Posted by: Kenji Hall on October 02, 2009
Akio Toyoda thinks he knows what’s wrong with Toyota, the world’s biggest car maker. Success has made it cocky. It has been expanding in an undisciplined fashion. It has been in denial about the peril it faces. Now Toyota is “grasping for salvation,” Toyota’s president told a news conference today at the Japan National Press Club in Tokyo. “But I’m not the savior.”
Dramatic stuff. But the 53-year-old grandson of the company’s founder was merely trying to illustrate a point by borrowing language from Jim Collins, author of popular business books like “How the Mighty Fall”. Collins explained that great companies typically go through five stages on their path to ruin. Toyota is at the fourth stage; the final stage is “capitulation to irrelevance or death.”
Toyoda took over in June and is trying to lead the Japanese car through one of the toughest periods in its history. The global recession has brought about a sharp drop in demand for cars. In the U.S., Toyota’s most profitable market, sales have dropped 28% in the first nine months of the year, Toyoda said. The yen’s 7% rise against the dollar in the most recent quarter also erodes the company’s export revenues and makes it harder for the company to lure buyers with discounts and other cash-back incentives. This fiscal year, the company has forecast a group operating loss of $8.4 billion. And just this week, the company issued a safety advisory about a problem—an accelerator pedal that sticks—that potentially affects 3.8 million Toyota cars in the U.S. Investigators are trying to determine if the problem is related to several deaths. “Just boosting sales won’t help us return to profits,” he said.
So what will save Toyota? “We have to make better cars,” Toyoda said.
For some analysts, Toyoda’s prescription was too vague. “He needs to get more specific,” says Tokai Tokyo Research Center’s Makoto Kato. “How does he plan to sell more cars? He should be talking about the company’s financials.”
Toyoda hasn’t granted media interviews since taking over. So it’s hard to know how he plans to improve the car maker’s fortunes. But today he did reveal a bit about how he thinks. For example: his management philosophy. “What is important to every customer,” he said. “That is my management philosophy.”
To understand the customer, Toyota has to know how it measures up against the competition. And the only way to know the differences is to test-drive lots of cars. “After I joined Toyota, there was a period when I drove more than 200 cars in one year--different types, other companies’ cars,” he said. “I want to be able to tell what distinguishes one car from the next.”
That’s not normally how the top executive would approach his job. Arguably, he should be more involved in big-picture-strategy and innovation-brainstorming sessions. But it suggests that he might try to solve one of the biggest criticisms about Toyota: Its cars are uninspiring. The company may move lots of metal--its Camry is a longtime best-seller in the U.S.--but aficionados rarely rave about the way the cars drive. For Toyoda, an amateur race car driver, making cars that please enthusiasts is the best way to attract a loyal following.
Of course, changing Toyota's culture won’t be easy to do--and it won't happen right away. “It’s different for Toyota to be talking like that,” says Deutsche Securities analyst Kurt Sanger. “If he’s spending his whole day driving cars, that’s a problem. If it’s part of his approach to making Toyota a more competitive company, instead of just concentrating on cost or quality, great. But that’s something that takes a long time to change.”
No doubt, Toyoda will have reams of data from customer satisfaction surveys and market research reports to see the bigger picture. But statistics won’t always help him do his job. Years ago, Toyoda recalled that he had tried to buy a bento box lunch but was disappointed that the kiosk had run out of the one he wanted. “The bento maker was only using past data to figure out which of its box lunches were popular,” he recalled. The bento box maker would have sold more it had made more of the one the customer wanted, he said.
--With Hiroko Tashiro
BusinessWeek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies. Eye on Asia’s bloggers include Asia regional editor Bruce Einhorn, Tokyo reporter Ian Rowley, Korea bureau chief Moon Ihlwan, Asia News Editor and China Bureau Chief. Dexter Roberts, and Hong Kong-based Asia correspondent Frederik Balfour.