Monday, December 22, 2008

Et Tu, Toyota?

December 22, 2008, 6:30 a.m.

The Toyota Way

The Toyota Way is a book studied and applied by businesses around the world, as well as the name of the management and operational philosophy of the company that makes those top-rated Toyota automobiles. Jeffrey K. Liker, The Toyota Way: 14 Management Principles from the World's Greatest Manufacturer (McGraw-Hill, 2004).

So when Toyota President Katsuaki Watanabe announces the company's first loss in 71 years(!) ($1.7 billion) will be reported next March, and says “We’re facing an unprecedented emergency situation. Unfortunately, we can’t see the bottom,” it tells you more about the global economy than it does about Toyota.

After all, "The Toyota Way" is as sound as it ever was. The company opened its seventh auto-assembly plant in North America just this month. It's cutting executive pay, and laying off some "contract" workers, but so far as I know not yet any of the lifetime workers or executives. Unlike the American auto companies, Toyota made $28 billion last year and has $18.5 billion in cash on hand.

Nonetheless, Watanabe candidly acknowledges that “The change in the world economy is of a magnitude that comes once every hundred years.” Martin Fackler, "Toyota Expects First Loss in 70 Years," New York Times, December 22, 2008.

But with sales down 34% in both the U.S. and Europe, and both the dollar and Euro falling compared with the Yen, Toyota is now in the same shape it last was in March of 1938. See, Naoko Fujimura and Tetsuya Komatsu, "Toyota Forecasts Its First Operating Loss in 71 Years," Bloomberg, December 22, 2008.

Given Toyota's stellar record as a company, if 1938 is the closest analogy to the shape it's now in we're all in much worse shape.

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