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Learning from Toyota’s faltering drive

Jan 18, 2010 Business Daily, Strategy

“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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