AN: For Toyota, it's always time to panic

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Company and its leader are driven by an enduring sense of crisis

TOKYO — Toyota Motor Corp. is one of the world's biggest and most profitable carmakers, but to hear Akio Toyoda tell it, the Japanese juggernaut is teetering on the edge of ruin, beset by crises that executives are only beginning to grasp.

Toyota's chief rarely opens his mouth in public these days without warning of the "once-in-a-century transformation" assailing the entire industry.

"Over the next 100 years, there is no guarantee that automobile manufacturers will continue to play leading roles in mobility," Toyoda said last fall in a timbre typical of his pronouncements. "A crucial battle has begun — not one about winning or losing, but one about surviving or dying."

That may sound hyperbolic, melodramatic or even panicky to the outside observer. But in some ways, the obsession with gloom and doom shows that Toyoda and his team are smack in their comfort zone — a chronic state of discomfort.

It is often said Toyota is a company that is driven by, heck, thrives on, crisis. It has made a science of inculcating a zero-hour mindset that spurs sacrifice and innovation.

In the two fiscal years through March 31, 2016, Japan's top carmaker notched all-time-high financial results — back-to-back records in revenue, net income and operating profit.

But those stellar years capped a stretch marked by struggles.

Toyoda took the helm in 2009, in the middle of the global financial crisis. At the time, the Toyota founded by his grandfather was grappling with its first operating loss in 70 years, a situation Toyoda himself described as "setting sail in a storm."

And then things got worse. Much worse.

The following year, Toyota was engulfed in its unintended-acceleration crisis, and Toyoda was hauled before Congress to answer for his company's massive recalls.

The next year, Japan's auto industry was thrown offline for months by the country's earthquake-tsunami-nuclear meltdown crisis, a trifecta disaster that hammered earnings in addition to killing 18,000 people. Later that year, Toyota's important manufacturing hub in Thailand was inundated by widespread flooding in that key Southeast Asian market.

The following year, 2012, didn't go much better. Toyota and other Japanese brands were broadsided by a raging anti-Japan backlash among Chinese consumers. Sales in the world's biggest market tanked.

Through it all, Toyota whipped up a do-or-die belt-tightening mentality that positioned the company to zoom when conditions finally improved. When they did, Toyota's operating profit margin shot up from 6 percent in the fiscal year ended March 31, 2013, to an impressive 10 percent in the fiscal year ended March 31, 2015, on the back of record results.

But the old sense of crisis is creeping back.

Operating income plunged 30 percent in the fiscal year ended March 31, 2017, while operating margin fell to 7.2 percent. That's respectable for almost any automaker, but Toyoda was quick to remind that his namesake company was not any automaker.

"I feel a strong sense of crisis," he said at the time. "In the case of sports, booking two consecutive years of losses would mean you are failing. I hate to be beaten."

Meanwhile, Toyota, always fixated on the ultralong term, became obsessed with new threats posed by an industry in tumult — from the advent of electrification and autonomous driving to an onslaught of new competitors from Silicon Valley to China.

Finally, Toyota had another good crisis to latch onto.

"We never hear any good news," bemoaned one U.S. engineer about the urgency of internal communications exhorting employees to avoid a second year of falling profits.

Analysts say Toyoda wants to squash any complacency as the giant carmaker gears up for the new era.

"There are a lot of people who think there will be disruption, and that plays into Toyota's worst fears," said Christopher Richter, a senior auto analyst at CLSA Asia-Pacific Markets. "You have this grand battleship named Toyota that is seemingly invincible, and you have to make it clear [to] the whole crew that, yes, it can sink."

True to form, the carmaker's response has been swift and sweeping.

Massive cost cutting has corrected Toyota's profit trajectory. The company now predicts profit to modestly increase, rather than decline, in the current fiscal year. And all those profits banked away during the good times? Toyota is pouring them into projects for the future.

Last year, it created a joint venture with Mazda Motor Corp. and Denso Corp. to develop technologies for electric vehicles. Since then, it has brought Subaru and Suzuki into the fold.

Toyota also has been aggressively vocal in saying it is developing next-generation solid-state batteries by the early 2020s to jump-start electric car adoption.

This month, it channeled out $2.8 billion to create another new company, Toyota Research Institute – Advanced Development, to develop the software that runs self-driving cars.

"They're splashing a lot of money around," Richter said.

It also reconfigured its approach to connected cars. That move merges three information technology subsidiaries.

Toyota announced the realignment, which affects 2,500 employees across Japan, with its now oft-repeated mantra, warning of the "once-in-a-century transformation" and the need to change to "survive this transformational period."

All the while, Toyota has been reshuffling its top brass to fine-tune the perfect team. The latest tweaks created the most diverse board of directors ever — one that includes Toyota's first female director and a British athlete with a medal-winning career in wheelchair basketball

Toyota's latest "crisis" could be setting the stage for another era of expansion.

Indeed, Toyota wants to transform itself from an automobile company to a mobility company. One might even imagine that the company that traces its roots to the 1920s as a manufacturer of weaving looms may one day change its name from Toyota Motor Corp. to Toyota Mobility Corp.

"Our competitors no longer just make cars. Companies like Google, Apple and even Facebook are what I think about at night because, after all, we didn't start out by making cars, either," Toyoda said in January at CES in Las Vegas.

"Technology is changing quickly in our industry, and the race is on."


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Humble and not arrogant is what they are trying to do, even in the face of largest profits in the company history.
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