Doggedly Undaunted

Dramatic management shakeups at the very top levels, never-ending recall scandals, important vehicles that wildly miss the mark — these may be the cornerstones of the current auto industry zeitgeist, but Toyota Motor Corp. has consistently managed to avoid them all.

The worlds' third-largest automaker, which does one-third of its global sales in the U.S., never seems to find itself in the middle of an automotive maelstrom. About the closest thing to controversy you can find is the prediction by some analysts that Toyota's sales share in the U.S. market could edge out DaimlerChrysler AG's Chrysler Group from its position among the Big Three sometime next year. Of course, some argue that now that it is part of a German company, the Chrysler Group technically isn't even an American carmaker anymore. Even so, having its U.S. sales surpassed by a Japanese automaker will undoubtedly spark some debate in a country that has grown extremely nationalistic in the wake of the Sept. 11 terrorist attacks (see related story, p.38).

But if Toyota does in fact kick Chrysler out of the U.S. Big Three and join General Motors Corp. and Ford Motor Co. as one of the country's top three vehicle sellers — and Toyota officials refuse to say whether they expect this to ever happen — then it will only be because of philosophies established long ago, not a specific goal.

Toyota, a name practically synonymous with manufacturing efficiency and quality, is financially rock-solid to boot. It boasts one of the largest reserves of cash and marketable securities — about $20 billion — in the industry.

And while some automotive companies hit their peaks through quick thinking and risk-taking, Toyota maintains its superiority through strict adherence to the tried and true.

So it comes as no surprise that at the beginning of this year, Toyota didn't forecast doomsday scenarios. While it saw the industry taking a bit of a dip in 2001, it forecast its own sales to climb — which in fact they did. Toyota sees its yearly sales climbing 7% over last year at 1,680,000 units in a U.S. market that hits a total of 16.7 million.

Now, even as the Sept. 11 aftermath has caused automakers to factor the unthinkable into their business plans, Toyota isn't panicking. Toshiaki (Tag) Taguchi, president and chief executive of Toyota Motor North America Inc., views the year with more optimism than his Big Three counterparts.

Although he won't be specific, Mr. Taguchi says North America made a significant contribution to Toyota's overall record profits for the first half of the current fiscal year, and both the Toyota and Lexus divisions gave encouraging performances. “We're very optimistic because of our product lineup,” Mr. Taguchi says. “It's very strong.”

Soaring car and truck sales help maintain good sportsmanship as well as optimism. Unlike some foreign automakers that grumbled when the Big Three boosted sales through 0% financing and other incentives, Toyota, better equipped to survive increased competition and narrower profit margins, supported the measures, itself offering 0% financing on its Corolla, Tundra pickup and 4Runner sport/utility vehicle.

These incentives had little financial impact on Toyota, which more or less replaced existing dealer incentives, says James E. Press, Toyota Motor Sales U.S.A. Inc. chief operating officer.

Plus, the Corolla, which gets a full revamp in the coming year, probably would have been cleared out through heavy incentives anyway, Mr. Press adds.

To Mr. Taguchi, the deals had less to do with boosting sales than helping the country. He lauds the auto industry for taking the lead in sparking the U.S. economy following Sept. 11, and applauds General Motors Corp. for the 0% financing. “I think it has helped a lot,” Mr. Taguchi says. “I'm real glad to see the momentum initiated by these actions.”

And he hopes the momentum carries into next year. The automaker sees the industry taking a significant dive in 2002, down to 15.8 million units. But Mr. Press predicts Toyota will experience a slight uptick and record U.S. sales — breaking the 1.7 million-unit mark for the first time.

Toyota doesn't anticipate changing any plans — from production and supply chain issues to sales and marketing — in its effort to hit targets, Mr. Taguchi says.

Despite some reports to the contrary, Toyota is not rethinking or planning major changes to its fabled Toyota Production System following the events of Sept. 11. While it did temporarily add additional parts as inventory cushions or buffers immediately following the attacks, it has no plans to do away with its just-in-time production system. But in early November, Mr. Taguchi admits the company might still be reliant on one to two days of inventories in some specific cases. Such measures address the fact the automaker operates major production facilities in both the U.S. and Canada and often ships parts across an international border that has been beset with long crossing delays due to increased security measures.

The automaker has an extensive network of parts suppliers in North America. On the Georgetown, KY-built new Camry, for example, 85% of parts are sourced in the U.S., a number that will increase to near-100% by the end of this generation's production cycle. But while other major North American OEMs have been demanding across-the-board price cuts from suppliers, Toyota will continue with its standard philosophy of kaizen, or continuous improvement, with no surprises in store. Toyota always has demanded price cuts from its supply network, and those cuts can be as dramatic as 30% over the next three years. But suppliers always have viewed Toyota's practices as fair. Cuts are made where they can be made, but Toyota does not demand the impossible, they say.

No radical changes are in store in the sales and marketing arena, either, adds Mr. Press.

“When the market gets weak, the appreciation for our traditional values get stronger,” he says. “Resale value, purchase value, quality, durability, all are much more rational purchase reasons, and customers tend to look for security in regards to a purchase. The emotional factors take a much lower priority in a customer's thought process, and we feel that that's an advantage.”

Not even the ever-tightening midsize car segment is bothersome — despite the fact the Honda Accord outsold the Camry, which has been the No.1 selling car in America for the past four years, for the '01 model year and is well on its way to beating Camry for the calendar year as well. Mr. Press blames production supply issues rather than a shift in consumer preference. The Camry for '02 is completely revamped; something he believes will give Toyota the edge over the Accord, which won't be overhauled until '03.

“If because we have a short supply they're selling more Accords, then that's okay for them right now. But we'll have to see what happens next year when we have a more equal footing on production volume,” Mr. Press says. He also dismisses the idea that the new Nissan Altima could be a threat, although many view the powerful and stylish new model as upping the ante in the traditionally bland midsize segment.

The one problem Toyota has been battling in the U.S. is its image with younger consumers. The automaker may not be facing an Oldsmobile scenario, but neither is it enjoying the status of main competitor Honda Motor Co. Ltd., whose cars and trucks have captured the hearts and pocketbooks of the youth market. Toyota in the past few years has taken steps to cultivate a new generation of consumer: younger and with more growth potential than the baby boomers who first boosted the automaker to success in the U.S.

Toyota sees the first fruits of its labors with the coming year's two major debuts: the next-generation Corolla and the Matrix, both designed to target a younger generation.

Toyota's youth initiative began with the “Genesis” marketing project, which in its first phase was designed to market existing products that Toyota's previous system had developed to focus on youth, Mr. Press says. The Echo, Celica and MR2 were the first beneficiaries.

The Matrix represents phase two, where the efforts to attract a more youthful customer have been incorporated into design. “The youth product initiative of hardware will just start to surface with the Matrix,” Mr. Press says, adding there will be more to come.

The effort to lower demographics has worked with the Camry, where initial buyers of the new model average 47 years, compared to 50 with the previous generation.

Toyota may be entrenched in its processes, but that does not mean the automaker lacks vision. It has emerged as a leader in environmental technologies, identified at the top level as the automaker's most pressing challenge. Mr. Press says the hybrid gas-electric powertrain that currently powers the Prius soon will be installed in other products and body types. In the midterm, consumers will be able to choose a car with either an internal combustion or hybrid powerplant.

The Prius, too, is due for a revamp, with its next generation promising to incorporate many more technological innovations. And, despite the expense involved in producing advanced technology, the Prius actually is turning a marginal profit, Mr. Press says.

Even in these uncertain times, Toyota North America is becoming stronger every year, both in the market as well as within Toyota Motor Corp. itself. Mr. Taguchi says he would like to see North America's contribution to overall operations increase.

To do so, the automaker could use more space. “Right now we are short of product,” Mr. Taguchi says. Although the company has targeted sales of 1.7 million for next year, rising to 2 million units in two to three years, Mr. Taguchi says there are no further plans to expand its manufacturing base.

The company, he says, first will make sure it has a strong enough foothold in North America, and then will look for future opportunities later — the typical Toyota approach.