Monday, April 10, 2006

Toyota poised to become the world's largest automaker

Saturday, April 08, 2006

Toyota poised to become the world's largest automaker (storylink)

Industry experts praise the company's efficiency, flexibility, quality control and, most importantly, foresight

TOYOTA, Japan -- Satoshi Ogiso was in his office redesigning Camrys and Tercels when the young auto engineer was suddenly ordered to switch gears and join a secret mission "to come up with a whole new car for the 21st century."

Toyota Motor Corp.'s top management, Ogiso said, had read the wind. Believing that higher oil prices and the rise of eco-conscious consumers would spark surging demand for super-efficient autos, they ordered up what would become the prototype for the Toyota Prius.

The gas-electric hybrid reached U.S. shores in 2000, defying industry naysayers by becoming one of Toyota's hottest new models. Eager clients in the United States are still waiting two months or more for delivery as the futuristic hybrids roll off the assembly lines as fast as Toyota can make them in this booming city in central Japan.

As the company was busy unveiling the Prius, its U.S. competitors at General Motors Corp. and Ford Motor Co. were heading down a completely different road. Both companies were pouring cash into gas-guzzling sport-utility vehicles and minivans, sales of which tanked as oil prices shot up.

Analysts say the foresight and planning that went into the development of the world's first mass-produced hybrid underscore how Toyota has managed to leave the struggling U.S. automakers in the dust -- and why it is likely to stay ahead for years to come.

Toyota is poised to overtake ailing General Motors this year as the world's largest automaker in terms of units sold. It is a title, industry experts say, that the 69-year-old company could win through a combination of efficiency, flexibility, quality control and, most importantly, an uncanny sixth sense for what consumers want.

"The early development of the Prius put Toyota at least two years ahead of the Big Three in one of the fastest-growing car segments," said Noriyuki Matsushima, managing director at Nikko Citigroup Ltd. in Tokyo. "Toyota has succeeded in reinventing the idea of automaking and corporate efficiency in a manner that has everybody else in the industry playing catch-up."
In the midst of massive layoffs and plant closures, General Motors and Ford are struggling for survival. Meanwhile, Toyota is projected to post record profit this year after nearly doubling production and opening seven factories over the past five years.

The U.S. automakers have linked much of their woes to massive "legacy costs" -- or generations of generous benefit packages to its unionized employees. Industry experts say General Motors' health-care and pension expenses amount to roughly $2,000 more per vehicle than Toyota's.
But analysts say those costs tell only part of the story. Pegged in the post-World War II era as a maker of inexpensive cars, Toyota commands a record 13.3 percent of the U.S. market -- up from 12.2 percent in 2004 -- even though many of its models are more expensive than their American counterparts.

Toyota has avoided layoffs or major labor disputes for more than half a century while maintaining an industry edge in cross-training line workers to build multiple cars on the same assembly lines. Inside Toyota's sprawling Tsutsumi plant here -- one of two in Japan that make the Prius -- workers produce seven models on two assembly lines, changing tasks every two hours.

The relentless push for efficiency often takes shape in small ways. Two years ago, the company came up with a new process in which parts for specific models were presorted into blue boxes that travel down the line as each car is assembled. Though low-tech and inexpensive to put into effect, it significantly sped up the product line and saved space by doing away with the need for workers to seek out different auto parts from storage bins. It was one of roughly 600,000 small improvements Toyota makes annually.

"Toyota is the Tiger Woods of flexibility and efficiency; they've got everybody a few strokes behind," said Ron Harbour, head of Harbour Consulting, publisher of an annual auto industry productivity report. "Often, it's nothing that makes you sit back and go 'wow.' They're little things, thousands of little things that add up to a huge advantage."

Analysts say the Prius marks an inventive milestone for Toyota. Although it accounts for only a tiny fraction of the record 9 million vehicles Toyota expects to produce this year, the Prius was an atypical risk for a company that has become more known for quality and consistency than innovation.

Toyota has been toying with hybrid engines for the past 20 years. But the company began to seriously pursue a mass-producible hybrid in 1993. Ogiso, 45 years old and now the chief engineer on the third-generation Prius still under development, said the edict came from Eiji Toyoda, the patriarch of the Toyota family who headed the company until 1994.

Ogiso said Toyoda had grown increasingly concerned that gas-engine auto manufacturing would eventually become a sunset industry given the limits of global oil supplies and increasing pressure to curb emissions. Focused more on a long-term advantage than the short-term gains that U.S. automakers are under pressure from Wall Street to produce, Toyota put hundreds of engineers to work on creating a new engine that would double average gas mileage and cut emissions by 80 percent. Conventional engines were quickly ruled out. "We found that the only way to achieve that goal was building a whole new type of car," Ogiso said.

In the United States, an unconventional car called for unconventional marketing, and Toyota began selling the Prius via the Internet to generate a buzz. It worked. Hollywood celebrities, including Cameron Diaz and Leonardo DiCaprio, stepped in, scooping up the eco-friendly car in which even the floor mats are made from recyclable sugar cane.

The Prius hit a vein of gold. Despite a premium price, sales vastly outpaced Toyota's expectations. The car sold 107,897 units in the United States in 2005 -- about double the 2004 volume. Toyota quickly rolled out other hybrid models, including Lexus and Highlander versions, selling 235,000 worldwide in 2005, up from 134,000 a year earlier.

Some credit the success of the Prius to lucky timing -- sales took off just as gas prices were skyrocketing. But many who initially scoffed at the idea -- including General Motors and Ford -- have become true believers. Both companies have rolled out hybrids of their own.

But Toyota is banking on staying one step ahead.

"We knew were on the right path," Ogiso said. "And we were."

Special correspondent Akiko Yamamoto contributed to this report.


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