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Corporate Nov 7, 2011

No longer the beast, Toyota now aims for beauty

As Toyota Motor President Akio Toyoda passed the banged-up Aston Martin Zagato in his Lexus LFA on the Nuerburgring race track last month, he figured that was it for the British race car.

Toyoda and Aston Martin CEO Ulrich Bez, both recognised for their contribution to motorsports by the German auto industry this year, were meant to switch cars later and cross the finish line side by side - Bez in the Lexus, the Toyota chief in the Zagato.

"I thought, that doesn't look good," Toyoda, an amateur racer, recalled after the four-hour endurance race at the track, in Germany's Eifel region. "I think everybody did."

The mishap seemed like a metaphor for the road his company has travelled since Toyoda took over more than two years ago.

Toyoda is focusing first on his premium line, hoping to seduce customers with a revamped Lexus. Reuters

His appointment in June 2009 came as the $115 billion company reported its first loss in decades, after the global financial crisis forced it to idle the many factories it had built over a decade of relentless expansion. That growth in pursuit of profits came at the expense of quality and innovation, critics said.

Akio Toyoda, the first member of Toyoda family to take the helm since 1995, vowed at the start to take the automaker founded by his grandfather "back to the basics" of building cars that made people happy.

Barely six months later, the company plunged into its worst quality crisis in decades. Toyota took a firestorm of criticism over the slow response to recalling millions of cars to check for faulty accelerators in the United States. The safety crisis, which forced Toyoda to testify before Congress in February last year, threatened Toyota's reputation and continued success in its most profitable market.

Today, even as the world's biggest automaker is turning the corner on that crisis, with new evidence indicating human error and not faulty electronics was the cause behind most of the cases of unintended acceleration, things hardly look any better.

The yen, hovering around record highs, is hurting its price competitiveness. Japan's once-in-a-millennium earthquake and tsunami and Thailand's historic floods, have caused severe supply chain disruptions.

But perhaps the biggest challenge for a company Nissan chief executive Carlos Ghosn used to call "the Beast" is Toyota's brand image as a maker of durable and environmentally friendly cars - but not much else.

Once the world's most envied car maker, Toyota is no longer the benchmark for rivals such as Volkswagen AG or Nissan Motor Co. That honour these days goes to a fast-rising Hyundai Motor Co, whose stylish cars are making Toyota's look blander than ever.

"Toyota can't get by with its quality reputation alone anymore," said Kurt Sanger, a Tokyo-based auto analyst at Deutsche Securities.

"Fairly or unfairly, that's been tarnished by the recalls. But even before that, the other guys were getting better while introducing more interesting products. For Toyota to just continue to do what it was doing was not an option. It ignored that for awhile."

Toyoda, a self-proclaimed 'car guy', acknowledges at the race track in Germany that his company may no longer be the beast, but it can still try to be the beauty.

His quest is to reboot the culture of a company that hasn't been sexy for years. He wants investors to give him a longer time-frame to do that - even if it takes another decade or so.

GRAND ENTRANCE

At media events, the 55-year-old Toyoda is known for his grand entrances driving a car, whether it's in the all-new Camry at Toyota's factory in Kentucky or a 30-year-old Kijang truck in Jakarta. At staid company functions, he brings in an LFA and starts the engine, filling hotel banquet rooms with the smell of petrol and the rumble of the supercar's V10 engine.

"By the next day, no one will remember the speech I made," Toyoda, dressed in a red racing suit, said before the October 15 race at Nuerburgring. "But they'll never forget that sound and smell."

Earlier this year, young men and women offered a job at Toyota in Japan were invited to the company's test track to celebrate. As they stood facing a stage to be introduced to Toyota's race car drivers, Toyoda circled the track on an LFA for sound effect.

"Nobody knew it was me. After the introductions, I pulled up to make my remarks," he said proudly, flipping through photos from that day on his iPad. "In those remarks, I asked them if they liked cars and that if they didn't, they shouldn't bother joining."

Toyoda's campaign to inspire the group's 300,000 employees to build more exciting cars was strengthened, he said, when he appeared on CNN's Larry King Live after the grilling from US lawmakers last year. The turning point from that trying saga, Toyoda said, came when King posed his final question: What car do you drive?

"I thought to myself, should I say Prius? Would that sound good?" he remembered. "But then I decided to just let go and I felt a smile return to my face. I told him, 'I drive about 200 a year. I love cars.'"

Toyoda said the incident made him realise that focusing on the product is what saved him from a crisis he had assumed would lead to his early resignation to take responsibility for the recalls.

He renewed his vow to lead Toyota into a new chapter with cars as the leading protagonist, declaring the day of the US congressional hearings - Feburary 24, 2010 -the beginning of a company renaissance.

HYUNDAI THREAT

But making good cars requires profits, and profits have been tough to come by lately.

The yen's persistent strength has been especially tough for Toyota, which exports about 1.5 million vehicles from Japan, nowadays at a loss. Even though the dollar is nowhere near the 90 yen Toyoda says is appropriate, he has vowed to keep building at least 3 million vehicles a year in Japan - three times that of Nissan or Honda Motor Co. Toyoda says the company has a social obligation to protect jobs and keep a strong manufacturing base in Japan.

That commitment only strengthened after the March 11 disasters, and became the source of a public "debate" earlier this year with his chief financial officer, Satoshi Ozawa, who noted that building all those cars in Japan defied logic.

All the while, Hyundai has been borrowing from Toyota's business model to become a global powerhouse, helped in part by various free trade agreements Seoul has signed and a relatively cheaper currency.

While motor journalists such as Tetsuya Kato welcome Toyoda's new focus on making hotter cars, he said success wasn't guaranteed.

"The Koreans are really coming at them," said Kato, publisher of Japan's Car Graphic magazine. "If Japan keeps going at this snail's pace (with free trade deals), there's a real possibility that Japanese automakers will lose."

Toyoda has no qualms about putting the front-runner label on Hyundai, and isn't interested in the noise about losing the title as the world's top-selling automaker - something that could go to Volkswagen this year.

"I think Hyundai is making great cars, and in some ways I think we're trailing them," he said in the interview.

"We have so much more room to improve. But as long as you know that - it's like Steve Jobs said at the end of that speech: 'Stay hungry. Stay foolish.' Those words really spoke to me," he said, referring to the commencement address the late Apple CEO delivered at Stanford University in 2005.

"In the short term, you win some and lose some. But we're working hard to build Toyota into a company that attracts investors who would look back 15 years and be glad they owned our shares. It's the difference between thinking of 10 years in the span of 10 years, versus 10 years as a part of 100 years."

For now, though, investors aren't impressed - Toyota's shares are down 20 percent so far this year while Hyundai's have surged 25 percent.

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