The Driver Who's Passing GM

Katsuaki Watanabe, President, Toyota Motor Corp., Japan

When Katsuaki Watanabe, Toyota Motor's (TM ) incoming president, met in Tokyo with General Motors Corp. (GM ) Chief Executive G. Richard Wagoner Jr. on May 14, they had dinner. They might have done better meeting earlier in the day, though, since Toyota continues to eat GM's lunch. While the biggest of the Big Three is losing market share, Toyota has racked up steady gains. It can barely keep hot models such as the Prius hybrid in stock, and it's on track to overtake GM as the No. 1 auto maker as soon as 2008.

At the core of Toyota's competitive edge has been a relentless drive to cut costs without sacrificing quality. And Watanabe, 63, who took office as president on June 23, earned his stripes as the company's Cost-Cutter-in-Chief. He is the mastermind of an initiative called Construction of Cost Competitiveness for the 21st Century, or CCC21, which forced suppliers to slash the prices of 180 key parts by at least 30%. CCC21 helped the carmaker save $10 billion over the past five years. Thanks in part to that effort, profits hit a record $10.7 billion last year, up 1%, as sales jumped 7.3%, to $170 billion.

It may get tougher for Watanabe as he takes over the top job. Price hikes for key materials, such as steel, helped trigger a 17% slide in net profit, to $2.7 billion, in the quarter ended in March, even as sales jumped 4.3%, to $44.9 billion. Watanabe says Job No. 1 is fighting complacency as Toyota gets bigger and bigger. "I feel that being successful may make us arrogant and want to stay in a comfort zone," he told reporters shortly after his appointment.

Nonetheless, Watanabe shows every sign of continuing the company's breakneck campaign to build cars on every continent. Toyota's newest factories range from the Czech Republic to China to Texas, and expansion is planned for Canada, Russia, and Thailand. That should put Toyota on track to sell some 8.5 million vehicles next year -- and position it just behind GM, with its annual sales of 8.9 million.

Watanabe isn't as well known outside the company as outspoken Chairman Hiroshi Okuda or outgoing President Fujio Cho, who now becomes vice-chairman. After graduating from Keio University with an economics degree in 1964, Watanabe cut his teeth as a manager overseeing everything from Toyota's homebuilding unit (yes, it has one) to the key Motomachi plant near the company's headquarters in Toyota City. He is also known inside Toyota for stretching his vocal chords as a member of its choir -- when he's not making parts suppliers cry uncle, that is.

By Chester Dawson

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