Toyota Motor

The Toyota of today is running scared. Until about two years ago, Toyota Motor was a company full of pride that reigned as an uncontested heavyweight champion of the 20th century auto-industry battles. But more recently, any number of problems have erupted and the company has pleaded "guilty" to making many missteps in its attempt to rectify those issues. Today's the company has shown the world an angstridden face that can hardly be said to be that of a champ.

Toyota Motor's greatest strength has become its greatest weakness. The company's status has taken a nosedive after runaway car accidents have implicated even Lexus, a brand name that became synonymous with high quality, globally viable products. At its zenith, it was able to earn more than 2 trillion yen (US$22 billion) - most of that from the expansion of its operations in the U.S. - but after the collapse of Lehman Brothers in 2008 it was tripped up by its inability to maintain sales of an extensive line-up of luxury cars and full-size trucks. And because the automaker directed so many of its resources toward its business-chasing growth in the U.S., it has been unable to fully exploit opportunities with longer term growth potential in emerging economies like China and India. As a result, Toyota Motor has trailed Germany's Volkswagen and Korea's Hyundai Motor in making inroads in these markets.

In Japan, there is a fitting proverb to describe Toyota Motor's present predicament: "All glories must fade." In other words, those who have been blessed with much success usually suffer an ignoble demise. The key to survival is not growing big and strong. Rather, companies that survive are those that can adapt to changing environments. The automotive industry is no exception when it comes to being buffeted by the winds of change. In the U.S., General Motors declared bankruptcy. The 100-year-old driver of the modern auto industry itself - the internal combustion engine - is now giving way to new technology such as electric batteries, gas-electric hybrids and fuel cells. It is worth pondering if Toyota Motor can be a champion into the next generation.

Toyota Motor's bout of malaise started on November 6, 2008. In Japan, that date is referred to as the day of the "Toyota Shock." It is when the top Japanese automaker reported its half-year earnings through September for the fiscal year ending in March of 2009 (i.e., fiscal 2008) and forecast falling into the red on a parent company basis during the second half of the year. At that time, it was still projecting a full year consolidated operating profit to the order of 600 billion yen (US$6.6 billion). But just six weeks later, on December 22, the president Katsuaki Watanabe told reporters at a press conference that the automaker had revised its outlook downward and was now estimating a 150 billion yen (US$1.6 billion) operating loss. In fiscal 2007, the company had posted a profit of 2.27 trillion yen (US$25.2 billion), yet the very next year it expected the equivalent of 2.42 trillion yen (US$26.6 billion) in profits to simply evaporate.

For Toyota, this was the first operating loss in decades. The last time it faced such difficulty was when it was caught up in a tumultuous labor strike amid the post-World War II chaos in 1950. This was a shocking development indeed for a company thought to be one of the world's strongest. After all, it had sailed unscathed through the oil shocks of the 1970s, the collapse of the Japanese "bubble" economy in the 1990s and the advent of Japan's deflationary economy of the 2000s. Yet in a 90-day period, it had gone from forecasting a 600 billion yen profit to projecting a 150 billion yen loss - a 750 billion yen (US$8.4 billion) downshift. The Japanese press largely subscribed to a narrative attributing the unprecedented earnings volte-face to the impact of a worldwide financial crisis born of the sub-prime mortgage problem in the U.S., which subsequently triggered a global recession. That series of events has, in fact, dented the balance sheet at many a strong company, including Toyota Motor. But it was merely the match that lit a powder keg underneath the automaker.

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