Toyota Motor Corporation

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Toyota Motor Corporation

1 Toyota-cho
Toyota City, Aichi, 471
Japan
0565-28-2121

Public Company
Incorporated: July 1, 1982
Employees: 62,000
Sales: ¥6324 billion (US$39.7 billion)
Market Value: ¥4599 billion (US$28.8 billion)
Stock Index: Tokyo NASDAQ

In 1933 a Japanese man named Kiichiro Toyoda traveled to America where he visited a number of automobile production plants. Upon his return to Japan, the young man established an automobile division within his father’s loom manufactory and in May 1935 produced his first prototype vehicle. General Motors and Ford were already operating assembly plants in Japan but U.S. pre-eminence in the worldwide automotive industry did not deter Toyoda.

Since Japan has very few natural resources of its own, the company had every incentive to develop engines and vehicles that were highly fuel efficient. In 1939, the company established a research center to begin work on battery powered vehicles. This was followed in 1940 by the establishment of the Toyoda Science Research Center (the nucleus of today’s Toyota Central Research and Development Laboratories, Inc.) and the Toyoda Works (presently Aichi Steel’ Works, Ltd.). The next year Toyoda Machine Works, Ltd. was founded for the production of both machine tools and auto parts.

As Japan became embroiled in World War II, the procurement of basic materials for automobile manufacturing became more and more difficult. At one point Toyoda was manufacturing trucks without radiator grills, brakes only on the rear wheels, wooden seats, and a single headlight. Pushing toward the limits of resource conservation as the course of the war began to cripple Japan’s economy, the company started piecing together usable parts from wrecked or worn-out trucks in order to build “recycled” vehicles.

When the war ended in August of 1945 most of Japan’s industrial facilities had been wrecked, and Toyoda’s (or Toyota as it was known after the war) production plants had suffered extensively. It had 3,000 employees, but no working facilities; and the economic situaton in Japan was chaotic. But the Japanese tradition of dedication and perseverance proved to be Toyota’s most powerful tool in the difficult task of reconstruction.

Just as the Japanese motor industry as a whole was beginning to recover, there was mounting concern that American and European auto manufacturers would overwhelm the Japanese market with their economic and technical superiority. Japan’s automakers knew that they could no longer count on government protection in the form of high import duties or other barriers as they had before the war.

Since American manufacturers were concentrating their efforts on medium size and larger cars, Toyota’s executives thought that by focusing on small cars the company could avoid a head-on market confrontation. Kiichiro Toyoda likened the postwar situation in Japan to that in England. “The British motorcar industry,” he said, “also faces many difficulties, but its fate will be largely determined by how strongly American automakers feel they should concentrate on small cars.” It was January 1947 when Toyota engineers completed their first prototype for a small car: its chassis was of the backbone type—never used before in Japan; its front suspension relied primarily on coil springs; and its maximum speed was 54 mph. After two years of difficulties the company seemed headed for success.

However, this was not to be accomplished as easily as expected. Two years later, in 1949, Toyota suffered its first and only serious conflict between labor and management. Nearly four years had passed since the end of the war, but Japan’s economy was still in poor condition: goods and materials of all kinds were in short supply; inflation was rampant; and, worst of all, people in the cities were forced to trade their clothing and home furnishings for rice or potatoes in order to keep themselves alive. That year the Japanese government took measures to control runaway inflation in ways that severely reduced consumer purchasing power and worsened the already severely depressed domestic automotive market. Japanese auto manufacturers found themselves unable to raise the funds needed to support their recovery efforts, for the new governmental policy had discontinued all financing from city banks and the Reconstruction Finance Corporation.

Under these conditions the company’s financial situation deteriorated rapidly. In some months, for example, the company produced vehicles worth a total of ¥350 million while income from sales reached only ¥250 million. In the absence of credit sources to bridge the imbalance, Toyota was soon facing a severe liquidity crisis. It should be noted here that, largely because of wartime regulations and controls, Toyota had come to place strong emphasis on the production end of the business, so that in the early postwar years not enough attention had been paid to the proper balance between production and sales. The Japanese economy at that time was suffering from a severe depression, and because the Toyota dealers were unable to sell cars in sufficient quantities, these dealers had no choice but to pay Toyota in long term promissory notes as inventories kept accumulating.

Finally, Toyota was unable to meet its regular payroll. Delayed payments were followed by actual salary reductions and then by plans for large-scale layoffs—until April of 1949 when the Toyota Labor Union went on strike. Negotiations between labor and management dragged on with the union leaders bitterly opposed to any layoffs. As a result, Toyota was compelled to reduce both production and overhead. Workers staged demonstrations to press their demands, and all the while Toyota kept falling further into debt, until the company finally found itself on the verge of bankruptcy.

Production dropped to 992 vehicles in March of 1949, to 619 in April, and to 304 in May. Crucial restructuring efforts included a proposal to incorporate Toyota’s sales division as a separate company, leading eventually to the formation of Toyota Motor Sales Company Ltd., in April 1950. Toyota Motor Sales Company handled all domestic and worldwide marketing of Toyota’s automotive products until July of 1982 when it merged with Toyota Motor Company.

In the meantime, discussions between labor and management finally focused on whether to admit failure, declare bankruptcy and dissolve the company, or to agree on the dismissal of some employees and on a rebuilding program. In the end management and labor agreed to reduce the total work force from 8,000 to 6,000 employees, primarily by asking for voluntary resignations. At the management level, President Kiichiro Toyoda and all of his executive staff resigned. Kiichiro, Toyota’s founder and a pioneer of the Japanese automotive industry, died less than two years later.

Not long after the strike was settled in 1950, two of the company’s new executives, Eiji Toyoda (now chairman of Toyota Motor Corporation) and Shoichi Saito (later chairman of Toyota Motor Company) visited the United States. Seeking new ideas for Toyota’s anticipated growth, they toured Ford Motor Company’s factories and observed the latest automobile production technology. One especially useful idea they brought home from their visit to Ford resulted in Toyota’s suggestion system in which every employee is encouraged to make suggestions for improvements of any kind. However, on their return to Japan the two men inaugurated an even more vital policy that remains in force at Toyota today, namely, the continuing commitment to invest in only the most modern production facilities as the key to advances in productivity and quality. Toyota moved quickly and aggressively in the 1950’s, making capital investments in new equipment for all the company’s production facilities. Not surprisingly, the company began to benefit from the increased efficiency almost immediately.

Along with improvements in its production facilities, Toyota also worked to develop a more comprehensive line of vehicles in order to contribute toward the growing motorization of Japanese society. During 1951, for example, Toyota introduced the first 4WD Land Cruiser. Moreover, as the domestic demand for taxis rapidly increased, production of passenger cars also rose quickly, from 50 units per month to 250 units per month by 1953.

In production control, Toyota introduced the “Kanban System” (Synchronized Delivery System) during 1954. The idea was derived from the supermarket system where “consumers” (those in the later production stages) took “products” (parts) from the stock shelves, and the “storekeepers” (those in the earlier production stages) replenished the stock to the degree that it was depleted. This “Kanban System” became the basis for Toyota’s entire present-day production system.

By the early 1950’s, just as Toyota had anticipated, the Japanese market was crowded with vehicles from the United States and Europe. It soon became apparent that to be competitive at home and abroad, Toyota would not only have to make additional investments in manufacturing facilities and equipment, but also undertake a major new research and development effort as well. This was the reasoning behind Toyota’s decision in 1958 to build a full-scale research center for the development of new automobiles (which was also to become Japan’s first factory devoted entirely to passenger car production). Toyota also began to offer a more complete line of products. Beginning with the Crown model, introduced in 1955, Toyota quickly expanded its passenger-car line to include the l000cc Corona, then added the Toyo-Ace (Japan’s first cab-over-truck) and a large size diesel truck.

Throughout these years Toyota was also working hard on another important, if less conventional, approach to adapting itself to the rapid motorization of Japan, brought about by a remarkable increase in national income. When, for example, Toyota Motor Sales was capitalized at ¥1 billion, 40% of that amount (¥400 million) was immediately invested to establish an automobile driving school in an effort to help citizens acquire driver’s licenses. Through this and similar efforts, Toyota made a major contribution to Japan’s growing motorization in the years following 1965, a trend that was to lead to a mass domestic market for the automobile.

In 1955, ten years after its defeat in World War II, Japan became a member of GATT (the General Agreement on Tariffs and Trade); but the Japanese auto industry, remained one of Japan’s least competitive industries in the field of international trade. Toyota, foreseeing the coming age of large-scale international trade and capital liberalization in Japan, decided to focus on lowering its production costs and developing even more sophisticated cars, while at the same time attempting to achieve the highest level possible of quality production. This was a joint effort cxonducted with Toyota’s many independent parts suppliers and one which proved so successful that ten years later, in 1965, Toyota was awarded the coveted Deming Prize for its quality control achievements. That was also the year that the Japanese government liberalized imports of foreign passenger cars. Now Toyota was ready to compete with its overseas competitors—both in price and quality.

In subsequent years Japan’s GNP expanded rapidly, contributing to the impressive growth in auto sales to the Japanese public. The Toyota Corolla, which went on sale in 1966, quickly became Japan’s most popular family car and led the market for autos of its compact size. Toyota continued to make major investments in new plants and equipment in order to prepare for what it believed would be a higher market demand. In 1971 the government removed controls on capital investment. In the wake of this move, several Japanese automakers formed joint ventures or affiliations with different companies of the United States’ largest automakers.

Two years later, the 1973 Middle East War erupted and the world’s economy was shaken by the first international oil crisis. Japan, wholly dependent upon imports for its oil supply, was especially affected. The rate of inflation increased and demand for automobiles fell drastically. Yet, in the face of the overall pessimism that gripped the industry and the nation, Toyota’s chairman Eiji Toyoda proposed a highly aggressive corporate strategy. His conviction was that the automobile, far from being a “luxury,” had become and would remain a necessity for people at all levels of society. As a result, Toyota decided to move forward by expanding the company’s operations.

The 1973 oil crisis and its aftermath were valuable lessons for Toyota; the crisis demonstrated the necessity for a flexible production system which could easily be adaptable to changes in consumer preferences. For example, Toyota did away with facilities designed exclusively for the production of specific models, and shifted instead to general-purpose facilities which could be operated according to changes in market demand for the company’s various models.

In December of 1970 the United States Congress passed the Muskie Act which set limits on automobile engine emissions. In the U.S. the enforcement of this law was eventually postponed, but in Japan even stricter laws were promulgated during the same time with no postponement of enforcement deadlines. When the Muskie Act was first proposed, automakers all over the world were opposed to it. They argued that it would actually prohibit the use of all internal combustion engines currently used, and they requested that the enforcement of the law be postponed until new technology, able to meet the law’s requirements, could be developed.

Notwithstanding these developments, Toyota moved forward on its own to develop a new generation of cleaner and more fuel efficient engines. After studying all the feasible alternatives, including catalytic systems, rarefied combustion, rotary engines, gas turbine and batter-powered cars, Toyota settled on the catalytic converter as the most flexible and most promising, and succeeded in producing automobiles which conform to what are the world’s toughest emissions control standards. (Meanwhile, imported cars were given a three year grace period to conform to Japan’s strict emissions control standards.)

In 1980 Japan’s aggregate automobile production was actually better than that of the U.S. In the same year, Toyota ranked second only to General Motors in total number of cars produced. Although Toyota made continuous efforts over the years to improve the international cooperation between automakers in such ways as procuring parts and materials from overseas manufacturers, Japan’s successes in the world auto market have nonetheless resulted in the Japanese automobile industry becoming a target of criticism.

The current president of Toyota, Yukiyasu Togo, possesses a solid understanding of the nature of American culture. Togo is said to believe that Toyota’s future success depends in part on the way that it handles public relations with the United States, a nation that he preceives to be extremely bitter about losing trade battles with Japanese industry. By means of intense advertising and controlled public relations under Togo’s direction, Toyota has tried to elevate the principle of free competition in the minds of the American people. At the same time, Togo is carefully committing his company to greater international cooperation in both technological and managerial areas. In the fall of 1985, for example, Toyota announced that it would build an $800,000 production facility near Lexington, Kentucky. The plant, which is expected to begin assembling 200,000 cars per year by 1988, will create approximately 3,000 jobs. Moreover, the General Motors and Toyota joint venture, called New United Motor Manufacturing, Inc., will also begin building up to 50,000 vehicles a year to be sold by Toyota dealers. This strategy, it is hoped, will help to ease the tensions between the U.S. and Japan over their inequitable trade relations.

Principal Subsidiaries

Kanto Auto Works, Ltd. (49.06%); Towa Real Estate Co., Inc. (49%); Toyota Machine Works, Ltd.; Toyota Central Research & Development Laboratories, Inc. (54%); Calty Design Research, Inc. (60%); New United Motor Manufacturing Inc. (50%); Toyota Motor Sales, USA, Inc.; Toyota Motor Manufacturing USA, Inc.; Toyota Technical Center, USA, Inc. (80%).