Is It Really In Toyota's DNA to Be Number One?
Things are getting weird at Toyota (TM). The global automotive giant has been in an identity crisis since late 2009, when its Great Recall of millions of vehicles began. The vaunted "Toyota Way" put the company on the top of mountain, but no sooner did it get there than it began to lose its balance. And a recent announcement by CEO Akio Toyoda proves that it's struggling to regain it.
Toyoda (grandson of the company's founder) revealed the "Toyota Global Vision" in Japan last Wednesday. In nutshell, TGV seeks to -- and you'll pardon the biz-speak term -- "rightsize" the automaker to ensure steady if unspectacular profits and position it to compete in rapidly growing markets, such as China, Brazil, and India.
But what about the U.S. of A?
Shockingly, Toyoda has both jettisoned a few management layers and stopped adding production facilities in the U.S. You could look at this from the outside and ask what he's smoking, given that Toyota spent decades achieving near parity with General Motors (GM), its main global rival, on GM's home turf.
But then you'd be overlooking a business reality. Namely that the U.S. auto market is ferocious, and getting tougher to compete in every year. No carmaker with global aspirations can ignore it. But the sheer cost of grabbing a point or two of market share, particularly for a mature company like Toyota, now seems like a waste of resources. Particularly when there are so many new customers in Asia and Latin America.
Still chasing GM, only this time in China
Toyota appears to be completely freaking out that GM appears to be adopting a slimmed-down, give-no-ground philosophy in the U.S., holding its market share steady at around 20 percent, while pressing home its advantage in China, where it's now selling more cars and trucks than in North America.
More than 80 percent of future growth in the auto industry will happen in the developing world, where the rate of car ownership is much lower than in Europe and the U.S. GM is already the dominant player in China and is looking to leverage low-cost labor there to build cheap cars for export to other booming markets, like Latin America.
Akio Toyoda ponders this and has to be asking himself why Toyota is getting outmaneuvered in its own back yard. Unfortunately, Toyota is getting outmaneuvered all over the place these days. For example, Toyoda also said that TGV will stress greater hybrid development. Toyota used to own the hybrid space, with the Prius, but in the past five years many other automakers have brought hybrids to market. And some carmakers have pushed beyond Prius-type technology.
Slower, more sustainable growth
The real clue that Toyota is having some internal problems, however, comes in its profit projections. Toyoda wants 5 percent margins, an improvement over last year's almost 3 percent -- but a big step down from what got Toyota to Number One globally.
Toyota suffered during the downturn like everyone else, but on balance it came out quite well. You have to wonder why Toyoda is not-so-subtly flagellating the company, restructuring it so that, like GM, it can remain profitable during an economic cataclysm. After, GM had quit making money in 2005, while Toyota has been profitable for 30 years.
It could be that, psychologically, Toyota has once again placed itself behind GM, even though it doesn't have to. Toyoda's predecessor, the now-deposed Katsuaki Watanabe, certainly never saw GM as anything other than a target.
Profits are insurance against bad times
Toyoda's concept is a trade-off: lower profits in exchange for less vulnerability to another recall catastrophe. But the whole point of moving into developing markets is to pursue higher profit margins...right now! This is GM's game plan, and it's coming from a company that was bankrupt just over a year ago.
Is Toyota really just re-optimizing itself for pursuit rather than leadership? These recent moves suggest that it is -- that being Number One simply isn't in its DNA.
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Photo: Toyota Media