The New Boss Driving Toyota

By slamming the brakes on costs, incoming chief Katsuaki Watanabe put his career -- and the car maker's profits -- in the fast lane

By Chester Dawson

When Toyota Motor's (TM ) newly anointed president isn't busy making auto-part suppliers cry uncle, he likes to stretch his own vocal chords as part of a men's choir. Japan's largest carmaker announced Feb. 9 that Katsuaki Watanabe, 62 -- cost-cutting guru, vocalist, and executive vice-president -- will take over from President Fujio Cho, 68, in June.

The shakeup among Toyota's chiefs of staff came as a surprise to industry observers. Many expected Cho to extend his nearly six-year tenure through mid-2006.

Toyota officials describe Watanabe's fast-forwarding as part of a wider reshuffle designed to bring new blood to the ranks of upper management. That includes Akio Toyoda, 48, grandson of the company's founder and the current head of Toyota's business in China, who'll become an executive vice-president.


  It's not hard to fathom why Watanabe was chosen to lead Toyota at a time when efficiency and quality are the watchwords of the automobile industry. His promotion is widely seen as a reward for his success at trimming the fat, thus giving Toyota a critical edge over the competition. "One of the biggest factors [in Watanabe's promotion] is that he has been so good at slashing procurement costs," says Koji Endo, analyst at Credit Suisse First Boston in Tokyo.

Indeed, Watanabe, who graduated with an economics degree from Keio University in 1964, is best known in Japanese business circles for his knife-wielding prowess. It was on Watanabe's watch in 2000 that Toyota launched its Construction of Cost Competitiveness for the 21st Century (CCC21) streamlining initiative, which has helped it save nearly $10 billion over the past five years. CCC21 targeted about 180 key parts for 30% price cuts across the board.

The success of that effort has made Toyota the industry's cost and quality leader. And all indications suggest Watanabe has no plans to let up on the relentless streamlining once he becomes top dog.

At a press conference in Tokyo shortly after his appointment, Watanabe made it clear that Toyota's big concern isn't when it will overtake General Motors (GM ) as the world's No. 1 carmaker -- expected to happen as soon as 2008 -- or outfoxing domestic archrival Nissan Motor. Rather, the most daunting issue facing Toyota, according to Watanabe, is complacency. "I feel that being successful may make us arrogant and want to stay in a comfort zone," he says. "That is the threat."


  For now, Toyota is firing on all cylinders. On Feb. 3 it reported a 3.5% gain in net profit, to $2.9 billion for the October-December quarter. That was on a 5.9% rise in sales, to $45 billion. And although it hasn't provided earnings guidance for the fiscal year ending in March, it is expected to best last year's record profit take of $11.3 billion.

A big reason: The cost cuts achieved under CCC21 aren't about to come undone anytime soon. "Efforts to cut [costs] are still having a positive earnings impact," noted Nikko Citigroup analyst Noriyuki Matsushima in a recent report. In fact, the results should spread throughout Toyota's vehicle lineup later this year, as it introduces a slew of new models built with lower-cost parts vetted under the CCC21 program.

While Watanabe lacks the international experience of his two immediate predecessors, the easygoing Cho and the outspoken chairman Hiroshi Okuda, 72, he's the face of Toyota to hundreds of affiliated companies, or keiretsu, and outside auto-part makers. His duties have also included overseeing the company's housing unit and Toyota's key Motomachi plant near company headquarters.

Watanabe also is said to have played a major role in Toyota's decision in December to help bail out troubled Misawa Homes Holdings. Toyota will essentially integrate that company into its own housing unit to create Japan's third-largest single-family homebuilder.


  Watanabe's managerial touch is so highly regarded in Japan Inc. that he was invited last fall to give a special lecture to senior executives at rival Mitsubishi Motors (MMTOF ) and Mitsubishi Heavy Industries. Analysts say the new chief will likely be doing more lecturing inside Toyota, because his chief duties will include nurturing Toyoda, who is expected to succeed him as president in a few years.

"Watanabe obviously knows Akio [Toyoda] will become president sooner or later. And he may have been chosen because he is such a good teacher," says Credit Suisse's Endo.

Nissan CEO Carlos Ghosn may be known as "le cost killer" for having whittled procurement costs by 20%, but when Watanabe takes his new job, Ghosn will have more than met his match.

Dawson writes for BusinessWeek in New York

Edited by Patricia O'Connell

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