Toyota's Doubled-Edged Triumph

The Japanese carmaker recently passed DaimlerChrysler as No. 3 in U.S. sales. Instead of cheering, though, its execs fret about a backlash

By Brian Bremner

You'd think top executives at Toyota (TM ) would be giving each other high-fives these days. Its biggest global competitors -- General Motors (GM ), Ford (F ), and DaimlerChrysler (DCX ) -- are in grim shape, locked in tough labor talks and burdened by massive pension obligations. Meanwhile, Toyota and other Japanese automakers continue to gain market share in the U.S.

In August, Toyota overtook DaimlerChrysler as the No. 3 in terms of sales. The Japanese carmaker boasts a waterfront of great models, from the fabled Camry sedan to the Lexus LX 470, an SUV. It has a promising Gen Y compact car called the Scion that's creating a lot of talk in the industry, and it's even going after the Big Three's cash cow, pickup trucks.


  Yet the car guys at Toyota, which earned a record $6.2 billion last year, the bulk of it from U.S. sales, aren't really in a gloating mood. They seem to be petrified by the idea that a Ford or DaimlerChrysler might go under -- or ask for a U.S. government bailout. "I don't want to see any of them go into difficulty," says Yoshimi Inaba, a senior managing director who returned to Tokyo last summer after leading Toyota's North American operation to record growth. "If that happens, public sentiment will change."

At first, I thought Inaba might be crying crocodile tears. After all, this isn't the late 1980s when pundits and pols warned that Japan was an ascendant economic power that would somehow economically colonize the U.S. and destroy jobs. Back then, Japanese auto makers exported cars to America, but they have since boosted their production capacity on U.S. soil.

Toyota has seven major assembly and parts operations in America now and a new one slated for 2006 to produce its Tundra truck. That has created a lot of steady wages for factory hands in the American heartland. Few argue anymore that Toyota is engaging in some kind of predatory game in the U.S.


  Yet, Inaba is probably right in his concern. Public sentiment isn't necessarily rational. And you're already starting to see the Bush Administration and lawmakers representing manufacturing states ratchet up the rhetoric about heavy Japanese interventions in the currency market this year to prop up the yen vs. the dollar.

Some Detroit auto writers have pointed out that while the Big Three are saddled with a heavily unionized workforce, Toyota employees are nonunion. Somehow, that's considered unfair. I don't really follow the logic here, but the implication is that Toyota is pulling a fast one. When it announced that it would be the first foreign carmaker to field a racing team for the NASCAR circuit, racing purists went bonkers with protests.

Remember, also, that while the Bush Administration may talk a free-market game, it had no problem seeking protection for the U.S. steel industry, remedies that the World Trade Organization has since declared to be invalid under its rules.


  What would happen if one of the Big Three went into a death spiral, shuttered plants, and laid off thousands of workers? What if everyone woke up one morning and discovered Japanese and other foreign auto makers controlled 50% or 60% of the U.S. car market, as opposed to about 40% now. You can bet that political sentiment would reignite for a Buy America campaign.

The irony here is that Toyota always seems to run the risk of a backlash for the "sin" of making great cars and out-hustling the competition when it comes to productivity and quality. It's not fair -- but Inaba is right to be anxious. When the Toyota folks say they don't want one of the Big Three to pull a disappearing act, they mean it.

Bremner, Tokyo bureau chief for BusinessWeek, offers his views every week in Eye on Japan, only for BusinessWeek Online

Edited by Douglas Harbrecht

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