After weeks of rumors, Toyota (TM) on Jan. 20 confirmed that Akio Toyoda, a member of the company's founding family, is to become its next president. The change, to be rubber-stamped after its annual shareholder meeting in June, promotes Toyoda from his current role of executive vice-president. As part of the shake-up, current chief Katsuaki Watanabe becomes vice-chairman, replacing Katsuhiro Nakagawa, who will retire. Toyota Chairman Fujio Cho, who preceded Watanabe as president, keeps his current role.
Toyoda, 52, told reporters in Tokyo that amid slumping auto sales and falling profits he would try to balance necessary changes while respecting Toyota's traditions. "We're facing a once-in-a-hundred-year crisis," Toyoda told reporters gathered at the Japanese automaker's Tokyo offices. "I'll try to make changes without being tied down by the past."
Timing Is Right
Outgoing chief Watanabe added that Toyoda is the right man at the right time, noting that the rapidly changing sales environment for autos necessitates bold reform and new perspectives. "Mr. Toyoda has all the qualities required to address rapid change," he said.
News about the promotion of Toyoda, grandson of founder Kiichiro Toyoda, was first reported in Japan's Asahi Shimbun newspaper on Dec. 23. At the time Toyota spokesmen said no personnel decisions had been made, but an insider close to Toyota told BusinessWeek that Toyoda would indeed succeed Watanabe.
Today's announcement means a member of the Toyoda founding family will lead the company for the first time since 1995, when Tatsuro Toyoda (Akio's uncle) stepped down due to ill health.
Record Losses Continue to Mount
The promotion of Akio Toyoda comes at a difficult time for the company. Hurt by a mix of unfavorable currency swings, slumping worldwide auto sales, and high materials costs, Toyota forecast an operating loss for this fiscal year through March 2009 of $1.7 billion—its first such loss since 1938. The profit revision was Toyota's second in six weeks and reinforced how the global auto industry has been slammed by the U.S. banking crisis. Net profit, which includes income from joint ventures in China, is forecast to shrink 97%, to $555 million.
Next year could be even worse. In the year through March 2010, analysts project the company's operating loss will swell. If the supercharged yen does not weaken, warns CLSA Securities analyst Christopher Richter, Toyota's operating loss could swell to $11 billion next year, despite increased cost-cutting efforts and the benefits of lower raw materials costs. "It's a tough time to be taking command of the ship," he says.
In a sign of the times, the Jan. 20 press conference was held in the ground floor of Toyota's Tokyo offices—a cheaper alternative to hotel conference rooms the company usually uses. Prior to tonight's press conference, Toyota said in a statement it sold 8.972 million vehicles in 2008, a fall of 4%, and its first annual sales drop in a decade, although still likely enough to make Toyota the world's biggest automaker. (Current title holder General Motors (GM) reveals its sales figure for the quarter on Jan. 21). Meanwhile, unconfirmed reports in Japan say Toyota will cut all of its remaining 3,000 nonpermanent workers. In March 2008, Toyota had more than 8,000.
Mixed Reactions from Analysts
Analysts have expressed mixed feelings over news of Toyota's C-suite change. Speaking before today's announcement, UBS (UBS) analyst Tatsuo Yoshida said that Toyoda could be a unifying force for the company, but questioned why the company had to act now. "I don't think it is a good time to change top management," Yoshida noted. Some are worried that a new president could slow the decision-making at a time when the company needs to be able to react quickly to unexpected events.
Toyota's defenders say critics would be right if the company depended on a single authoritative figure, but the automaker's management reaches decisions by discussion and consensus. What's more, a Toyoda presidency could lead the company's rank and file, particularly in Japan, to rally behind the automaker at this difficult time.
Toyoda Earned His Seat
And while Toyoda's background means he has long been earmarked for the job, it is unfair to credit his rise only to his family connections, say observers. Toyoda joined the carmaker in 1984, after getting an MBA at Babson College near Boston and working in London and New York as a banker and consultant. In the late 1990s, he led a Toyota venture called Gazoo.com, even before the company paid much attention to the Internet. Gazoo started as a Net-based database for used cars. With few resources, Toyoda built the site into one of Japan's most popular Web sites for car enthusiasts; it now offers industry news, car reviews, a cyber-mall, and a thriving online community of bloggers who regularly post commentaries, photos, and other content. "People assume that Gazoo sprang from Toyota's flush war chest," Toyoda told BusinessWeek in 2001. "But we toiled without much funding before finally selling management on the concept."
Later that year, Toyoda was assigned to run the company's operations in China. Toyota hadn't yet built up much of a presence there, and Toyoda forged alliances with Chinese automakers, notably First Automotive, that would prove key to the company's expansion plans. Named a senior managing director—the youngest at Toyota—in 2003, he also worked in the U.S. as vice-president at Toyota's joint venture with General Motors ) in California, New United Motor Manufacturing. More recently, Toyoda took on the tough job of reinvigorating sales in Japan, a market that has been in decline for years. "He has put in the time to learn the ropes and has not been given any special favors because of his name," says J.D. Power & Associates (MHP) Vice-President Alberto Lapuz. "Many senior board members point to him as 'one of us,' which is the ultimate compliment."
Lapuz also dismisses suggestions that the new president will slow down decision-making. Toyoda's strengths, he argues, include his openness to new ideas and determination to get things done quickly. "I don't know if there is schooling on how to face these economic conditions, but if you want someone who can work internally with colleagues and externally with partners, then he's the guy," he says.