Toyota Roars into China

If 'Toyota Way' teamwork clicks, it could mean a big jump in sales

When Toyota Motor Corp. was planning its first Chinese car factory, near the northeastern port city of Tianjin, it needed to school its new hires quickly in the basics of auto manufacturing and assembly. But as last October's opening day drew closer, it became clear that the workers were lacking a skill even more fundamental than the precision welding, bolting, and fine-tuning required to build cars that meet Toyota's stiff quality standards. "Most of our employees had never driven a car," says Shinichi Tsutsumiuchi, a personnel manager at the Chinese operation.

Not to worry. Ever resourceful, Toyota's managers placed a stripped-down demo of its Vios subcompact on the factory floor to let workers get the feel of the machines they were building. "We needed to show them how everything works," Tsutsumiuchi says.

Toyota's ambitions in China are vast, but so are the challenges. The carmaker was late to the game in China, but since 1998 it has invested some $1.3 billion in the country, including the Tianjin operation and commercial-vehicle and parts factories. At this point, it has managed to eke out just a 5% market share in passenger cars -- well behind its chief competitors, Volkswagen and General Motors Corp. But it hopes to double its share by 2010 with a good bit of help from Toyota Tianjin, a 50-50 joint venture with state-owned First Automotive Works Corp. (FAW), China's biggest auto-making group.

So far, the going has been slow. Largely because it takes time for workers to master the kind of meticulous workmanship Toyota demands, the company has built only 1,500 Vios sedans per month in the half-year that the Tianjin production line has been open. But execs say they're now ready to rev up the plant's engines. In April, the carmaker will double production, and by yearend it expects to be making 5,000 cars a month. That will help Toyota meet demand for the $13,300 Vios, which has been such a hit that the company is sitting on a backlog of 16,000 orders in China. "The biggest problem is not having enough cars to sell," says Song Ruixin, manager of a shiny new Toyota dealership in Beijing, one of 50 outlets the company has built or remodeled to sell the Vios in China.

Clearly, other carmakers in China need to brace for the challenge. Last year, Toyota sold only 50,000 cars in the country, mostly Camrys and Corollas imported from Japan. Industry leader Volkswagen, by contrast, sold 511,000 cars, and No. 2 GM sold 110,000. With the Tianjin plant moving into full swing, Toyota hopes to increase its annual sales in China to 300,000 over the next seven years. "The Chinese auto market is growing exponentially, and we fully intend to be a part of that growth," says Tetsuji Okada, chief of Toyota's China Division.

The Tianjin factory is only one leg of Toyota's grand plan. With a capacity of just 100,000 cars annually, its small scale makes it something of a laboratory. Company officials say the tiny plot of land it sits on, alongside grimy FAW workshops, was meant to punish Toyota for spurning a Chinese overture in the 1980s -- when the Japanese company was busy expanding in the U.S. Now that the Tianjin plant is up and running, Toyota has banked plenty of goodwill points with Beijing and has been given the nod to build a second, larger factory across town that it hopes to open in 2005. While Toyota won't comment on that plant's capacity, it's expected to make several new models, including midsize sedans and a luxury car currently sold in Japan as the Crown. "The Vios factory is just laying the groundwork for us in China," says Yuji Umehara, president of Tianjin Toyota Motor Co. "This is the start of something big."

To stay on the road in China, Toyota will have to continue the kind of grooming it gave the 1,300 workers at the Vios plant. As part of the effort to teach "Toyota 101," over the past two years the company dispatched a score of experienced technical hands from its most productive Japanese plants to serve as factory drill sergeants in Tianjin. Assembly-line staffers had to build their own workbenches, component bins, and trolleys from kits shipped from Japan -- to teach teamwork and responsibility. Months before the first Vios rolled off the line, the teams practiced assembling and taking apart prototypes over and over. And all new hires must go through a weeklong program of seminars on Toyota culture plus wrist exercises to build up muscles used on the line.

Even though the Toyota operation stands in the shadow of the aging FAW factory, less than 10% of the staffers are FAW veterans. With four applicants for every job available, Toyota could afford to be picky. And the company chose youngsters: Their average age is 21, which Toyota officials say makes for a more malleable workforce, amenable to learning "Toyota Way" teamwork, respect for authority, and techniques of kaizen, or continuous improvement. "The toughest thing to teach is diligence, so nobody lets a loose bolt slip by," says Tian Zhongwen, who quit his job at a local steel-pipe maker and started studying Japanese when he heard Toyota was coming to town. Since being hired, he has made more than 10 trips to Japan, where he trained alongside veteran Toyota workers. He now helps oversee quality control and teaches his Chinese colleagues Toyota's methods.

Although Tianjin is Toyota's newest plant, don't expect to find the same level of automation the company has in its Japanese factories. Toyota didn't import state-of-the-art robots and other expensive equipment from Japan. Instead, the factory relies heavily on manual assembly, in part because labor in China is so much cheaper, but also because Toyota officials want their Chinese workers to learn how to do things by hand first. If too much automation is introduced in a plant too soon, they say, quality can suffer because workers don't get a chance to learn from their mistakes. "In some countries, we've never been able to reach the quality levels of Japan," says Toyota Tianjin president Umehara, who once ran a plant making Lexus luxury cars in Japan. "Our goal here is nothing less than matching the quality of Japanese factories -- or exceeding it."

That kind of commitment to quality will be key if Toyota is to stand out in the increasingly crowded Chinese car market. Virtually every auto maker in the world is counting on big sales gains in the country, which has the fastest-growing auto market on earth. Nonetheless, Toyota is bullish on its prospects. The auto maker expects to start turning a profit on the Tianjin venture within three years. With that demo model on the factory floor, Toyota might even sell a few of its cars to its own workers -- once they learn how to drive.

By Chester Dawson in Tianjin

    Before it's here, it's on the Bloomberg Terminal.