toyota is further cost
cutting, a shift of production out of Japan so they can compete
on prices," said Julie Boote, auto analyst at UK-based research
firm Pelham Smithers.
Importantly, although Toyota's sales and production have
come roaring back, analysts still expect it to trail both Nissan
and Honda as well as overseas rivals in operating margin.
Toyota is expected to forecast a more than quadrupling in
operating profit for the year to next March, according to a
survey of analysts by Thomson Reuters I/B/E/S. That would put
Toyota's operating margin near 4.8 percent from an estimated 1.8
percent for the year just ended.
While that would set Toyota within reach of its target of at
least a 5 percent margin before 2015, it would fall short of
Nissan's 7.1 percent margin and 6.5 percent at Honda, the
Japanese automaker that was slowest to recover from last year's
lost output, and lag well behind Hyundai's 10 percent margins.
WAR ON WASTE
To do better, Toyota executives say they have gone back to
war against waste - or "muda" - one of the key components of the
automaker's vaunted production system.
At a factory tour in Toyota City last month, Toyota showed
off some of those innovations, including an assembly line that
can be more rapidly reconfigured during model changes. The
technique, developed in Japan, has been adopted at the
Mississippi plant that builds the Corolla and factories in India
and Changchun, China.
At the same time, Takeshi Uchiyamada, the Toyota executive
vice president who heads engineering and research, wants to cut
vehicle development costs by more than a fifth, in part by
driving for a greater use of common parts.
The use of shared parts across a range of models allows
automakers to cut the procurement costs on items that customers
don't see or necessarily appreciate like the metal brackets that
hold seats in place.
While Toyota was once considered a benchmark of success in
that area, rival automakers now look to follow VW's progress in
using a wide range of shared parts in both its luxury Audi and
mass-market Volkswagen brands.
The reforms at Toyota come with the automaker showing signs
of new momentum in the United States market - still its largest
and most important. Toyota's U.S. sales jumped 12 percent in
April - though that's still close to a fifth below the same
month in 2008 before the financial crisis triggered the car
industry's worst downturn in a generation.
Christopher Richter, Tokyo-based auto analyst at CLSA
Asia-Pacific Markets, expects the recovery to pick up pace this
"They've got a pretty aggressive product offensive coming
up, and if you add what we've seen in their cost structure,
we're looking for a (big jump) in operating profits this year."