Toyota: A Carmaker Wired to Win

For the first time ever, it has bested GM as top seller of cars and trucks in the first quarter. Its corporate DNA of manufacturing excellence will make it hard to beat

There are milestones—and then there are ground-shifting, era-smashing milestones. And word on Apr. 24 that Toyota (TM) dislodged General Motors (GM) as the world's biggest seller of cars and trucks for the first time ever (at least on a quarterly basis) is no ordinary bit of business news.

Toyota can't really claim the title of global auto champ until the full-year numbers for 2007 are released early next year. But on Apr. 24, the Japanese company said it sold 2.35 million vehicles worldwide in the first quarter, a 9% increase. Compare that with the 3% sales gain, to 2.26 million vehicles, GM says it saw in the same period (see, 6/7/07, "Toyota, Take the Wheel").

GM is clearly in retrenchment mode and confronts a massive retiree pension and health-care tab—a burden Toyota doesn't face. GM Chief Executive Rick Wagoner has vowed repeatedly that his company has no intention of ceding industry leadership to Toyota, and perhaps his team at the Renaissance Center in Detroit can somehow rekindle the company's competitive zest and stage a miraculous comeback.

It could happen. However, the odds aren't great. Toyota's current sales momentum is being powered in the U.S. by demand for its Corolla and Camry sedans and its hybrid-powered Prius and the Lexus luxury lineup. It blew by the Chrysler Group as the U.S.'s No. 3 seller of autos in 2006, and continues to gain market share (see BusinessWeek Assistant Managing Editor Christopher Power discuss what makes Toyota such a unique global auto competitor, "Video View: How Toyota Became No. 1").

A Fanatical Attention to Detail

Even more daunting, though, is Toyota's deeply ingrained commitment to manufacturing excellence that runs throughout this sprawling global operation. That work ethic seems to reside in the collective gene pool of company executives decade after decade, and dates back to founder Kiichiro Toyoda who launched the company some 70 years ago.

Toyota's trajectory hasn't always been a smooth one. It almost went bankrupt in the early 1950s. The company's first U.S. export (the Crown) was sniffed at stateside, and it had to face hot blasts of protectionist sentiment in the late 1980s and mid-1990s. Its car design has been often derided for its bland conformity, though that has changed somewhat in recent years. Still, in good years and so-so ones, Toyota never seems to lose its fanatical attention to detail, corrective adjustment, frugality, process redesign, and market adaptation.

The typical Toyota Man may be self-effacing to the extreme—ever-smiling and somewhat colorless—at least compared to charismatic industry figures like Nissan-Renault's cosmopolitan boss Carlos Ghosn or Bob A. Lutz, GM's straight-from-the-gut product-development czar. Yet don't be fooled: current Toyota President Katsuaki Watanabe and predecessors Fujio Cho and Hiroshi Okuda are killer competitors, too.

No Banzais, For Now

This trio is unlikely to be yelling "banzai" right now, and far more likely to be urging everyone to stay focused on 2007 cost-cutting targets and taking Toyota's design game up another notch. Here's the thing: these veterans (not to mention 20-something factory hands and designers) are mindful of the heritage bestowed upon them by Taiichi Ohno, a leader still revered inside the company as the father of the fabled Toyota production system.

Decades ago, Ohno established a set of in-house precepts on efficient and lean manufacturing that evolved to include just-in-time delivery, continuous improvement (kaizen), mistake proofing (pokayoke), and obeya, or face-to-face brainstorming sessions between engineers, designers, marketing pros, and suppliers. Such practices are commonplace now.

In fact, it is worth considering that Toyota didn't just revolutionize car making—but pretty much global manufacturing as well.

Visit any Toyota plant in Japan, and it's easy to grin at the Orwellian factory banners emblazoned with exhortations such as "good thinking means good products." Yet you will also see a high-tech ballet of a half dozen separate car models—from the Corolla compact to the youth-oriented models like the Scion xB—gliding along a single production line in any of a half-dozen colors. Overhead, car doors flow by on a conveyor belt that descends to floor level and drops off the right door in the correct color for each vehicle.

Avoiding Big-Company Disease

The same exacting efficiency and quality standards are expected at Toyota plants anywhere in the world. Toyota's best workers are trained by in-house quality gurus at their local plant—or flown off to Japan to learn the Toyota way of double- and-triple checking parts and processes for trouble and immediately signaling to superiors when things go wrong.

Above all, Toyota workers value frugality—whether it's turning down the heat at company-owned dormitories during working hours back in Japan, or spending weeks jawboning with suppliers to figure out ways to redesign a key component and shave another 10% from production costs.

Toyota is scarcely a flawless organization, and therefore not an untouchable one. Yet it has managed, so far, to avoid what Watanabe and others have called the "big-company disease"—and by that what they really mean (though will never say it) is the GM disease. "The scariest symptom," Watanabe said in an interview with BusinessWeek last month, "is that complacency will breed in the company. To be satisfied with becoming the top runner, and to become arrogant, is the path we must be most fearful of," he added (see, 3/5/07, "Talking with Toyota's Top Man").

If Toyota can manage to keep that sentiment in mind, it's going to be leading the global industry for a very long time to come.

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