Toyota, Take the Wheel
The Japanese manufacturer deserves its new status as the No. 1 automaker, because it produces better vehicles than Detroit does. Pro or con?
Pro: In the Passing Lane
The news talk-lines lit up when it was reported Toyota had taken the top spot in quarterly sales for the first time ever. After years of market share dominance, General Motors (GM) was finally beaten. In reality, Toyota has occupied the No. 1 position for quite some time. Look at profits or sales growth. Look at market capitalization, in which the worth of Toyota equals more than the sum of the Detroit Three combined.
Toyota (TM) has taken a long-term approach to building the most admired manufacturing company in the world. It has invested in people, truly its most valuable resource, and gotten better every year. In the meantime, the Detroit Three chased the short-term hot product (e.g., the latest hot crossover or large truck) or program (six sigma, lean product development, lean manufacturing) that promised to make up for decades of mistakes.
By the time the U.S. carmakers started their pursuit, Toyota had been investing for years. Witness that Toyota started pioneering hybrids—based on the belief that they represented a step toward the cars of the 21st century—10 years before the Detroit Three were seriously thinking about this. Toyota did this despite the consensus of disapproval among the leading analysts in the industry. Now the manufacturer is on its second generation of hybrid development (e.g., second-generation Prius, Camry Hybrid, Lexus 400H, Highlander Hybrid), while the Detroit Three are just waking up to the potential of this technology.
Toyota is not a perfect company. Because of increasing demand for its ingeniously designed and well-constructed vehicles, the company’s growth is outpacing its ability to develop employees. This has resulted in some recalls and quality issues that have been a concern, but as always, the carmaker is responding quickly and seriously on many fronts to solve the problems. For example, President Ken Watanabe gave permission to engineers to extend product-development time if necessary to be certain about quality.
We should all applaud the Detroit Three for improving tremendously in the last 20 years. Quality and productivity have gone up. But that resulted from learning from the master teacher, Toyota, and the students are far from catching up to the master.
Con: A Look Behind the Stats
Who’s No. 1? To its credit, Toyota is more concerned with making great cars than debating this point. But for the sake of argument, an NFL comparison might help.
In 1977, Walter Payton ran 1,852 yards. In 1980, Earl Campbell ran 82 yards more than that. Who had the better season? Payton, actually. Campbell had two extra games in which to earn his yards, because the NFL switched to a 16-game season in 1978.
In business, like sports, great companies can have an asterisk next to their names in the record book. Should Toyota? The company has turned into the top automaker in part because the Japanese government subsidizes the health care and pensions of its workers. Japan also boosts auto exports by intervening in capital markets to devalue its yen.
Is this enough for an asterisk? Today’s undervalued yen represents a $3,000 to $14,000 subsidy for each Toyota sold here (depending on vehicle cost, where it’s assembled, and the economist you ask).
Deciding between a Toyota and a Ford (F)?That decision becomes easier when the Japanese government essentially pays for leather seats and an automatic transmission. In fact, while the much-criticized health costs of the Detroit Three raise the price of every vehicle, the pricing disadvantage created by the yen is twice as large.”
In sports, “Who’s No. 1?” debates go on forever, because fans define No. 1 differently. It’s the same in business. It’s easy to say Toyota is first, because it sells the most vehicles. But in the U.S.—land of sweatshop-free sportswear—millions of Americans clearly care about which automaker is No. 1 in supporting U.S. jobs. Just ask Hyundai, which spent $16 million promoting its single U.S. plant.
Toyota ranks fifth—behind Ford, GM, Chrysler (DCX), and Honda (HMC)—in U.S. jobs per car. Does this mean Toyota is more efficient? No. Ford, GM, and Chrysler employ about 2.5 times more U.S. workers per car, because they have about 2.5 times more of their workers here in the U.S. To put it another way, no one is arguing that Hyundai is twice as efficient as Toyota, even though the Korean carmaker supports half as many U.S. jobs per car as Toyota.
Toyota certainly qualifies as a great company. But if we want to pick a champion, we should account for competitive differences that tilt the field. Better yet, we should fix them. That would make the game a lot more interesting.Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.