Toyota Warns of Chinese Threat

It's China's auto industry, not more established competitors, that is setting the bar for Toyota Motor Corp.'s next round of cost-cutting and efficiency improvements, says Kosuke Shiramizu, executive vice president-Manufacturing and Quality Management.

In a wide-ranging interview at Toyota City, the 62-year-old executive — charged with carrying on the legacy of Toyota Production System founder Taiichi Ohno — warns of the impending threat from China.

“The question facing us is how to compete with a country whose labor costs are currently one-twentieth or one-thirtieth those of Japan,” he says, adding that China will become a force to be reckoned with in less than five years. “If we look at home appliances and consumer electronics — including refrigerators, cameras and televisions — China is already the world's largest producer. And its trade surplus with the U.S. now exceeds that of Japan.

“It is just a matter of time before China becomes the world's largest producer of automobiles.”

To cope with China's emergence as an economic superpower, Shiramizu says Toyota must cut manufacturing and tooling costs in half within three years. Toyota is looking to trim fat from its raw materials and machining costs, particularly in powertrain manufacturing. New technology and production machinery will be required.

“If we could double machining speed — raising hourly output of forged parts to 1,500 or even 2,000, from current levels of 800 — that would contribute to reaching our productivity goals,” he says. “Another approach would be to machine 10 engine-block prototypes instead of 20. This would contribute to 50% savings.”

It's not enough to compete with other Japanese auto makers. “The issue foremost on our minds is how to compete against China from our base in Japan,” he says. “China is our big benchmark, and that's why we must double productivity.