“Less than two years ago Toyota swept past an ailing General Motors (GM) to become the world’s biggest carmaker. Now its newly installed boss, Akio Toyoda, the 53-year-old grandson of the founder, says that the firm could be locked in a spiral of decline. Toyota is still a hugely formidable company, and some within the industry (and inside Toyota itself) believe that Mr Toyoda may be overstating the case. Yet there is no shortage of signs that all is not well.”
THE ECONOMIST (12 December 2009)
I recently observed The Economist giving management lessons to Toyota in a cover story, and I shook my head in wonder. Toyota? Is nothing sacred in corporate life? Toyota, the world’s largest and most successful carmaker, now being questioned by armchair experts?
It was not that long ago that Toyota was supposed to be everything that the American carmakers were not: lean, mean, reliable and affordable, with a legendary manufacturing system driving its success. It was being extolled in all the management journals, even in The Economist itself (although to its credit, the magazine did point out problems with Toyota’s quality system in 2007). Toyota spent the most on research and development (R&D) of any company in the world in 2008, and was a global top 10 brand. It seemed untouchable.
Yet the minute the company declared a record loss in the throes of the global recession, it was open season on Toyota. And that, as this column has pointed out many a time, is the name of the game in management. When a company makes bumper profits, it is celebrated everywhere and its methods scrutinised and highlighted as the holy grail of management. As soon as it goes into loss-making territory, the company is ridiculed and those same factors that were supposedly causing its earlier success – its people management, its production systems – now become its flaws. Today, the momentum – and therefore the management industry’s applause – is with VW and Hyundai.
The real lesson is that no matter how successful a strategy, it eventually runs out of steam. Toyota had a remarkable run, producing affordable quality vehicles for the whole world and becoming the car of choice in most emerging markets. But that has now stalled. Toyota’s market share has been flat or falling in pretty much every export market. It has not taken advantage of the woes of GM and Chrysler in the US, and it has lost ground in the key markets of China, India and Brazil. The quality and reliability gap has almost disappeared, with Toyota being forced into embarrassing vehicle recalls in recent years.
Here’s the thing: if quality and reliability are no longer your distinguishing advantage, then things like styling, design and ride will take over. Here Toyota was always at a disadvantage. Admit it, when was the last time you looked at a Toyota and felt a frisson of excitement?
Here in Kenya, my casual observation suggests that as many as 40 per cent of the cars on our roads may be Toyotas – most of them decrepit ‘mitumba’ jalopies. They are not bought because they are great cars, but because they are cheap and easy to maintain. I also observe a bizarre phenomenon: the absurd proliferation of ridiculous model names. Why does such a successful company need to litter the world with so many silly names? On a single day in Nairobi, I noted the following: Corolla, Carina, Camry, Caldina, Premio, Vista, Voxy, Vitz, Platz, Harrier, Fielder, Sprinter, Estima, Opa, Raum, Carib, Noah, Allion, Arius, Allex, Duet, Ipsum, Ceres and Succeed.
Good grief! Who comes up with those names, and why? As the worldwide market leader, Toyota will certainly need to get back to basics, and produce good cars at good prices. But I suspect it will also need to learn some tricks in styling and perception from its more sophisticated competitors.
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{ 5 comments… read them below or add one }
When they say that the car infront is always a toyota, in Kenya how true this is. Toyota cars are very reliable having driven the jallopies that were ten years old this car showed to be the best for me. I would buy it second hand and it required no major repairwork in the many instances. So if you are talking of a new car owner your article makes a lot of sense but it flies past sense for those of us who know that a used car is important.
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Sunny,
i really do agree with this analysis. it is indeed high time Toyota review their strategy of çheaper alternative’ and mass production theory and perhaps look into other non-structural factors like style, appeal, technology and lifestyle.
that is perhaps a long shot and they will have to expend a lot of effort and resources to change that perception. i mean, havent you met people who tell you they just cant buy or drive a toyota, without any clear reason. a total makeover of the brand might be their best shot.
well its becoming all too clear that comparative advantage is fast moving away from structural factors like natural resources, organizational size, price and such like to factors like innovation, uniqueness, product and service design…. what do you think Sunny?
i know you now enjoy your cars because of non-structural reasons like pricing and all…. or the overly exaggerated and much talked about fuel consumption rates amongst the ‘Toyota circles”!
i mean, doesnt the new Mercedes C class have one of the lowest fuel consumption rates?
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John:
Hello again! Toyota remains an eminently successful company, and the global market leader. But as I was trying to point out, some of the strategy is unravelling. They are not competitive at the higher end because of styling and ride limitations; and increasingly losing the lower end in key emerging markets to Hyundai, Suzuki, Tata etc.
But the new man in charge seems to be on to this – let’s see how the situation evolves.
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well,
i think i will be interested in how this unfolds.
the new man has an acceptable level of awareness… i think he may be the organization’s best shot….
lets see.
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Mwangi:
True, most cars in Kenya are mitumba. But note that I have nothing against Toyotas per se: I am merely an observer of business strategies and I sense Toyota going off the track in recent years.
Certainly it is popular in Kenya for a reason, but in countries which are strict about second-hand usage, like China and India, it has problems.
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