The Infallible Toyota and Lumbering GM? Think again.

On one end of the Pacific, GM is facing imminent bankruptcy. On the opposite end of the Pacific, GM China reported 50% year on year increase in sales. For the fourth month in a row, China has overtaken U.S. as the world's largest car market. China is also GM's second largest market. Just a little more than a year ago, Toyota was the darling of the automotive media. Not a single day will go by without any major American automotive press publishing some damning news about GM / Ford / Chrysler while singing endless praises to Toyota. Book stores were stocking up many titles of one of those Toyota Way related titles. There were so many variations of the books written by so many management gurus and business school academicians.


Management consultants and corporate trainers were casually inserting examples of works by Toyota in their thousand dollar training courses. Everybody was keen to jump on the Toyota bandwagon, as if the Big-T is infallible, that Toyota leaders can do no wrong. Today Toyota reported its worst annual loss in its company history, since 1937. Q1 '09 sales in China fell 17%. Between Jan - Mar '09, the company's worldwide operations burned through USD 7.7 billion dollars. Earning for the rest of the fiscal year (until March 2010) is expected to be a loss of USD 5.55 billion. Domestic arch-rival Honda and Nissan suffered contractions but none as severe as Toyota, because they did not went on aggressive expansion and thus were not as exposed as Toyota. In fact Honda expects a 10% increase in China sales and its new Insight hybrid became the first hybrid car to crowned Japan's best selling car (according to Japan Automotive Dealers Association). Business news agencies are no longer singing praises to Toyota, but are instead focusing on its record loss and faltering sales in the world's largest car market - China.


How Toyota went from being so right to become so wrong so fast? More interestingly, how can a GM be so wrong in the US but is so right in a new important developing market like China?

I have always been suspicious of all these management fads. Between the early 80s and 90s people were talking about lessons Japanese management styles. Sony co-founder's Akio Morita's "Made in Japan" was the must read business book in those days. With the rise of China people are now talking about Sun Tzu's Art of War. When news of GM and Ford's rapidly falling market share in the domestic U.S. car market to Toyota were widely reported, titles with the word Toyota on them became the rage. Every up and coming young executive and management gurus wants to drop those zen-like Japanese terms like genchi genbutsu, kanban, jidoka, heijunka, etc etc in their conversations to impress others. In between the two fads was this Blue Ocean Strategy thing, which was nothing more than a very well marketed book. Those in the know were quick to see through the amount of bollocks that were packaged nicely for readers, as pointed out by this Opera browser developer dude friend.

My point is that? One needs to be able to identify what is a fad and what is here to stay. No I am far from dismissing TPS and Toyota Way as a fad per se. But rather, management tips should be taken rationally. Not everything from Toyota is correct for every industry in every culture. And not everything from GM or Ford is wrong. One stops learning when one increasingly relies on just one particular set of filtered lenses to view the world.

Critics of GM point out that the company did not listen to customers, and were slow to react to the market's increasing interest in small fuel efficient cars. They relied on crude, easy to build, fuel guzzling trucks and SUVs and suffered greatly when crude oil prices shot above USD 150 per barrel last year. Critics of GM praised Toyota for sticking on the difficult path of developing the Prius hybrid. But the odd thing is that it this exact mismatch between product mix and consumer demand that is troubling Toyota in China. Toyota expected Chinese consumers to lap up their Highlander and RAV4 SUV and large Crown and Camry sedans. The smallest Toyota model on sale in China is the 1.5-litre Yaris hatchback, but sales have been slow due to its high price. GM's cheaper Chevy Aveo (GM's subsidiary Daewoo Auto Technology developed Daewoo Gentra / Holden Barina) is a market leader in the compact segment.



The Yaris was developed for European economies and Toyota has been facing problems in keeping the cost low for production outside Europe. Most of Toyota China's production plan for its popular Corolla is for the higher 1.8-liter versions. So when the government introduced the first set of stimulus package to boost domestic consumption, the Chinese central government halved the purchase taxes on cars with engine capacities less or equal to 1.6 liters. The market reacted like someone lit a fire underneath it and China quickly overtook U.S. as the world's largest car market. GM and the other China car market powerhouse Volkswagen were rightly positioned to capitalized on it. China became overtook Germany to become Volkswagen's largest market. GM's minicars developed by its Korean subsidiary Daewoo Auto Technology proved to be popular. GM's sales were further boosted by the launch of its Cruze sedan while GM's commercial vehicle's subsidiary SAIC-GM-Wuling registered 60% year on year growth, thanks to its fuel efficient micromini pickups and vans.


Meanwhile Toyota struggled to boost production of its 1.6-litre Corolla engines and had almost no strong product in the small car segment.
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The stark contrast between GM's fortunes in China and U.S. shows that it is not fair to rest the woes of GM squarely on its senior management. Rick Wagoner's departure was just to appease the public hungry for a sacrificial lamb. The problem with GM has more to do with historical legacies, a common problem for large corporations, including Toyota. GMs difficult relationship with auto workers union UAW is one sticky point. When GM started on a clean sheet in China, they had none of those problems and their products were well received by the local markets. GM understood what the buyers wanted. Chinese buyers never had negative sentiments against GM's Cadillac and Buick brand. The last time Chinese encountered Cadillac and Buicks were right before the country closed its doors to foreign trade in the 1940s, at the height of Caddy's and Buick's brand appeal. Chinese buyers never went through the traumatic experience American buyers had with 1980s GM's products.


It's a similar case for Ford. Free from its UAW problems, Ford never had issues taking market leadership in Europe. The Fiesta, Focus and Mondeo are cars that you want to consider for problem free motoring in Europe. Europeans don't doubt Ford's quality the way American buyers do. There is also a mismatch between American buyer's perception of Ford's quality and reality. Ford has since made huge progress in its vehicle quality - especially the new Fusion and Taurus. So has GM's newer Buick and Chevy models. Famous American market Toyota models like Camry and Tundra are the ones that are facing huge recalls. It's the same thing in Japan, where Toyota recorded the largest percentage of recalls in Japan. In China, Toyota had another embarassing scandal requiring intervention from the Chinese government's product quality and safety watch group AQSIQ.

Both GM and Ford, being American corporations have one strong point over Toyota – their willingness to attract and retain a good talent when they see one, irrespective of ethnicity. Did you know the that the new Ford Mustang is developed by a Vietnamese-American chief engineer, Hau Thai-Tang?


To put it into perspective that American Ford will allow the re-creation of America's strongest motoring icon in the hands of a Vietnamese, can you imagine imagine the day when Toyota will put a non-Japanese in charge of Lexus, or Corolla, Camry or Prius? America's lead in many areas is largely due to its ability to attract talent. U.S. won the Second World War because of the A-bomb developed by a Jewish German scientist by the name of Albert Einstein who immigrated to U.S. Intel was co-founded by Hungarian immigrant Andy Grove. Google was co-founded by a Russian immigrant Sergey Brin and GM has proven that its venture with Korean expertise from Daewoo Auto Technology is starting to pay huge dividends, especially in China. 20th century America was built by generations of immigrants fleeing poverty in Europe. It is part of the the American culture to assimilate the best from the world. The Japanese on the other hand, are much more mono-culture. They are not very receptive of non-Japanese influence in their business decisions. Carlos Ghosn, CEO of Renault-Nissan made it very clear in his book "Shift," that the ability to harness talents from a diverse cultural background is crucial in a globalized age. And he pointed that part of the reason behind Nissan's quick recovery was the removal of some unhealthy Japanese corporate practices. Renault-Nissan now combines the best talents from Europe and Japan.

When praising Toyota's success, many don't consider how much support Toyota receives from the Japanese government. Toyota is the most powerful corporate entity in Japan and it wields considerable influence in Japanese politics, but this is a controversial topic that Japanese do not like to discuss. Former Toyota Motor Sales U.S.A boss Jim Press once said that the Japanese government subsidized development cost of the Prius hybrid, a statement denied by Toyota and retracted by Jim Press later. Not even Honda or Nissan gets that sort of support from the government. We will never know the actual story. Toyota is the largest single corporate donor of Japan's conservative Liberal Democratic party and Toyota bosses are known to rally for Toyota City's 400,000 plus residents in Aichi to vote for LDP candidates during election. The company even has the city where it is located named after them, Toyota City, or in Japanese, Toyota-cho. Naturally, Toyota is the largest contributor to the city council's coffers and almost all of Toyota City dwellers are employed either directly by the car maker or one of its many suppliers located around there. The company bosses also wield large influence in the powerful Nippon Keidanren (Japan Business Federation) industrialist lobby group. Previous board members include legendary Toyota bosses Fujio Cho and Hiroshi Okuda. In reality, not even Matsushita or Canon or even rival domestic car maker Honda wields the same of sort of influence as Toyota men. It is a combination of Toyota's financial might (Toyota holds 40% market share in the Japanese car market), historical legacies and Japan's dependence on Toyota's contributions that allowed the Big-T to extend its influence so deep into the Japanese parliament.

It is over simplistic to think that the over-hyped Toyota culture and Toyota Way are the reasons behind Toyota's success. There is also a cultural and government assistance dimension to it. How else could one explain why Toyota can't crack the European market? And why Lexus have very limited success outside USA. Even in its home country Japan, Lexus have very limited success. Or Toyota's relatively poor performance compared to GM or Volkswagen in China - said to be "new Detroit."

Of course all these government assistance are done with the intention of ensuring Japanese foreign and trade policies are made in favourable conditions to Toyota. After-all the company's business is probably Japan's largest employer and tax contributor, either directly or indirectly. So it makes perfect political sense to help Toyota grow. Meanwhile GM and Ford didn't quite have the same level of support from the American government, except for a period of time under Bush administration. In fact there were people like Ralph Nader who were very vocal critics of American domestic cars.

The problem with Toyota is not that different from GM and other large organizations. It's a matter of unhealthy corporate cultures that were allowed to propagate by previous leaders. Many Toyota managers casually drop one of those Toyota Way terms in their conversation without having any deep understanding of it. One may know the meaning, and even do all the necessary but still do not understand what are those concepts about. What good does genchi genbutsu, going down to the field to understand the situation, means if staffs don't even know what and how to observe, or are just carrying out orders from superiors who are obviously staying in their office lounge and not living the genchi genbutsu principle. Like many management fads who are reduced to a mere catchphrase, these zen-like words tend to be used by companies / incompetent leaders as an excuse, that they have already done their part to live up to the problem solving methodology, following all the mantras but yet don't develop any deep understanding of the principles behind them.

Newly elected incoming Toyota Motor Co. President Akio Toyoda knew the problems too well. Akio Toyoda is a direct descendent of the company's founding Toyoda scion. Following a costly recall exercise for the Tundra truck in North America, Akio Toyoda arranged for a secret trip to U.S., visited a dealer and got down to his knees and went underneath one of the trucks to examine the vehicle. Staffs were shocked as no TMC bosses have done this sort of real "genchi genbutsu" for a very long time. There has been a lot of hype about how Akio Toyoda will be pulling back into line the strayed away company his great-grandfather founded.

Akio Toyoda is a qualified racer and will be racing the LF-A in the coming 24-Hours of Nurburgring race. Among his notable achievements are going against conservative senior management of Toyota to start Gazoo.com, a Toyota run web portal, funded initially with Akio's self-sourced funding as senior Toyota bosses did not agree to the business. He also headed development of the high performance Lexus IS-F, again largely with his own self-sourced resources due to lack of support from Toyota board members. He had to setup his own "skunkworks team" staffed by volunteer engineers. How many car company presidents do you know of who turn up for a press preview in a black racing suit? Sweet. It is interesting to keep watching Toyota.