Bloomberg News

Doubting Toyota Prince Defeats Crisis to Prove Self Wrong: Cars

November 20, 2013

Toyota President Akio Toyoda

Akio Toyoda, president of Toyota Motor Corp., center, poses with Kiyotaka Ise, president of the company's Lexus operations, left, during a news conference at the 43rd Tokyo Motor Show 2013 in Tokyo on Nov. 20, 2013. Photographer: Tomohiro Ohsumi/Bloomberg

He’d heard it so often he began to believe it himself. Too young. Not up to the task. Didn’t deserve it. Only there because of his name.

“I probably won’t last a year as president, but at least I can finally do something for the company.” Akio Toyoda says those doubts haunted him in early 2010, eight months into the top job at the carmaker his father once ran and his grandfather founded. Eight months in which he’d been all but invisible as defects in autos bearing the family name were tied to deadly crashes in the U.S. And now he was headed for Washington to apologize to Congress and the American people.

“All the vice presidents were 10 years older than me,” Toyota Motor Corp. (7203)’s chief confided in an impromptu interview this summer over tea at a hotel near Tokyo’s Imperial Palace. “Compared to them, even though I was president. Well. You know.”

Akio -- his given name will be used in this story to avoid confusion with the company -- has since made a convincing case for himself as head of the world’s biggest automaker. As this year’s Tokyo Motor Show gets under way, Toyota is on track for a record profit, its Lexus luxury unit predicts the best-ever year of sales, and industry surveys show public questions over deteriorating quality are fading.

It’s a remarkable turnaround for an executive who got off to a shaky start handling one of the worst crises in Toyota’s 76-year history. Akio has remade his image as a hands-on guy who loves the smell of gasoline and whose passion for racing is adding spice to a brand better known as bland and reliable. Far from getting kicked out, he’s set the stage for a reign that may outdo even the 17 years his father spent in charge.

‘What We Like’

“What you’re seeing today is Akio asserting himself,” said David Herro, chief investment officer at Chicago-based Harris Associates LP, which holds more than $280 million of the shares. “This is what we like: more action and results, more focus on protecting the brand. And the numbers speak for themselves.”

Toyota earned $4.4 billion last quarter, more than the combined profits of General Motors Co. and Volkswagen AG, the second- and third-largest carmakers. Analysts estimate the Toyota City-based giant will rack up $18.3 billion in profit in the 12 months through March, beating the previous record set in 2008 by more than $1 billion.

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To get there, Akio had to weather an extraordinary run of bad news: He took over at the height of the global financial crisis, after Toyota posted its first annual loss in 59 years. Then came the vehicle recalls, 2011’s earthquake and tsunami in Japan, and floods in Thailand that wiped out parts supplies. To top it off, the yen surged close to a post-World War II record, squeezing profits on every car sold abroad.

Family Firm

Akio’s June 2009 anointment, at 53 Toyota’s youngest president, restored family control of the company they’ve run for all but 10 years in the past five decades. His father, Shoichiro, was president from 1982 to 1992 and stayed on as chairman for seven more years. Grandfather Kiichiro modified the family name for his carmaker to make it simpler in Japanese.

Shoichiro made a show of saying his son would get “no special treatment,” and Akio supposedly had to file a resume just like anyone else, according to a 2009 biography by Aiichiro Mizushima, “Akio Toyoda and the Rebirth of Toyota.”

Even so, there was little doubt he’d end up running the family firm, says Keisuke Shiraki, a schoolmate of Akio’s in their home town of Nagoya and later on a Babson College MBA program in Massachusetts in the early 1980s.

“We didn’t spend much time thinking about the fact he was different, but of course everybody knew one day he’d probably be head of Toyota,” Shiraki said, adding that life on a U.S campus afforded Akio a rare opportunity to escape the pressure-cooker of expectations back home.

Pink Porsche

He took it, racing around in a pink Porsche. For once, he could get away with driving a car that wasn’t a Toyota.

“It’s now or never,” Shiraki remembers Akio saying. On golf outings to Stow Acres Country Club with Japanese classmates, Akio would roar off ahead of everyone else. Toyota declined multiple requests to make Akio available for an official interview for this story.

The grooming started early, says Masaaki Sato, who has reported on Japan’s auto industry for four decades and authored “The House of Toyoda,” a 2002 family history.

“Ever since he was a little boy, his mother always told him, ‘One day you’ll be president.’”

When the day came, nothing in his 25-year career at Toyota -- from helping run a factory in Fremont, California, to heading the China business -- had prepared Akio for the nightmare that lay waiting.

‘Pray, Pray’

“We’re in a Lexus,” says the man calling 911 on Aug. 28, 2009, two months after Akio took over. “Our accelerator is stuck. We’re in trouble, there’s no brakes.” The panic mounts as the car nears an intersection. “Pray, pray,” someone says, before a muffled scream and then silence as it flips over, killing all four passengers.

The minute-long recording played over and over on the news all over America, Toyota’s biggest market. More than 10 million cars were eventually recalled globally to fix floor mats that caught on accelerator pedals and other issues.

As Toyota’s reputation crumbled, Akio all but disappeared. He held just one press conference in his first six months.

In late January 2010, a Japanese TV crew ambushed him in the lobby of a hotel in Davos, where he was attending the World Economic Forum. Japan’s press took Akio to task for seeming more eager to hobnob with billionaires in Switzerland than head for the U.S. to deal with Toyota’s escalating problems. “Hey Akio!” blogged Sato, the veteran reporter and author. “Wrong destination.”

Congress Summons

Heated calls between frustrated U.S. Toyota executives and headquarters in Japan descended into shouting matches, a person familiar with the situation who asked not to be identified said at the time. Ray LaHood, then U.S. transportation secretary, called Toyota “safety deaf.”

A summons from Congress finally drew Akio out.

Over one grueling day on Feb. 24, 2010, he testified for three hours in front of the House Oversight and Government Reform Committee, addressed U.S. dealers who had gathered in the capital and did his only ever interview on American TV.

“We pursued growth over the speed at which we were able to develop our people and our organization,” Akio told U.S. lawmakers. “My name is on every car. You have my personal commitment that Toyota will work vigorously and unceasingly to restore the trust of our customers.”

Later, Akio choked back tears as he thanked dealers for their support.

Larry King Live

Next up was a satellite link to CNN’s “Larry King Live,” the channel’s longest-running talk show.

“For someone who’s media shy, he did very well,” King said, recalling the interview in a phone conversation from his Beverly Hills, California, home. “He learned what all corporate leaders should know, which is that the easiest way to handle a problem is to come forward.

‘‘He should do more interviews,’’ King said. ‘‘He’s comfortable. He loves cars. When you can bring that forth, my suggestion would be he should be more public.’’

Akio says he’s still uneasy in the spotlight. In private, though, he’s relaxed, says Mike Sullivan, a Santa Monica, California-based dealer who spent half a day with Akio this month test-driving new models at a New Orleans speedway.

Hug, Beer

With ‘‘the accountants,” as Sullivan dubbed past presidents, “the relationship was at arms-length,” he said by phone. “Akio greets people with a hug, or sits and grabs a beer, or drives extra laps with them at the track.”

Akio is more self-assured inside the company, too.

He’s brought in a new bench of executive vice presidents -- the youngest is still three years Akio’s senior, but he picked them all. He also made history this year by installing Toyota’s first outside directors. One is former GM Group Vice President Mark Hogan, who worked with Akio in the late 1980s at the then joint-venture Fremont plant.

Akio’s “a roll-up-your-sleeves kind of guy,” Hogan said in a phone interview. “Very hands-on, and on the floor.”

He’s also waded into giving a face-lift to a lineup not known for pizazz. Style is needed now that GM, Ford Motor Co. (F:US) and South Korean automakers have closed the quality gap.

Even the mass-market Corolla, the most popular car of all time with 40 million sold, has gotten a makeover. The 2014 model, which arrived at U.S. dealerships in September priced under $20,000, extracted grudging praise from Car & Driver: “It’s all wrapped in styling that merits the use of the word.”

In 2009, the reviewer called the Corolla then on sale “terminally limp-wristed.”

Giving Cover

“For sure, Akio’s wanted to add a little more spice,” said Harris’s Herro. “The Corolla is a good example. It’s a nice, reliable, economical car and it looks a little nicer. It’s got a little flair to give buyers some cover, so they don’t have to be known as buying a boring car.”

Bigger changes have come at Lexus. Since last year, the luxury division’s boss, Kiyotaka Ise, reports directly to Akio, and they’ve jettisoned design-by-committee.

“It used to be when we reviewed the cars, all the executives would stand in line to give feedback,” Ise said last year at a test drive through mountain roads on the island of Kyushu. “We’re limiting the process to a small group, and it’s keeping us focused.”

Akio started to put his mark on Lexus after an uninspiring test drive of an early version of the 2011 GS sedan. “Why don’t we just get rid of it?” he asked, before tearing into the team of waiting engineers.

Lexus Record

“It was a shock,” said the team leader, Yoshihiko Kanamori. “So we kept at it, test driving the car over and over, fine-tuning until we got it right.”

The new Lexus IS, a sporty mid-range sedan, sold almost 10 times its target in the first month after going on sale in Japan in June, according to the automaker’s latest figures. Mark Templin, executive vice president of the luxury unit’s global operations, this week forecast record annual sales.

For all the successes, many hurdles must still be cleared.

Toyota’s share of China’s market, the world’s biggest, is about 5 percent. GM and Volkswagen both outsell it there by at least three cars to one, and the investment needed to catch up is risky. Lexus shelved plans to open boutique stores in Shanghai and Beijing after anti-Japanese demonstrations over territorial disputes turned violent last year.

The recalls haven’t gone away, either -- it’s a function of having grown so big. The automaker had to yank millions of cars this year for air bag problems, more than 800,000 minivans for faulty gearshifts and about 210,000 sport-utility vehicles for seat belts.

‘Kiss of Death’

Another concern: Toyota’s Camry sedans, the top-selling cars in the U.S. for the past 11 years, were dropped last month from Consumer Reports’ recommended vehicles after doing badly in a new crash test.

“It’s not the kiss of death, but they’re going to have to work a little harder at marketing,” said Steve Usher, a San Diego-based auto analyst at JI Asia. He still expects the stock to gain 27 percent by this time next year. The shares have risen 57 percent in 2013 so far, fueled by the yen’s retreat.

Having ridden out the storm, Akio now faces the future.

That includes life beyond the Prius: After a decade and a half, the hybrid seems old. At the motor show yesterday, Toyota gave a sneak-peak of its FVC Concept sedan, a hydrogen fuel-cell car planned for release around 2015. It’s up against Honda Motor Co. and GM, the top holders of patents for the technology, while billionaire Elon Musk’s Tesla Motors Inc. is winning converts to his all-electric sports cars.

Whatever happens, “it’s reasonable to think Akio will be there for the next 10 to 15 years,” said Koji Endo, a Tokyo-based analyst at Advanced Research Japan. “He’s young. He’s not going to retire anytime soon.”

To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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