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Tuesday, Feb. 17, 2009
Accelerating Toyota forced to downshift
Fast-lane carmaker overtook GM on historic roll before sputtering as global economy tanked
Figures for just the past five years show how much Toyota Motor Corp. has prospered. During that period, the carmaker continued to post record sales, profits, production and sales units, ultimately taking the top of the hill from General Motors Corp.
In the five years to last March — the latest full-year figures available — Toyota's sales rose 52 percent to ¥26.3 trillion while net profit increased 48 percent. In the same period, the carmaker sold 2.2 million more cars worldwide, up 33 percent from fiscal 2003.
Toyota snatched the title of world No. 1 carmaker in terms of sales in 2008, surpassing GM's global sales, ending the Detroit giant's 77-year reign.
But nearly two weeks after the victorious news, Toyota announced it expects its largest-ever losses for the business year ending next month.
Toyota's losses pose wide-ranging ripple effects on an endless list of directly and indirectly linked businesses, including auto parts makers, steelmakers and electronics makers at home and abroad.
Following are questions and answers about Toyota:
How has Toyota performed lately?
Toyota announced Jan. 20 that the group sold 8.97 million vehicles worldwide in 2008, surpassing the 8.36 million cars and trucks GM said it sold for the same year. It was the first time a Japanese carmaker has held the title. It already overtook GM in 2007 in terms of worldwide output.
But the global recession, triggered by the U.S. financial crisis, has rapidly weakened world demand and dealt a blow to automakers, particularly since late last year.
Toyota is no exception.
It said Feb. 6 that it expects a ¥450 billion group operating loss and a ¥350 billion group net loss for the year ending March 31. They would be the biggest losses ever for the automaker, which was established in 1937, and the first in 59 years since it posted a ¥76 million pretax loss for the business year that ended in March 1950.
The red ink also comes from the yen's recent appreciation against the dollar and euro. The yen's strength erodes exporters' profits earned overseas.
The bearish forecast compares with its ¥2.27 trillion group operating profit and ¥1.72 trillion net profit for the previous year, underlining how fast global demand dried up.
Why are Toyota's wounds not as deep as those of the Big Three — GM, Chrysler LLC and Ford Motor Co. — two of which are seeking government aid?
Analysts said that since the 1973 oil crisis, Japanese carmakers kept their focus on compacts, going further by making subcompacts.
Toyota also splurged on fuel-efficiency technology on the back of its recent huge profits. Its gasoline-electric hybrid Prius, which debuted in 1997, became the iconic model for fuel-stingy, environmentally friendly cars. As fuel prices soared in recent years, its popularity only increased.
The Big Three meanwhile kept making large, gas-guzzling vehicles, as did Toyota in the U.S., even though fuel prices were soaring. The U.S. makers also had to cover high unionized labor and pension legacy costs, unlike Toyota in the U.S. This left little funds for developing more advanced technology.
Does Toyota have an advantage?
Analysts point out that Toyota's own cost-cutting and efficiency-raising measures, called "kaizen" (improvement), have reinforced the company's financial health.
Since Toyota puts so much effort into slashing costs, people often express it as "squeezing a dry dust cloth."
Industry insiders also say, based on its strong ties with its group companies and business partners, Toyota sends engineers to production plants to help raise manufacturing efficiency. Such micromanagement even extends into the placement of nuts and bolts on production lines to shorten component assemblies.
Despite its efficiency efforts, why does Toyota project bigger operating and net losses than other Japanese companies?
Like the Big Three, Toyota produced large pickup trucks in the U.S.
Toyota started to make large sport utility vehicles in 2000 and large pickups in 2007. The large models give carmakers a greater profit margin, but they fell easy prey to the U.S. economic crisis at a time when surging gasoline prices already weakened demand, analysts said.
On Jan. 20, Toyota announced that Akio Toyoda, grandson of the carmaker's founder, would be the next president. Why was he named and isn't nepotism outdated?
Analysts say the appointment may help inspire workers amid the current turbulence, but his management ability is an unknown.
"Since the group faces its first losses in many years, it is betting on the power of the Toyoda family," said Yasuo Tsuchiya, a visiting professor at Meiji University who specializes in global management and industrial globalization.
"In any way, the Toyoda family has played a big role in the past expansion of the company," he said, adding that Akio Toyoda's appointment will remind workers of the time of Eiji Toyoda, who was president from 1967 to 1982, and Akio's father, Shoichiro, who led the company from 1982 to 1992.
When Japanese companies face turbulent times, they often return to their founders' business philosophy. In Toyota's case, the motto is "going back to the fields," Tsuchiya said.
"That means we have to go back to our original fronts, whenever troubles come up, because that is where we can find the answers," said Hideaki Homma, a spokesman for Toyota.
Does the name Toyota come from the name of the founder, Kiichiro Toyoda, or the city of Toyota, Aichi Prefecture, the automaker's base?
It comes from the founder's name. The city was renamed after the company, which started out as an automobile division of a local weaving machine firm.
Because Toyota and its group helped the city grow, its former name, Koromo, was changed to Toyota in 1959.
According to the company's history, its cars were first branded Toyoda. But when Toyota's forerunner — founded also by the Toyoda family — asked national newspaper readers for ideas for a brand, Toyota won out.
The kanji for "ta," which means rice field, can also be read as "da."
So Toyota became the official brand in 1937 when Toyota Motor Corp. was also founded.
Also, Toyota became official because it is more lucky than Toyoda in katakana, according to the company history. Toyoda has 10 brush strokes while Toyota has eight, a number considered lucky and representing prosperity.