Next gen Prius will exceed a diesels’ frugality in high-speed driving.
Dominic O'Connell - The Sunday Times – April 2, 2006
Toyota is about to overtake General Motors to become the world's biggest car company. And unlike its American rivals, it is making a profit. Report by Dominic O'Connell in Toyota City.
Toyota’s Hirose factory, located in the sprawling Toyota City complex in central Japan, is not like any other car plant. There are no noisy machine tools, no showers of welding sparks, no dirt or grease.
The staff, swaddled like surgeons to prevent contamination of their work, labor in rooms where the air has been scrubbed of any pollutant. Visitors have to wear hats and change their shoes for clean white trainers.
Hirose’s secret is that it doesn’t make cars. It makes computer chips. Toyota is the only car company in the world to have its own chip- manufacturing line, where raw silicon disks are turned into printed circuit boards.
Rivals such as Ford and General Motors buy circuits ready-made from external suppliers, but Toyota refuses to let the work go outside. It makes all the most advanced gizmos in its cars itself, a policy that has allowed it to build machines such as the fast-selling Prius, a complicated “hybrid” car that saves fuel by having a petrol and an electric engine.
Hirose is an example of Toyota’s maverick approach. It is guided not by automotive fashion or management theory, but by a set of commandments handed down by its founders - the foundation of the so-called “Toyota Way.”
Katsuaki Watanabe, the company’s president, carries them with him at all times, written on a small piece of paper tucked into the back of his pocket diary.
Watanabe, a 64-year-old who plays golf, tennis and sings in a choir, embodies Toyota’s otherworldliness. To western eyes, he appears to have more in common with the head of a religion than the chief executive of a major company.
He eschews the normal management mantra of shareholder value above all. A company’s purpose, Watanabe insists, is to be useful to society. He talks of creating “dream vehicles” that will not harm the environment, will never have accidents and will make their occupants healthier as they drive.
For the moment, lofty ideals make for good business. Toyota is this year expected to overtake General Motors (GM) and become the world’s biggest car company, selling nearly 9m vehicles around the world.
But Toyota’s penchant for doing its own thing may not be enough to keep it out in front. It faces growing competition from a clutch of hungry, low-cost car companies in Korea, and the potential threat of even more powerful rivals in China. It is placing a huge bet on the success of its hybrid technology, a bet that could yet be sunk by a return to cheap oil or the development of competing technologies by American and European rivals.
And Toyota’s self-belief has at times been its undoing - before settling on hybrids, it invested heavily in a radical but dead-end Australian engine, and it has sunk hundreds of millions into a Formula One team for no obvious return.
But for the moment, Toyota is the one to catch. Securing the No 1 spot is a formidable achievement, one that would have been unthinkable a decade ago, when the Detroit giants General Motors (GM) and Ford were the undisputed kings. To add insult to America’s injury, Toyota has boosted both sales and profits, while Ford and GM have slumped deeper and deeper into the red.
Typically, Watanabe says he couldn’t care less about being No 1. “Being the leader in terms of volume is of no serious significance,” he said. “What I fear most is complacency, that being No 1 in volume could engender a sense of pride among us. Being satisfied with the status quo means you are not making progress.”
The relative fortunes of Toyota and its American rivals are starkly illustrated in the value placed on them by investors: Toyota’s stock-market value is £113 billion — more than seven times the market value of GM and Ford combined.
TOYOTA owes its start in the car business to Britain. Sakichi Toyoda, the company’s founder, was an inventor specializing in the weaving and spinning machines that served the Japanese textiles industry.
Most of the big players in the market were British, and in 1922 his son Kiichiro went for two weeks of training in the UK at Platt Brothers — a name now largely forgotten but once a top textile-machinery maker.
Back in Japan Sakichi came up with the invention that was to transform his company’s fortunes. He perfected a loom that allowed automatic, high-speed shuttle changes, a technique that transformed textile production. In 1929, Toyoda sold the rights for this “Type G” loom to Platt for £100,000 — a fortune for the time. Part of that money was used to found what became the Toyota Motor Company.
The Toyodas were even then motivated by a desire to eclipse the Americans at their own game. In pre-war Japan, GM and Ford had split the Japanese market between them.
Toyoda Motor Corporation sold its first car, the A1, in 1936, and almost immediately changed its name to Toyota. The reason for the switch was simple - Toyota can be written in Japanese with just eight strokes of a pen, with eight being a lucky number, while Toyoda takes 12.
Toyota made 200 A1 cars a year. Today Tsutsumi, just one of Toyota’s 12 Japanese plants, makes two cars every minute.
The UK connection has not been forgotten. In 1992, Toyota opened a car plant at Burnaston, near Derby, and an engine plant at Deeside in north Wales.
Watanabe copied out the company’s guiding precepts and tucked them into his diary the day he was made president. “I have been at this company for 40 years, and while some things have changed, those precepts have not. They are the company’s DNA,” he said.
They dictate that whatever the company does “must contribute to society”. Employees must always be “studious and creative”. They should “create a good team by excellent friendship”. They must avoid “frivolity and ostentation”. And they should be reverent “and show gratitude for things great and small in thought and deed”.
But high-minded ideals alone do not explain how Toyota has become No1.
After the second world war, the company’s management spent time studying the production techniques promoted by W Edwards Deming, a statistician and quality-control expert who had helped develop the techniques used in mass production in the American war effort.
They came up with the Toyota Production System, a “just-in-time” technique that has since been mimicked by nearly every leading carmaker.
Toyota also brought to the wider business world the concept of kaizen or continuous improvement, which puts a duty on every employee to contribute ideas on how the production process can be made better. Toyota claims that last year it received 560,000 kaizen from its Japanese workers alone.
At close quarters, the Toyota Production System is awesome. Robots descend like angry woodpeckers on car bodies, stitching them together with a series of rapid, sparky welds.
In many car companies, there is a single bank of welding robots, but Toyota has two, with one set working below and between a higher-set group. As a result, the welding line has been shortened from 120 meters in length to 60 meters, and the process time halved.
Similar innovations abound. Most car plants have racks of parts stacked up beside the production line, from which workers pick before mating them to the car. At Toyota, the parts are already sitting in their car in boxes, pre-selected to cut the complexity of the task.
Where parts do have to be delivered to the line, they are carried by intelligent robots that follow tracks in the floor to the correct station at the correct time. To avoid mistakes, the right part is indicated by a flashing red light at the side of its box.
Workers whirl between tasks like dervishes. At Tsutsumi, the lines move roughly once a minute, leaving little time for error or hesitation. Nearly every new employee has to spend a period of time on the production line to get familiar with the rigors of the job.
“I lost five kilos in two months,” said Tomomi Imai, now Toyota’s group manager of corporate communications.
WORRINGLY for its rivals, Toyota shows no signs of slackening its pace. It has only just got started in China, the world’s fastest-growing market and potentially its biggest.
It now has two joint ventures there, one in the south and one in the north, with a third production line due to open in May. This year it should make about 250,000 vehicles in China, with a target of 1m a year by 2010.
In a rare management shake-up in June, a new board position was created to take responsibility solely for China. It went to Yoshimi Inaba, tipped as a potential replacement for Watanabe.
Inaba said Toyota was not concerned about being a late arrival. “We think this is going to be a very long race, and we are only just round the first corner.”
The company has some tempting offerings for the Chinese government, which has made it clear that it favors environmentally friendly vehicles. Toyota has responded by making China the first country outside Japan where the Prius hybrid is assembled.
The transfer of such advanced technology remains a sensitive subject, however. “They will learn quickly, and it is up to us to stay ahead,” said Inaba.
Watanabe is already setting even bigger targets. Having achieved a global market share of 10%, he wants 15% by the early years of the next decade. And he is preparing the company for life without fossil fuels — hence the hefty investment in the Prius technology, which he said could be made to work with a variety of power sources.
Watanabe expects “substantially reduced availability” of fossil fuels by 2030. “I have instructed our engineers to work towards that eventuality. We need to be looking at all types of alternative fuels and power sources.” For the cowed giants of Detroit, struggling to stay afloat in a sea of red ink, it is a worrying thought. Not only is Toyota about to be the car in front, it is planning to stay that way for at least the next two decades.
But does it live up to its claims?
TOYOTA’s vision of the future is an alarming one for petrolheads — small cars, electric engines, and computers doing the driving rather than wannabe Jeremy Clarksons.
It sees an environmental road crash ahead. If humans are unable to curb carbon-dioxide emissions, we can expect an average temperature increase of three degrees centigrade, which could kill three billion people through water shortages. What’s more, the world’s oil is running out, with a likely reduction in total production coming in the 2020s.
It all points to more environmentally-friendly cars and, funnily enough, Toyota just happens to make one. The Prius is the best known of its hybrid cars, but the company has already extended the technology to other models, including its upmarket Lexus marque.
The Prius saves petrol by using a battery and electric engine alongside a conventional petrol motor. The car has sold like hot cakes and is particularly popular with Hollywood celebrities keen to show how they are saving the world.
However, Toyota has faced criticism that the Prius’ economy in actual driving conditions does not meet the manufacturer’s claims, and that in high- speed driving it is actually inferior to modern diesels.
Shinichi Abe, general manager of Toyota’s hybrid-system engineering division, acknowledges the complaints, which have been particularly strident in America.
He claims the difficulty results from different ways of measuring fuel consumption. Toyota is likely to restate the Prius’ figures in America, bringing them down from 60 miles a gallon to ‘the high 40s’.
The company plans to make the next-generation Prius exceed diesels’ frugality in high-speed driving and is examining a ‘plug-in’ hybrid that would recharge from the mains and use even less petrol.
Toyota is also working on safety technology that could overrule drivers. The company is putting radar and other sensors in the car, and installing communications equipment that would talk to traffic lights and other vehicles. If drivers ignored warning signals in the cabin, the car would automatically apply its brakes.