Toyota prepares for the worst

Akio Toyoda, and some samurai – (c) Bertel Schmitt

If you read the press reports of Toyota’s annual results conference today, you will think all is peachy. After all, “Toyota Motor Corp. reported Wednesday that its quarterly profit rose 21 percent,” wrote the Detroit News. On top of that, Toyota submitted an “upbeat profit forecast,” said Bloomberg. The Toyota share was up strong at the news. I, however, walked out of the Tokyo meeting room given the impression that Toyota fears the sky might fall.

Toyota President Akio Toyoda spent most of his talk today on the importance of cutting costs and saving money. The elimination of waste, or “muda” in Japanese, has been a core tenet of Toyota ever since Taiichi Ohno developed the Toyota Production System. Frugal as Toyota is, one would think that there is no more muda to be cut, but no: Toyoda said today that all at Toyota “must thoroughly eliminate waste in their daily actions.” Toyoda mentioned that when executives ask him for budget increases, he feels as if he must dispense tough love on children who say “daddy, buy me that toy.”

Time is money, and the company called war on wasting both while kicking a problem up the organization instead of fixing it right in the field. Toyota’s CFO Koji Kobayashi said today that meetings at Toyota felt like “parliamentary sessions,” and he is in rare agreement with Elon Musk, who two weeks ago ranted that “excessive meetings are the blight of big companies.”

Why the new push for even more frugality? Toyoda reminded us again today how he was made President in 2009, the same year his company posted loss, the first one in its 70-year existence. The loss clearly was a result of carmageddon, but it was an embarrassment nonetheless. Ever since, Toyoda did not stop preparing the company for going through the next recession unscathed.

“We must maintain a sense of crisis,” Toyoda said a few times today, and there was a feeling in the air today that Toyota thinks a new crisis might not be too far away. Toyota’s main market is North America, and car sales have begun to sputter. Toyota’s home market Japan does not promise much growth, nor does Europe. There still is strong growth in China, but Toyota commands only a small share of the 30-million-unit market.

For companies like Volkswagen, or GM, China has long become their biggest market. For Toyota, the Middle Kingdom remains a side show, and sometimes, one feels that Toyota is intentionally dragging its feet in China, to avoid too much of a dependency on a risky market that can quickly turn toxic if it serves China’s politics. Japanese OEMs lost big in China during a 2013 row over disputed islands. Last year, Hyundai’s China sales were down over 30% as a fall-out of political disagreements with South Korea. Today, there have been reports of cars imported from the U.S. being held up in Chinese customs. U.S. automakers could become the first casualties of a trade war between the U.S. and China.

If and when the crisis hits, a fit and muscular Toyota, put on an early diet by its president, will survive the lean times much better than an over-leveraged carmaker betting on hyper growth. During a crisis, vulnerable startups that hemorrhage money during boom times, will be first to die.