Wednesday, December 27, 2006

Toyota set to lift crown from GM

Toyota set to lift crown from GM
By Martin Fackler
Friday, December 22, 2006

Toyota Motor said Friday that it planned to sell 9.34 million vehicles next year, a figure that analysts said would be big enough to put it ahead of the troubled General Motors as the world's largest auto company.

Toyota reported global group sales this year of 8.8 million cars and trucks, below GM's forecast for 2006 sales of 9.2 million vehicles. But the figures Friday showed the two rival car giants on starkly different trajectories, with Toyota expecting to add a half million in vehicle sales in 2007, at a time when GM is closing plants and laying off workers.

Surpassing General Motors would be a crowning achievement for Toyota, a company that got its start in the 1930s by reverse-engineering GM and Ford cars, and that spent decades catching up with Detroit. It would also end GM's 81-year reign over the global auto industry, and mark another step in the rise of Asian carmakers.

But becoming the global leader would also have its pitfalls for Toyota, analysts warned. The Japanese automaker could become a victim of its own success and follow GM's decline, they said, if it grows complacent or lets quality control slip amid its rapid expansion. Being at the top could also make Toyota a fatter target for critics, particularly in the U.S. Congress, where the company's rise could fan a protectionist backlash, analysts said.

"Does being No. 1 matter? It matters for GM, and for America," said Hirofumi Yokoi, an auto analyst at CSM Asia. "It becomes a political issue when America gets passed in a core industry. Toyota will have to be even more sensitive and cautious in the U.S. market."

Toyota's emergence as No.1 would also realign the global auto industry. The Japanese car company would become the new industry benchmark, analysts said, and one that would be tough to match. While GM's strength in recent years has been its finance arm, Toyota's success is grounded in its formidable manufacturing prowess. As the world's most profitable carmaker, Toyota also has the cash to invest heavily in new technologies and products.

Analysts also said that reaching the top would not exhaust Toyota's opportunities for growth. They said the company would continue to gain in the American market, where higher gasoline prices have increased the popularity of smaller, more fuel-efficient vehicles. They said that Toyota was expanding in developing markets, particularly China, and into alternative-energy vehicles, like hybrid and fuel-cell technologies.

Toyota's rise would also prove a victory of sorts for its unique corporate culture, the so-called Toyota Way, which is rooted in an obsession with craftsmanship and constant improvement, or kaizen. Analysts said the Toyota Way would likely become enshrined as the industry's gold standard and the model to mimic or surpass for new challengers from South Korea and China.

"This proves that the Toyota Way is more than just an odd, quirky theory," said Chester Dawson, author of the book "Lexus: the Relentless Pursuit." "Being No.1 means Toyota now sets the standards that everyone has to beat."

For Toyota, the immediate concern appears to be avoiding any political fallout from passing GM. On Friday, Toyota's president, Katsuaki Watanabe, treaded lightly around the issue of his company's overtaking GM, while announcing it may open another factory in North America. At a press conference in Nagoya, near his company's Toyota City headquarters, Watanabe said passing GM "is just a question of results," and not a significant event for Toyota, according to Bloomberg News.

Toyota is also considering another factory somewhere in North America, Watanabe said. The company just opened a $1.28 billion pickup truck plant in San Antonio, Texas last month, and has another factory under construction in Woodstock, Ontario slated to open in 2008. Toyota has been building plants in the United States since the 1980s, partly to blunt trade criticism. The expanded production will help Toyota to meet U.S. sales gains without increasing exports from Japan, a Toyota executive vice president, Tokuichi Uranishi, said.

Watanabe also addressed Toyota's growing number of recalls this year, which have tarnished the company's reputation for sterling quality. In Japan alone, Toyota has recalled 1.2 million vehicles this year, prompting the Transport Ministry to order the company to improve quality control.

Analysts said the growing number of defects could seriously undermine the company in the long run.

"Now that it's Toyota's turn on top of the industry," said CSM's Yokoi, "Toyota has to figure out how to keep from following GM into decline."

So far, the defect problems have not slowed Toyota's pace of growth. The company said Friday that it and its affiliates expected to build 9.42 million cars and trucks next year, up from 9.04 million this year. The Toyota group includes two subsidiaries, the truck maker Hino Motors and a maker of compact cars, Daihatsu.

Toyota also gave a regional breakdown for its sales forecast for next year of cars built by the parent company that bear the Toyota and Lexus brands. The largest market will remain the United States, where sales are expected to rise 6 percent, to 2.68 million vehicles.

The company also said it expected a 9 percent rise in Europe and a 15 percent gain in Asia, including China.

Some analysts noted with irony that being No.1 had not helped the current title holder, GM, which posted $10.6 billion in losses last year.

"Being on top won't change anything in terms of share price or earnings," said Atsushi Kawai, an auto analyst at Mizuho Investors Securities in Tokyo. "In fact, if you look at who's been No.1 until now, you see that there really aren't many benefits at all."

Copyright © 2006 the International Herald Tribune All rights reserved


Post a Comment

<< Home