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Losses - it's not the Toyota Way

Editorial Staff

Mr Katsuaki Watanabe is not a happy man. As the first head of Toyota to announce a loss in 71 years, he is standing down. The irony is that the losses are really not his fault.

It's a matter of honour: losing the record of being, probably, the only current mass-market car maker to have made operating profits in each of the past 71 years inevitably means falling on your sword (in a figurative sense).

But, arguably, there have been cracks showing in The Toyota Way. In the USA, the company has been building cars and stacking them in storage. Until recently, the company's "lean manufacturing system" meant that cars were almost built to order, a unique strategy in a world where mass production of identical models is the norm. Insiders say that the company is considering something it has not previously done in 24 years of US manufacturing - enforce compulsory redundancies. Already a new plant to build the Prius hybrid has been mothballed and suspending production at a Texas pickup plant. Car production in both the US and Canada may be scaled back as the company wonders what to do with cars it can't sell - the first time it has happened since Toyota opened in the US almost a quarter of a century ago.

For Europe, Toyota has made a two pronged approach. First, its factory in the UK is, some years, Toyota's most efficient factory. And it makes cars in Japan and ships them over - mostly there is very little kept in stock.

Back home in Japan, the last time the company declared a loss was in 1950 - but that wasn't an operating loss. That was also the last time it made compulsory redundancies of full time contracted staff, according to several writers on the history of Toyota - who say that that was the genesis of the "jobs for life" deal that Toyota and several other manufacturers developed. However, most Japanese companies gave up that concept more than a decade ago. For Toyota, the question is whether the recent recruits are the right ones to get rid of - in order to keep the jobs-for-lifers.

And so Mr Watanabe is on his way out: and The Toyota way which has worked through a succession of crises around the world has been found wanting in the face of an unprecedented "perfect storm" of collapsing markets following on from dramatic costs increases in recent years.In a particularly dangerous game of pass-the-parcel, Watanabe picked up what everyone thought was totally safe - and found it to be a poison chalice.

It almost seems unfair to blame him as the company he heads has done all the things that the Bush administration is telling the US motor manufacturers to do to save themselves.

For the rest of the world, here's a chilling thought: if The Toyota Way could not deal with this problem, what can?