Toyota Motor Corp.'s incoming president, Akio Toyoda, has a sobering message for the giant company founded by his grandfather: It has gotten too fancy for its own good.
On Monday, three top executives who helped lead Toyota the past four years -- including Mitsuo Kinoshita, one of the primary architects of the company's global expansion -- announced their retirement. The departures clear the way for Mr. Toyoda's planned makeover of the world's biggest auto maker.
He is expected to focus, most of all, on abandoning kakushin, or 'revolutionary change,' current president Katsuaki Watanabe's term for changing the way Toyota designed its cars and factories. It spawned technological advances, but led to cars that were often costlier to produce.
The 52-year-old Mr. Toyoda is also working to fix a pricing strategy that put the company at odds with some U.S. dealers, who felt its cars were getting too expensive, according to people familiar with the situation.
Auto makers world-wide are in pain, and Toyota is much stronger than rivals such as General Motors Corp., which is flirting with a bankruptcy filing. Still, Toyota is expecting its first annual net loss in 59 years.
Mr. Toyoda may shutter factories in North America and Japan, where Toyota bulked up in recent years and is now stuck with too much manufacturing capacity. It might also be faced with its first layoffs in Japan since 1950, when 3,000 workers were let go.
Mr. Toyoda blames more than the recession, according to people familiar with the matter. He is sending the message that his predecessors worsened the problem by straying from core ideas of thrift and efficiency.
Among other things, there's a move away from technologically sophisticated in-car gizmos like a solar-powered cooling system designed for the new Prius. In addition, an expensive new assembly-line technique of dipping car bodies into a vat of paint and swirling them around -- nicknamed shabu shabu, after a popular Japanese hotpot dish -- is under the microscope.
Toyota said in a statement that it feels its management decisions made in the past were appropriate for their time. In a statement signed by Messrs. Watanabe, Kinoshita and Toyoda, the company declined to respond to specific questions. It said the company felt some questions didn't reflect the actual situation, but declined to be specific.
Mr. Toyoda is the first member of Toyota's founding family to take the helm in 14 years.
'I think Toyota probably over-expanded a little bit in order to compete with the American auto makers,' said his father, Shoichiro Toyoda, 83, who himself was the auto maker's president during the 1980s. 'There are a lot of things that we have to review.'
The younger Mr. Toyoda's appointment as president is pending shareholder approval in June. Mr. Watanabe, whose appointment as vice chairman was announced along with Mr. Toyoda's promotion, had been president since June 2005.
The shakeup reflects the sense of crisis within Toyota as it navigates one of the toughest periods in its 70-year history. For the past decade, it expanded at breakneck pace. Under Mr. Watanabe, 67, Toyota posted record net profit 1.72 trillion yen in the ended March 2008. Last year it unseated rival GM as the world's biggest auto maker in terms of unit sales.
Now, it is forecasting a 350 billion yen net loss for the current fiscal year, ending March 31. And not only are sales plummeting, but earnings are getting further hurt by the strong yen, which means money earned abroad isn't worth as much when converted into Japan's currency.
In a recent sign of the distress, at a meeting late last year Mr. Watanabe appealed to mid-level managers to 'share the pain' -- code for a salary cut -- then made them wince by asking them to also consider buying a new car to help shore up sales, according to people who attended the meeting.
An unprecedented number of unsold cars in Japan has forced Toyota to stockpile them in the parking lots of Fuji Speedway, a company-owned track near Mount Fuji.
Koichi Shimokawa, a professor of business administration at Tokai Gakuin University in Nagoya, says Toyota was so focused on becoming the world's largest auto maker that it failed to cut production quickly enough last year as economic crisis struck the U.S., its largest market.
'Toyota was overconfident in its competitiveness and they just kept pressing the accelerator,' he says.
Until late last year, it appeared to be a horse race for the presidency between Mr. Toyoda and Mr. Kinoshita, 63, the right-hand man to Mr. Watanabe, the current president.
As recently as late last year, when Toyota's powerful elders huddled to discuss who should succeed Mr. Watanabe at the end of his two-year term, some worried Akio Toyoda was too young. Others felt that a large, publicly traded company like Toyota shouldn't pick a family member for the top job, even though Mr. Toyoda is a veteran who oversaw rapid growth in China, among other things.
A turning point came in a meeting in November at the company's global headquarters in Toyota City. Akio's father, Shoichiro Toyoda, made a subtle remark to the assembled group, according to people familiar with the matter. 'Why are all the key decisions these days made by Watanabe-kun and Kinoshita-kun?' the elder Mr. Toyoda said, using a standard honorific for the two men.
According to those people, Shoichiro Toyoda seemed annoyed that Messrs. Watanabe and Kinoshita had broken with Toyota protocol last year by singlehandedly deciding what vehicles would be built at a factory under construction in Mississippi. They had switched to the Prius, a gasoline-electric hybrid, from the Highlander, a sport-utility vehicle, without first consulting other key executives.
The language was subdued. But the comment, along with additional criticisms from other executives in other meetings, ultimately tipped the scale in Akio Toyoda's favor, the people say.
Shoichiro Toyoda says he doesn't recall the meeting. Toyota said in its statement that it decided a new management team was needed to tackle the tough situation it faces.
It's not clear if a back-to-basics approach will be enough to revive growth at the sprawling firm, particularly amid the weakening global economy.
Other auto makers have promoted founding-family members, with limited success. Ford Motor Co.'s own founding-family scion, Bill Ford, took over from Jacques Nasser in 2001. But Ford failed to launch popular models, while sales of its profitable SUVs wilted as gasoline prices rose. In 2006, Mr. Ford handed over the CEO position to a nonfamily executive, Alan Mulally, a former Boeing executive, who is still struggling to right the ship.
Asked whether the family name influenced the choice of top executive, Shoichiro Toyoda said: 'We never know who is going to be president. The current president made the best decision about who is appropriate for the next president, and it just happened to be my son.' The family controls roughly 2% of Toyota stock.
Akio Toyoda himself, as one of five executive vice-presidents, isn't entirely free of blame for the company's recent woes. Since June 2007, he has overseen the Japanese market, where sales and market share continue to fall.
Toyota now aims to generate 'reasonable profits' even if is global sales (excluding sales of its two main affiliates, car maker Daihatsu and truck company Hino) slump to seven million, down from an all-time high of 8.4 million it sold in 2007. Toyota currently has capacity to produce about 9.7 million vehicles, according to an estimate by consulting firm CSM Worldwide.
Akio Toyoda has long preached a traditional Toyota practice called genchi genbutsu, a leadership maxim that boils down to get out of your office and visit the source of the problem. For the past year, Mr. Toyoda has been practicing genchi genbutsu to quietly collect evidence that the company had strayed, according to people familiar with the situation.
They say he was particularly concerned that Messrs. Watanabe and Kinoshita placed strong emphasis on achieving two trillion yen in annual operating profit, a level it passed in the year ended March 2007.
Driven by that profit objective, Toyota executives reasoned American consumers would be willing to pay a premium for a Toyota -- a change from a long-held strategy of pricing cars at a value. Two years ago, Toyota started raising prices on an array of models including the redesigned Corolla, one of its most prominent vehicles, launched in early 2008.
Toyota's U.S. sales arm had tried to price the Corolla about $1,000 to $1,500 above what its U.S. dealers thought people would pay for a basic family car, according to U.S. dealers. Not surprisingly, sales were weak. Toyota sold 21,000 Corollas in February 2008 down 25% from a year earlier.
When Mr. Toyoda got wind of the slow Corolla sales, he flew to the U.S. to meet with dealers and investigate for himself.
Cliff Cummings, a veteran southern California dealer, warned Mr. Toyoda over a steak dinner with a dozen other dealers last March that premium pricing was the wrong way to go. Toyota had built an image of sturdy affordability, 'but now they were wrecking it,' Mr. Cummings says he told Mr. Toyoda.
Based on subsequent conversations with the younger Mr. Toyoda and other executives, Mr. Cummings says he expects the company to overhaul its pricing strategy.
The company is also reining in its engineers, who have been designing new features that occasionally appear to be out of character with the company's utilitarian roots.
For example, the new Prius, launching this year, has an option for a solar-powered ventilation system designed to keep the interior cool when parked. Gizmos like these helped lift the car's retail price to an estimated $28,000, according to analysts, compared with the $22,000 currently.
'Frankly, that does worry me,' says Earl Stewart, one of the top Prius dealers in the U.S., based in North Palm Beach, Fla., He anticipates stiff competition from Honda's new low-priced hybrid, Insight.
'I am already drastically discounting my Priuses to maintain my sales rate,' Mr. Stewart says.
Then there's the shabu shabu paint system. Toyota's manufacturing division is one of the company's proudest operations, having developed a highly efficient 'lean manufacturing' philosophy that has been emulated over the years by everyone from GM and Hewlett-Packard to hospitals and supermarkets seeking greater efficiency.
Mr. Watanabe, the current president, had backed the new technology as he encouraged his engineers to radically shorten the painting process. To replace the traditional system of slowly dragging a car through a 115-foot-long bath of anticorrosion undercoating, Toyota engineers came up with a new process in which a car body gets picked up by a robot arm, then swished around in a pool of paint, cutting the length of the line. Engineers compare it to shabu-shabu, which involves picking up slices of meat and swishing it around in a hotpot to cook it.
However, the new system costs roughly four times as much to set up as the traditional process, while producing what Mr. Toyoda felt were minimal improvements in the quality of the paint job and its efficiency, according to people familiar with the situation
Also likely to be axed: A new 'ecological plastic' that emits less carbon dioxide over the course of its life than more traditional alternatives, but which is costlier to produce.
Another tough area Mr. Toyoda must tackle promptly is the excess manufacturing capacity in Japan. In the late 1990s, when a strong yen made Japan a costly place to make cars, Toyota slashed capacity at home and added production overseas.
But the yen reversed its direction, weakening to as low as 120 to the dollar between 2005 to 2007. Toyota decided to take advantage and do more of its manufacturing at home, since a weak yen has the effect of making exports more profitable. By 2007, it was producing 4.23 million vehicles in Japan -- a million more than it made just eight years before.
That move was directly at odds with Toyota's long-held philosophy not to make long-term decisions on where to put factories, based on short-term currency-exchange rates, which can swing rapidly.
'We are not gods, we are not infallible,' says Shoichiro Toyoda, speaking of the company's management team. 'Sometimes even Tiger Woods misses a shot.'
Matthew Karnitschnig / Liam Pleven / Serena Ng
自己祖父创建的丰田汽车公司(Toyota Motor)，丰田章男(Akio Toyoda)这位公司即将上任的总裁有着冷静的认识：丰田汽车太过自负了。
名古屋东海学院大学(Tokai Gakuin University)企业管理教授Koichi Shimokawa说，丰田汽车如此专注于成为全球头号汽车厂商，以致于去年经济危机冲击美国市场的时候，丰田汽车未能及时削减产量。美国是丰田汽车最大的市场。
其他曾将创始家族成员推为掌门人的汽车制造商只取得了有限成功。例如来自福特汽车公司(Ford Motor Co.)创始家族的比尔•福特，从他2001年自雅克•纳赛尔(Jacques Nasser)手中接过大权后，福特就一直拿不出热卖车型，有利可图的SUV汽车也因为汽油价格高企而销量萎缩。2006年，比尔•福特将首席执行长一职交给非家族出身的穆拉利(Alan Mulally)，此人直到现在还在收拾福特汽车的烂摊子。
丰田章一郎在谈到公司的管理团队时说，我们是人而不是神，并非十全十美。有时甚至老虎伍兹(Tiger Woods)也会失手。Matthew Karnitschnig / Liam Pleven / Serena Ng