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Toyota, GM locked in fight for worldwide supremacy


By Christine Tierney and Ed Garsten The Detroit News


Tim Larsen / Associated Press




About GM

Headquarters: Detroit

Brands: Buick, Cadillac, Chevrolet, GMC, Hummer, Pontiac, Saab, Saturn, Opel, Vauxhall, Holden

Worldwide employment: 324,000


About Toyota

Headquarters: Toyota City, Aichi, Japan

Brands: Toyota, Scion, Lexus, Hino, Daihatsu

Worldwide employment: 260,000


Top 5 things to watch

Look for these developments to determine if Toyota can catch GM and become the world's top automaker:



1. How fast can GM brands match or pass Toyota's vaunted quality as measured by independent surveys of initial quality?



2. Can GM find relief from soaring health care costs?



3. Can GM pull back on new car and truck discounts as the Japanese increase them?



4. Will Toyota unveil plans for a new U.S. plant this year?



5. Will GM trim another brand if its U.S. market share continues to drop?






TIJUANA, Mexico -- Just after 10:30 a.m. on Feb. 1, the assembly lines at Toyota Motor Co.p.'s brand-new truck factory stopped as Japanese executives and hundreds of Mexican autoworkers gathered for an opening celebration, followed by a buffet of tacos and cactus salad.

Three thousand miles away, in Linden, N.J., a sense of resignation prevailed as General Motors Corp. workers churned out the last few Chevy Blazers and GMC Jimmy sport utility vehicles before the factory grinds to a halt in April.

The contrast between the festivities at Toyota's fifth North American assembly plant and the downsizing of GM's Linden factory, built in 1937, sharply illustrates the Japanese automaker's relentless advance on the older, weakened North American giant.

"Toyota's going to be No. 1. And whether they do it under the radar or by announcing it, it's going to happen," said Maryann Keller, a longtime automotive consultant and analyst.

Toyota already has overtaken Ford Motor Co. to become the world's second-largest automaker. By 2006, it is shooting to sell 8.5 million cars and trucks worldwide, edging close to GM, ranked No. 1 since 1931. If Toyota surpasses GM, that would have a profound psychological impact on the U.S. industry, one of the last manufacturing sectors where Americans still lead. It would also undermine GM's ability to dominate the industry and buffet smaller players such as DaimlerChrysler AG's Chrysler Group with its price wars.

As the two auto giants compete in every segment and every region, GM faces a dynamic challenger in Toyota that is not only similar in scale but also draws strength from its superior profitability.

At the North American International Auto Show last month, Toyota board member Yoshimi Inaba downplayed the automaker's ambitions.

"Every manufacturer, every corporation needs some growth," he said.

At the same show, GM Chairman and CEO Rick Wagoner sounded defensive. "We've been ahead for 73 years in a row, and the betting odds are we'll be ahead for the next 73 years," he said.

But Toyota has the upper hand as GM struggles through its toughest stretch since a near-bankruptcy in the early 1990s.

GM's unresolved problems -- a bloated staff and too many brands -- are now exacerbated by unforeseen factors. Soaring health care expenses, rising to $5.6 billion this year, have eclipsed its hard-won gains in quality and cost control.

Despite GM's assertion that its prospects will brighten in 2006 with the rollout of new large pickups and sport utility vehicles, Wall Street is worried. Debt-rating agency Standard & Poor's is reviewing a possible downgrade of GM to junk-bond status.

With its Triple-A rating and $36 billion cash hoard, Toyota seems unstoppable. It holds 44 percent of the impenetrable Japanese market. In the United States -- the key battleground -- it has doubled sales to 2.1 million vehicles in 10 years.

But the company's success poses new challenges. Toyota executives are under enormous strain to attain their sales goals without compromising the vaunted quality of the vehicles.

Toyota is also keenly aware of hungry rivals in South Korea -- and newcomers in China -- that are charging from behind with good cars built at rock-bottom costs. A reinvigorated Nissan Motor Co. is growing faster than Toyota in North America and has overtaken Honda Motor Co. to become Japan's No. 2 carmaker. Nor do Toyota's bosses underestimate Detroit's will to come roaring back.

Over the years, GM and Toyota have sized each other up. They have observed each other's strengths and weaknesses up close since 1984, when the two companies formed a venture to revive a shuttered GM plant in Fremont, Calif. GM was among the first car companies to wholeheartedly subscribe to the rigorous Toyota Production System to improve quality.

Their rivalry will step up pressure on smaller players, such as Ford, Honda and Volkswagen AG, as it reshapes the industry. In the United States, Toyota is on track to displace Chrysler among the Big Three.

"The idea of the regional Big Three is dead -- the issue now is who will be the Global Big Three," said David Cole, chairman of the Center for Automotive Research in Ann Arbor. "GM and Toyota will be two of them. I'm not sure who the third will be."


Stretch marks


At the opening of Toyota's Tijuana plant, half a dozen managers from its Georgetown, Ky., factory follow the speeches through translations piped into their earphones.

Despite the language difficulties, they have spent two years in Mexico training local managers and workers in Toyota's painstaking production methods -- the first time Toyota has entrusted such an important task to a plant outside Japan. "We feel a lot of sympathy now for the original coordinators who came from Japan to North America," said Dave Fleischer, assistant manager of production control in Georgetown.

With Toyota ramping up production rapidly in North America, the automaker is relying more on U.S. managers to steer startups. Its Princeton, Ind., factory is the "mother plant" for a truck plant under construction in San Antonio, Texas.

For more than 40 years, the Toyota Production System was taught by practiced experts who supervised their pupils. Stressing kaizen, or continuous improvement, the system encourages everyone, from top managers to line workers, to seek ways to improve operations and eliminate waste.

"The Toyota culture has been a great source of strength, with everyone working off a common playbook," said Christopher Richter, auto analyst for Merrill Lynch in Tokyo. "Now you've got a lot of people coming into the company at the same time, and they have to try to keep that culture from getting too diluted."

Toyota's top bosses may be setting ambitious goals to sustain the momentum that brought the company to its current heights, he said. "You're one of the biggest automakers, you're the most profitable automaker, and you want to prevent a culture of complacency from settling in."

Rivals are redoubling efforts to instill quality in their manufacturing process -- and GM has achieved the biggest strides among the U.S. automakers.

In U.S. quality rankings, Toyota Motor still leads the industry, and its premium Lexus brand perennially wins top honors. But Toyota-brand vehicles slipped behind Cadillac and Buick models in the last J.D. Power and Associates survey of vehicle quality in the first 90 days of ownership. Because of the Toyota brand's strength, its vehicles retain value better than Cadillac or Buick cars, says Raj Sundaram of Automotive Lease Guide. But perceptions tend to catch up with reality.

Senior Toyota officials recognize the danger. "A lot of the things we discuss among high-level executives have to do with quality," Inaba said. "How do you maintain quality during this period of high growth and beyond? This is something we're always discussing."

Despite Japan's reputation for meticulous quality, the biggest recent scandal erupted at Mitsubishi Motors Corp., whose executives face charges of hiding defects.

To instill its standards, Toyota recently opened a Global Production Institute in Toyota City, Japan, where overseas workers are trained by expert Japanese operators on assembly techniques. Rising managers are steeped in the company culture at the Toyota Institute, whose curriculum was developed with the help of the Wharton School.

As part of the "continuous improvement" mantra, Toyota has expanded early-detection systems to nip problems in the bud. It set up a squad of two dozen Japanese troubleshooters in Torrance, Calif., two years ago. Instead of waiting for dealers' reports of problems to pile up, the specialists now check on rare and minor glitches.

"Problems get fixed faster," said Don Esmond, head of U.S. sales for the Toyota brand. "Before, by the time they were explained to Japan and they got back to us, there was a lag.

"Maybe we're a little paranoid, but there's nothing wrong with that."

If not paranoid, Toyota certainly is wary. It shies away from mergers and acquisitions, although it retains a keiretsu, a web of associated companies and suppliers, such as Denso Corp. and Aisin Seiki Co. Ltd.


Steady as she goes


In his autobiography "Shift," Nissan CEO Carlos Ghosn describes Toyota as "imperious and sure of itself."

Yet the company is also deeply provincial and cautious. Toyota lets others blaze trails and tracks their progress from its headquarters in central Japan's Aichi prefecture. It established production operations in the United States after Honda. It lags Nissan in its bid to challenge Detroit's automakers in the lucrative full-size pickup segment. Skittish about the Chinese market, Toyota missed out on a recent sales boom.

Despite its prudent approach, Toyota has its share of slip-ups. Most recently, its Echo compact tanked in the U.S. market. But with its plentiful resources, Toyota keeps trying. It will pull the Echo from the lineup and replace it with two small cars.

The automaker can afford costly forays into new technologies. It scored big with its Prius gas-electric car, with orders far outpacing production. While it's unclear whether its hybrid program makes money -- rivals say it doesn't -- the clean cars have earned Toyota high marks for good citizenship. This year, it will launch two SUVs equipped with its fourth-generation hybrid technology.

Under pressure to follow Toyota's lead, GM and DaimlerChrysler teamed up in December to develop hybrid powertrains.

"Toyota is using its deep pockets," said GM Chief Financial Officer John Devine. "They have more (money) than any of us, so they can afford to lose a lot of money on the Prius."

But Toyota's biggest strength lies in its unwavering focus on its main objectives: making better cars and lowering costs.

While GM spent billions snapping up new brands, wasting $2.4 billion on an ill-advised investment in Fiat Auto SpA, "Toyota stuck to doing what it did best," Keller said. "They make a car, and then they make the next one better and see where the customer is taking them. They never look for a silver bullet."

After myriad small improvements, Toyota lords a substantial cost advantage over GM. Sean McAlinden, chief economist at the Center for Automotive Research, estimates Toyota spends $1,300 less per vehicle than GM in North America. When GM's pension and health care costs are included, Toyota's advantage widens to $2,000 per vehicle -- adding up to a grand total of $10 billion on the bottom line.

"We spend $4 billion, if not more, each year than the No. 2 global auto manufacturer" on health care, said Wagoner, referring to Toyota.

That money could be used to build new plants, develop new technologies or reward shareholders, he says. "Over time that has an impact."

While GM, Ford and Chrysler benchmark the Japanese, Toyota is keeping close watch on lower-cost automakers in Asia. "We conduct research on our Korean competitors, and that is reflected in our considerations," says Toyota President Fujio Cho. "They have improved quality substantially. They produce vehicles at very low cost, and we consider them formidable competitors."

To lower its costs, Toyota has developed a basic platform, or chassis, for five vehicles -- three pickups, a sport utility and a minivan -- that will be built in low-cost plants in south Asia, South Africa and Latin America. Called the Innovative International Multi-purpose Vehicle project, it is expected to generate big savings by sharing components across 500,000 vehicles a year.

"From the U.S. perspective, Toyota looks like it's growing rapidly, but it has been growing a lot faster in the developing world," Richter says. "They want to grow rapidly in these markets, and they want to do it in a profitable way."


A long, hard winter


At the Detroit car show, Wagoner was braced for reporters' questions about Toyota's ascent.

"Look at China -- can we beat Toyota? Absolutely," he said.

In the fast-growing Chinese market, where Toyota is just getting started, GM's aggressive expansion has paid off. It holds 11 percent of the market with its local partner Shanghai Automotive Industry Corp., compared with less than 3 percent for Toyota. For Wagoner, China is proof of what GM can achieve on a level playing field.

But in GM's home market, the carmaker's share of the market is slipping despite discounts averaging more than $4,200 per vehicle, compared with Toyota's $852 average incentive, according to Autodata Corp.

In 2004, GM's share fell for the second year in a row to 27.3 percent, while Toyota's share rose to 12.2 percent.

At GM headquarters, executives recognize the difficulties they face but express frustration that discouraging news keeps overshadowing the progress they have achieved.

GM's revival of the Cadillac brand has been nothing short of remarkable. Cadillac sales have grown 30 percent in the past five years. Last year, Cadillac overtook Mercedes-Benz in the U.S. market to achieve third place after Lexus and BMW.

On the manufacturing front, GM has made huge strides. Four of the five most productive plants in North America are GM factories, according to the Harbour Report, which gauges factory output per worker.

GM workers suffer fewer and less serious injuries than Toyota workers.

Most important of all, GM has greatly improved quality. Its 4-year-old Lansing Grand River plant, where GM workers assemble Cadillacs, won J.D. Power's gold award last year for the factory turning out vehicles with the fewest defects. Its Delta Township plant, which goes into production next year, is expected to be even better.

The automaker's reputation still suffers from past quality problems, but its scores have improved 27 percent since 2000 in J.D. Power's annual tracking of customer complaints during the first three months of ownership.

Now, GM is focusing on "perceived quality" -- little things the customer sees that influence their impression of the car. A new 10-member team zeroes in on niggling things that look cheap or sloppy. "It's anything from fits and finishes, to materials to seats," said Mark Farmer, who heads the team.

"We could have a vehicle with outstanding initial or long-term quality," he said. "But if you don't have the perceptual quality, something appealing or compelling to the customer, that's not a winning formula."

GM also has tackled its high costs, shedding 375,000 jobs since 1995 through layoffs, attrition and spin-offs of subsidiaries. In May, it plans to close a van plant in Baltimore, in addition to the indefinite idling of the Linden factory. "We were hoping we might get another vehicle, but things didn't work out for us," says Mike Coughlin, financial officer for United Auto Workers Local 595 in Linden.

Financial analysts say the automaker has more cutting to do. Stephen Girsky at Morgan Stanley estimates 45 percent of GM's North American factory capacity -- the equivalent of 15 plants -- either is ununsed or making vehicles that generate little or no profit. They include vehicles sold at cut rates to GM employees, their relatives and friends, and cars shipped to rental fleets.

"There's too much of everything at GM -- too many plants, too many white-collar workers, too many blue-collar workers, too many dealers," he said.

In Europe, too, GM is slashing jobs and weighing a plant closure after losing $2.6 billion in the past five years. Although smaller in Europe, Toyota makes money in the region.

Now Toyota is preparing another factory opening this spring, this time in the Czech Republic.

source : detnews

Richie

I think Toyota will end up on top.

RA40

iTrader: (6)

Time will tell.
Go Toyota!

mmarshall

I'm not sure I agree with the idea that laying off workers is best in the long run or the key to profitability. To some extent I take exception to the statement that GM has " too many workers ". Why? Simple. To grow........or even to keep your own market share percentage........you FIRST have to sell cars. You cannot sell cars to people who don't have money......and people laid off from their jobs in most cases are not going to have money. Yes, there is credit, but a person without a job, in most cases, is not going to qualify for an auto loan. So THEN where are you?.....you got a lot full of new cars at the factory that just sit there because people can't buy them. And WHY can't they buy them? Because, like an idiot, you've laid them off and now they are having a hard time just feeding their families, much less filling up their driveways.
So THEN what happens?.....the plant eventually closes down from lack of sales. And then you've got even MORE people without jobs.....so even LESS people can afford new cars. You can see it becomes a vicious circle.

Yes.....I realize that this is an oversimplification of what can be a complex situation...the ultimate buying power in a country's economy is not determined by just one company's layoffs...but still I brought it up to illustrate a point. You cannot sell cars to jobless people, and you canot grow unless you DO sell cars.

NeverSatisfied

Thanks - didn't know Daihatsu was part of Toyota.

nthach

GM is still quite "fat" productionwise, their unions are still stuck in the 1960s, and they have to make a lot of discounts just to get their rolling stock moving.