by Paul A. Eisenstein

(2006-01-02)

Toyota Chips Away at GM by Joseph Szczesny (12/26/2005)
Sales lead is slipping; 2006 could be a momentous year in auto history.

Eisenstein Mug Shot  |  

Ever since Henry Ford ceded leadership of the title of world's largest automaker more than 70 years ago, General Motors has reigned supreme. But without an unlikely reprieve, Toyota is poised to punch past GM in 2006.

The Japanese giant aims to boost global production to 9.08 million cars, trucks, and crossovers, an eleven-percent increase. GM barely built nine million vehicles in 2005 and isn't revealing its 2005 target. The increasingly cautious GM has lately been loathe to make forecasts, and for good reason, repeatedly falling short on everything from sales to share to the depth of its bottom-line losses. Toyota , on the other hand, consistently delivers what it promises.

Party lines crossed

The official line, laid out by former Toyota CEO Fujio Cho, is that global leadership "is not a part of our strategy." Maybe not, but there's certainly good reason to avoid boasting. As the obvious intender to the throne, Toyota has come under increasing scrutiny. Despite the trendlines, even the best can be undone. Just one "bad decision," Cho stressed during an appearance at last year's Detroit auto show, "can destroy your reputation," especially if you're the one under the spotlight.

Here in the U.S., Toyota has done a masterful PR job positioning itself as a leader. It has expanded into virtually every niche of the market - and popularized a few segments of its own, with products like the RAV4. After a slow and cautious start, Toyota has dotted North America with assembly plants now producing the bulk of the vehicles it sells in this market. And, as its corporate ad campaign emphasizes, Toyota now employs tens of thousands of Americans.

Commuters passing through New York's Lincoln Tunnel were recently greeted by a block-long billboard promoting Toyota 's unquestioned dominance in the emerging hybrid vehicle market. While GM has developed a reputation for resistance among environmentalists, Toyota has worked hard to be seen as the industry's Kermit the Frog - proud to be green.

Then, of course, there's that reputation for quality, the foundation upon which the empire has risen. Even its rivals admit Toyota changed the nature of the game, and while critics deride the appliance-like nature of many models, owners take pride in the seeming indestructibility of products like the Camry and Lexus LS.

What, me worry?

So why should Toyota worry? For one thing, there's the arrogance factor. Those of us covering the industry regularly sense a subtle yet noticeable shift in attitude. Dominance may not be the official goal, but it's certainly making a lot of folks cocky. And that can lead to some of the bad decisions Cho so feared.

Several years ago, Toyota began receiving reports of engines seizing up. As the numbers mounted, the company responded by accusing owners of improper maintenance. Only eventually did it acknowledge a minor design change probably led to the build-up of damaging oil sludge, even in well-maintained vehicles.

Companies run best when they're running scared, not convinced of their own infallibility. Yet that's the inevitable challenge accompanying unbridled success. A well-placed insider confides that as Toyota expands, it can no longer feed the need for managers organically. Yet hiring outsiders who don't naturally eat, breathe, and sleep the Toyota way is risky.

And quality, that bedrock, is suffering. The number of Toyotas recalled in the United States during 2005 more than doubled from the 1.1 million brought back for mandatory repairs the year before. And that happened even as the overall number of U.S. recalls was halved, to around 17 million.

Even more disconcerting, Toyota has steadily slipped in some critical quality-tracking measures, such as J.D. Power's Initial Quality Study, and its Customer Satisfaction Index. True, the luxurious Lexus division remains dominant, but the stalwart Toyota brand lagged behind such GM brands as Buick and Cadillac in the latest IQS.

Green backlash brewing

Then there's the environmental front. Consumers may see the Prius hybrid-electric vehicle and think green, but any mileage gains are more than offset by expanded truck production. Toyota will soon open a new assembly plant near San Antonio specifically to built larger, more powerful pickups.

Toyota has begun taking hits from normally sympathetic environmentalists. As TheCarConnection.com noted in an October 24, 2005 report, San Francisco-based nonprofit The Bluewater Network is running ads in publications from Mother Jones to the New York Times, arguing that while Toyota "had the best fuel economy in the industry 20 years ago (it) has worsened dramatically since then."

My own experience found the Lexus RX400h getting barely 21 mpg, even when driven gingerly. The New York Times and Consumer Reports have likewise reported that some of the automaker's hybrids, such as the RX400h and the Toyota Highlander Hybrid, get no better mileage than their gas-powered counterparts. A chastened Toyota has promised to put more emphasis on mileage, but its Lexus brand is readying a high-performance sub-brand using hybrid technology for performance, not fuel economy.

Toyota 's Cho was wrong. It usually takes a number of bad decisions to destroy your reputation. General Motors is living proof, blundering through decades of bad moves and only now facing the ascendancy of its Japanese usurper. Belatedly recognizing this likelihood last year, GM Chairman Rick Wagoner acknowledged GM has "no god-given right" to be number one. Nor does anyone else. Toyota may be the new king of the hill, but there are plenty of challengers in the waiting, including the impatient Koreans and Chinese.