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Toyota : Hope for growth without qualitative improvement
29th January, 2007
Interview Katsuaki Watanabe in the company's new glass-clad office tower in the Japanese city of Nagoya, two men in dark suits quietly appear with a stepladder to correct a wall clock before the Toyota president enters the room.
It is a good thing the incident escaped Mr Watanabe's notice.
Toyota's chief is trying to instil a culture of zero tolerance for mistakes as he steers the car maker through one of corporate history's most extraordinary expansions.
The nearby Motomachi plant in Toyota City, Asia's oldest, is a showcase for the lean and flexible production methods that earned the company its nickname in one widely quoted book as "the machine that changed the world".
Bespectacled and austere-looking, but with an easy smile, Toyota's 74-year-old president is closer in personality to the quintessential Japanese organisation man than the star chief executives of the industry, such as Renault/Nissan's Carlos Ghosn.
But managing success poses its own challenges, as Mr Watanabe likes to make clear.
Earlier this month, he gave employees a stern warning: "We simply cannot hope for growth without qualitative improvement."
The assertion might sound absurd in the context of Toyota's current growth clip of half a million vehicles a year, equivalent to a quarter of the entire global car market's annual expansion.
About 15 per cent of Americans who bought a car last year bought a Toyota, and the company sold more than 9 million vehicles worldwide.
Its market capitalisation is larger than that of Detroit's "big three" combined and it is due to overtake General Motors as the world's largest car maker by unit sales this year.
But Mr Watanabe is, at least outwardly, unmoved.
"I do not care about that," he said flatly when asked about his feelings on the prospect of grabbing GM's top spot. "I personally would like to become number one in terms of the qualitative level of our company."
Coming from another car company chief, the words might sound like false humility. In Mr Watanabe's case they have the ring of truth, because Toyota's manufacturing juggernaut is showing discernible cracks as it grows.
Its breakneck expansion has led to manpower shortages in everything from research and development to vehicle inspection.
The deficit has, in turn, contributed to quality problems for Toyota, which earlier this month announced a recall of more than 500,000 vehicles in North America.
Toyota's use of common manufacturing platforms, parts and engines has helped push its operating margin to 6 per cent - a car industry gold standard - but also means that when a single fault arises, it can appear in hundreds of thousands of cars.
The car maker had the highest recall rate of any manufacturer in the US last year, putting at risk its vehicles' long-standing reputation for reliability.
Mr Watanabe was frank about the quality problems, which he described as a "warning signal" and even "an emergency" for Toyota.
"Since I took the helm at the company, that is what I have been engaging myself in," he said.
"The basic concept here is building quality into the products - into the manufacturing process itself." Whether a problem appeared in car development, manufacturing, parts procurement, or sales and service, he said, Toyota's "customer first committee" analysed the problem.
"All efforts are made for the prevention of recurrences."
Since becoming Toyota's president in June 2005, Mr Watanabe has expanded the committee's powers.
His stated quest for quality is aided by a knowledge of the company that cuts across functions.
He has filled posts in production control, strategy and procurement, an area where Toyota realises much of its cost savings.
Koji Endo, director of equity research with Credit Suisse Securities in Tokyo, called him "a very smart guy" and "probably one of the best presidents Toyota has ever had".
Unlike other Japanese car bosses such as Honda's Takeo Fukui, however, Mr Watanabe lacks overseas experience.
That may be important given the challenges of managing Toyota's US business in particular.
Americans continue to buy Toyota Camrys and Corollas in record numbers as they shift away from bigger vehicles. But US consumers can be fickle.
America's Democratic-controlled Congress is more protectionist than George W. Bush's Republican administration, and Democrats could win the White House next year.
Mr Watanabe took pains to describe his company's commitment to good corporate citizenship in the US, "regardless of the political parties in power".
However, he said: "If the US government becomes itself Democratic, there may be a possibility of greater pressures."
At a minimum, he said, Toyota "would like to reach as quickly as possible a ratio of 60 per cent North American manufacturing" of its cars sold on the continent, where it had 11 manufacturing facilities already.
Strong sales of Toyota's Prius hybrid and Lexus luxury cars - which it mostly makes in Japan - have pushed Toyota below its desired ratio.
A new Canadian plant should put it above 60 per cent again, but volumes are growing apace, and Toyota is now scouting five possible North American locations for a new plant.
So might a closer relationship with troubled Ford Motor help Toyota in its quest for corporate good citizenship in the US?
A recent visit by Ford boss Alan Mulally to Fujio Cho, Toyota's chairman, in Tokyo prompted media speculation about a Ford-Toyota tie-up behind which, given Ford's dire financial situation, many observers perceived a political subtext.
"If there is any opportunity of establishing a win-win relationship, we are open to any discussions, be they with Ford, with GM, or with Daimler-Chrysler," Mr Watanabe said.
That win-win relationship was likely to be in technology sharing, although the two companies did not discuss this, Mr Watanabe said.
Given the high costs of developing environmentally friendly technologies and the increasingly high hurdles set by regulators, even cash-rich Toyota could benefit from cost-sharing.
Managing political risk in the US is just one of Mr Watanabe's headaches. As the group goes global, it is becoming difficult to concentrate control in a handful of executives in Tokyo, making it critical for Toyota to nurture talent overseas as well.
Despite being within reach of the number one position, the car maker is woefully behind in the most promising markets in the world - Brazil, Russia, India and China.
Toyota executives rarely give away much to journalists, and Mr Watanabe is no exception.
"The focus of my management is to examine whether or not we have a full and complete grip on where problems exist in all different areas of our activities," he said.
Release link:
http://www.theaustralian.news.com.au/story/0,20867,21136800-36375,00.html
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