Toyota's Surprising Troubles

Toyota in trouble? For Detroit or European carmakers facing intense competition from Japan's largest auto manufacturer, the idea seems ludicrous. In the U.S. and Europe, consumers are flocking to buy Camrys, Lexuses, Yaris, and other hot Toyota Motor Corp. cars. But back home, the picture is quite different. After decades of success, Toyota is losing market share. The huge profits it made in the home market that used to finance expansion abroad are drying up. Worse, young Japanese buyers find Toyotas stodgy. The painful lesson that Toyota's executives are learning is that their company may have become too big, too slow, and too hard to manage. Has Toyota caught the General Motors Corp. disease of the 1980s?

Maybe. First, its models are just not exciting to young buyers, who are flocking to rival Honda Motor Co. Even the 40- to 50-year-olds who form the core of Toyota's loyal customers find its sedans a bit boring. Then there's the problem of overcapacity. Toyota once had nearly 50% of the Japanese market, and it had as much as 40% just a few years ago. The company's cars are designed on the assumption that Toyota will sell up to 10,000 units a month. With Japan in its eighth year of little economic growth, that is no longer possible.

Chief Executive Hieoshi Okuda is working hard to turn the company around. Even though Toyota has $25 billion in cash, it cannot prosper as long as it is barely breaking even in its most critical market, Japan. Okuda is moving to cut back the percentage of workers who hold lifetime employment guarantees and boost the number of contract workers. He is getting different models to share parts to cut down on costs and pressuring dealers to spruce up their showrooms and choose areas to specialize in for target customers. Finally, Okuda has gathered a task force of 30-year-olds to set up VVC--the Virtual Venture Co.--to develop a cool car for the young set. They report directly to the boss, Okuda.

Still, the first car won't even be developed until 2000, and Toyota is moving slowly in shifting its labor force away from lifetime employment. Meanwhile, its market share continues to fall as Japan struggles to pull out of recession. Okuda knows what the problems are and is working on solutions. But is Toyota moving fast enough?

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