Toyota scion Akio Toyoda reportedly lined up to replace CEO Watanabe

Posted by: Ian Rowley on December 23, 2008

Could this week get any worse for Toyota CEO Katsuaki Watanabe? Yesterday, Watanabe took the unusual step of announcing a huge profits revision at a year-end press conference which is held every December in Nagoya. It was so unusual, in fact, that Toyota now projects it will make its first ever operating loss in the fiscal year ending March 2009. “The speed, breadth and depth of the downturn is beyond what we had imagined,” Watanabe told reporters.

Today, Japan’s Asahi Shimbun is reporting that Toyota will replace Watanabe, 66, with Akio Toyoda, the grandson of Toyota founder Kiichiro Toyoda in April.

According to the Asahi report, the appointment of a family member to the top job would help unify the company at a crucial time. If it was to happen, Toyoda, 52, would be the first family member to lead the company since Tatsuro Toyoda who stepped down in 1995. The newspaper calls the return of a family member “taisei hoken”—a reference to the restoration of imperial rule in Japan in 1868. Toyota denies the story and says nothing has been decided.

Changing CEO now would seem an odd decision. While Toyota is suffering, it is difficult to see how it could be handling the crisis differently or how a new chief could change things.

Toyota’s short term problems are to a large extent unavoidable. Yes, it could have stayed out of big trucks—it opened a Tundra plant in Texas in late 2006. But the collapse in auto sales makes it very difficult for any automaker to respond in a timely manner. Even Honda, which doesn’t have big exposure to the collapse in large SUV sales, slashed its forecasts last week.

And unlike European and U.S. automakers, Japanese carmakers and especially Toyota are suffering from the surging yen. For the year that ended in March, the yen averaged 114 to the dollar. In recent weeks the yen-dollar dipped below 90. Every one yen of change against the dollar costs Toyota $450 million in operating profits. The yen has appreciated even more against other currencies, including the euro. In some ways, it’s remarkable that Toyota only expects operating losses of $1.7 billion and still projects a small net profit.

Perhaps most important, though, is that it’s difficult to see what instant difference Toyoda would make. The Asahi’s suggestion that it would unify the company is vague to say the least. A Toyoda appointment wouldn’t make the yen weaken or car buyers enter showrooms. It’s not as if Watanabe has been a complacent leader. During the record earnings years of 2006 and 2007, Watanabe repeatedly warned that Toyota must redouble its cost cutting and other efforts. He has also voiced concerns that younger managers at Toyota have only ever known good times and worried how they would handle a crisis. Toyoda, 14 years Watanabe’s junior, might be better off biding his time.

Reader Comments

dukester

December 23, 2008 10:20 AM

It's about time the foreign invaders got their reality check. Japan's yen has been artifically manipulated to be undervalued against the dollar for decades allowing companies like toyota to reap billions in profits from their exports to the US.

Karl

December 23, 2008 10:43 AM

Maybe people in Japan & all over the world are reading the poem that was composed about Katsuaki Watanabe last year? You can 'Google' this- SLUDGE POEM 2, and read it! Happy holidays! P.S. Don't get "SLUDGE POEM" confused with "SLUDGE POEM 2". The original was written about Jim Press, Toyota's CEO, who QUIT two weeks after SLUDGE POEM was posted on 8-23-2007. Write a poem- they'll all know him!!!

NS

December 23, 2008 1:55 PM

Biding time might not be the best thing for the family at this time. In difficulty the leader that unifies is usually from the clans and I am for a restoration.

DLR

December 23, 2008 3:56 PM

As part of some doctoral studies two years ago, I found discussion about Watanabe as the CEO, and speculation on why Toyoda was not the CEO back then. It was expected that Watanabe would be replaced by Toyoda within six years of the former's appointment, which would be within the next year or two. And yes, it would be strange to do it now. Watanabe has, indeed, always expressed the need to cut costs and streamline. As a long-term Toyota customer, however, we purchased our first non-Toyota in over 18 years because they were becoming too large and energy inefficient (other than the hybrids), starting to fall into American style complacency. We did buy another Japanese car that competed nicely against the Corolla and felt like the Camry of old--agile and fuel efficient.

Signaling corporate culture change

December 24, 2008 3:44 AM

This may signal the new era in corporate culture. The Wall street culture driven by greed has proven to be too destrcutive. Toyata executives may want to return good-old family-like corporate culture. Companies run by Wall street may be all but vanished. Companies geared for long term survival are likely to emerge as the next dominant market force. Adieu Greed, Adios Wall Street!

FS

December 24, 2008 4:14 AM

I would love to know how they came to: "Every one yen of change against the dollar costs Toyota $450 million in operating profits" these figures seem extreem to me especially that Toyota does a big chunk of its manufacturing in local markets and I'm sure that its financial team are well adversed in the concept of headging!!

Ian Rowley

December 24, 2008 4:41 AM

Thanks for the comments. In response to DS, the figure comes directly from Toyota. According to their own estimates, a one yen appreciation or depreciation against the dollar has a 40 billion yen impact on operating income. At today's rate of 90 yen to the dollar, that works out at $444 million. Of course, in recent years when the yen was weaker, that worked in Toyota's favour.

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