At Toyota’s sprawling campus in Aichi, central Japan, the verges are neatly clipped, the bushes immaculately tamed. Near-silent electric cars purr around between the buildings. Where there would have once been ashtrays in every room, smoking is now strongly discouraged, with smokers banished to distant corners for their increasingly furtive breaks, seemingly aware that they are a dying breed in more ways than one. At lunchtimes, workers exchange their neckties for running shoes and jog around the streets or stretch in small groups.
The slightly self-conscious message the visitor gets is that Toyota is a progressive, forward-looking company, vaguely Californian, different from “traditional” Japanese companies, and that Toyota is every inch the globe-straddling industry leader it believes itself to be. Even Akio Toyoda, president since 2009, got something of a makeover this year, with grey suits and classic salaryman hair making way for chunky specs and Silicon Valley-esque coordinated threads.
The company has seen some dramatic highs and lows over the last decade. While its Prius range has become to electric cars what the iPad is to tablet computers, and its famed kaizen production methods and heavy emphasis on innovation have made it a poster child for business schools and analysts around the world, a bungled recall in 2010 and the impact of the 2011 tsunami on its supply chains severely rocked the company and bumped it down the global automotive pecking order.
2013, however, looks like a year in which Toyota could become king once again. The company recently announced that profits are up a whopping 70% year on year, and once again close to those pre-2008 highs. With memories receding of 2010, and customers once again beginning to spend as economies emerge from the Great Recession, sales are buoyant, the outlook is strong and talking to people around the head office it is clear that there is confidence in abundance. None of Toyota’s traditional strengths have been eroded, so what’s to stop them from running rampant through the competition?
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A vital point to note is that much of this profit growth is due the rapid weakening of the yen this year. The yen has declined by as much as 12% against the dollar as Abenomics swings into effect, beefing up Toyota’s profit margins significantly. While executives rightly point to remarkable cost-savings as another big factor, it is undeniable that without the favourable exchange rates Toyota would still be a long way away from record profits.
In addition, Toyota is still vulnerable to earthquakes and other natural disasters. Tokyo, Osaka/Kobe and Nagoya (the chief city of Aichi prefecture) are all in the top ten most “at risk” cities in the world, with earthquakes, typhoons, floods and storm surges all likely to severely disrupt any kind of business activities. Of course, these risks are present for any company doing business in these cities and areas, not only Toyota, but it underlines how fragile Toyota’s grip on the top spot really is.
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Where Next?
Walk out of the campus in Aichi and you may still feel that you haven’t really left Toyota at all. The entire town surrounding the campus is built around Toyota in myriad ways, both obvious and subtle. Look at the smaller factories and offices in the town; component makers dominate, with catering and hotels in abundance for a town of its size. Guess who they do most of their business with? The bus stops around town are not, on the whole, named for schools, police stations and temples as they are in most Japanese towns but instead read “Toyota West Gate” or “Research Center”. Visit any of the bars, restaurants or Filipina-staffed hostess bars of an evening and you are sure to see groups of white-shirted (and likely red-faced) Toyota employees.
For now, all of this prosperity looks secure, but it is still at the mercy of global economic forces that even a company the size of Toyota can do little about. If investors lost faith in Abenomics, or a natural calamity even close to the scale of the 2011 tsunami were to hit, Toyota could easily find itself once again right back down in the thick of it. But there’s more.
In a recent interview, Toyota president Akio Toyoda bemoaned the fact that young men nowadays don’t feel the need to buy a car to impress the ladies, and while his tone was light, the comment highlights a deep problem for Toyota. As the populations of developed economies age, Toyota’s markets do not wither away altogether but they do change. Consumers in the BRICS and CIVETS economies are a long, long way from rocking up to showrooms and driving away a Prius, and lack the infrastructure for electric cars to really take off.
Japanese companies in general have never been very good at localizing their products for other markets, and Japan retains much of the isolated “Galapagos” mentality which has kept Japan apart from huge swathes of the rest of the globe, technologically and culturally. As Japan ages and the population shrinks, how will Toyota adapt to the new demographic situation, and how it will find growth?
In electric cars the media spotlight has turned to Tesla and it’s sexier, faster whizz bang sportscars. As for innovation, Google is making remarkable progress with self-driving cars to such extent that many think that they will be a commonplace sight on the roads within a decade. Can Toyota regain industry leadership in innovation? Can it respond to fundamental changes in demographics and shifts in the balance of world economies?
The big surge in profits this year must be welcome news in the factories, offices and bars of Aichi, but ultimately it tells us very little about the future of the world’s leading car maker.
