Toyota revs up
As the wheels come off at GM, Toyota makes its passing move. Roger Baird surveys the wreckage
General Motors will have to change the first line of its company profile. It’s not going to be the world’s biggest car maker for much longer. Detroit is being replaced by Tokyo. It may not be able to boast Motown greats such as the Supremes but the central business district in Tokyo is about to become the centre of world car production. America’s dominance over the global car industry, which harks back to the beginning of the last century, is over.
Industry sources in Japan say that Toyota is planning to increase its worldwide production by 11 per cent next year. This will mean it produces 9.2m vehicles in 2006. With GM unlikely to increase its 2005 forecast of 9.12m next year, Toyota will become the biggest car maker in the world. The land of the free will not be happy.
Granted, Toyota is already bigger than its American rival by most other accepted measures, but at least GM could cling to the “most cars produced” title belt. Now that’s being wrested away from it. The Japanese car maker already has a bigger market value and larger profits. And it works off an impressive operating margin of just under 10 per cent, while GM’s margin is one of the slimmest in the industry at around 1 per cent.
However, this absolute volume measure is important. Psychologically it is the last way GM can claim superiority over Toyota. It will mark the handing over of the leadership of a key industry from west to east. And in cash terms it means the Japanese car maker will have greater economies of scale to enable it to strike better contracts with dealerships around the world.
Toyota achieved this dominance in a relatively short time, first by acting as one would expect a Japanese company to act and then, once it had become successful, changing tack and wrong-footing the opposition.
In the 1980s when Toyota shot to international prominence it ran as a typical Japanese company. It operated what is called the Toyota System, which involves a lean, machine-driven plant, employing few people. It pioneered just-in-time delivery, a sophisticated system of supply that cut down over ordering and waste.
As Nigel Griffiths, the director of European automotive research at Global Insight, points out: “Other car companies saw these new methods of working and copied them pretty quickly. But it was their final policy, of continual improvement, that was harder to copy.” This strategy is as it sounds. Toyota’s policy is to continually update its ways of working. And this made the company more fleet-footed in its foreign markets.
Industry watchers point to the Corolla as an example of this. In the early days of the model it was made the same all over the world. Nowadays in America the car is bigger, while in Europe it has extra design features and can be bought as a hatchback.
Although even the most admiring analyst finds it hard to love Toyota’s output, most say the cars are comfortable and reliable. Only the Yaris, its small car, which sells around 200,000 a year across Europe, and competes with Volkswagen’s Polo and Renault’s Clio, together with the upmarket Lexus has any admirers in the press.
In its two major regional centres — Brussels for Europe and California for America — Toyota employs local designers and executives to give its international models local flavour and appeal.
“The idea of Toyota doing the same thing in every market is an old one,” one analyst said. “Ten years ago when I used to meet senior people at Toyota they were all Japanese. Now I am just as likely to meet a European or an American.”
GM and European companies say, however, that it is hard to break into Japan, which makes up 9.2 per cent of the world market.
Although the Japanese government does not put up trade barriers on cars, a number of factors exist that conspire to make it difficult for new entrants to the market. High land prices make it hard to set up an extensive network of new dealerships. And Japan has a “mini-car” market selling 1m a year, which other car makers find difficult to make at competitive prices.
In the 1990s Toyota ran a television advertisement that ended with the tagline: “The car in front is a Toyota”. In little more than a year from now that will be true in every sense. Bean counters at GM and Toyota will pour over spreadsheets more keenly than usual for the next 12 months.