Relentless Toyota thrives on crisis

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Paranoia.

That's what makes Toyota tick, pure and simple, pundits say.

The automaker's paranoia, baked into its almost cultlike corporate mantra of "continuous improvement," gives Toyota Motor Corp. a big edge in product development and operating efficiencies around the world, industry watchers say. The Japanese automaker's philosophy, known as kaizen, is so ingrained in the company's culture that "it's almost like a religion," says a former Toyota ad agency executive in the U.S.

"They're afraid of complacency," says Jeremy Anwyl, president of Edmunds.com, an independent auto information site. "What puts Toyota above everybody? It's their relentless drive to move forward."

Or, as one former manager at the automaker claims: "Toyota is running on paranoia, which is what keeps them sharp. Toyota is obsessive-compulsive."

It's a mind-set that has brought huge success. Toyota reported a global record net profit of about $11 billion in its last fiscal year, ended March 31, and the company also set records for its worldwide vehicle sales, revenue and operating profits.

True to its paranoid reputation, Toyota has no plan to savor its success. Toyota Motor Corp. President Fujio Cho, 67, says the automaker is in crisis so Toyota is reinventing itself.

"Why in the world would we want to reinvent ourselves when business is good?" Mr. Cho said at an industry conference in Michigan last summer. "Because any company not willing to take the risk of reinventing itself is doomed."

`Enemy is complacency'

The youth-focused Scion sub-brand is one result in the U.S. of that call to reinvent, says Jim Press, 57, the No. 2 executive in Toyota's U.S. operation. He adds that Mr. Cho's call to action is aimed at rejuvenating the company.

"Our biggest enemy is complacency and believing our own press," says the exec VP-chief operating officer of Toyota Motor Sales USA, whose three brand lines consist of Toyota, the Lexus luxury line and Scion. "I think our biggest weakness is ourselves."

Other carmakers, no doubt, wish they were in the kind of crisis Toyota says it's feeling. The automaker is far from doomed in the U.S., where it's the largest Japanese auto transplant. Toyota reported its 10th straight year of record vehicle sales in 2004, breaking the 2 million-unit mark for the first time. In 2004, Lexus retained its title as America's top-selling luxury brand for the fifth consecutive year, and the Toyota Camry was the nation's best-selling car for the third straight year.

Automakers that have tried to be Toyota-like faced near-death. Subaru of America fended off impending extinction in the mid-1990s by focusing on its all-wheel-drive heritage. Nissan North America went from a money-losing copycat in the late 1990s to one of the most profitable automakers by redefining itself with cool-looking cars and trucks. Ford Motor Co.'s Mazda North American Operations also stopped trying to be Toyota-like in recent years by returning to its sports car and performance roots.

The tricky part for Toyota has been adapting its disciplined, rational business approach to activities like vehicle styling, deemed by many as too bland, and the emotional realm of advertising. Toyota's other U.S. challenges include its sliding customer service ratings and its aging owner base.

On the styling issue, Mr. Press says the automaker has made a lot of progress, citing Toyota's new Avalon sedan and the Toyota FT-SX concept crossover vehicle. "We really turned the corner on styling with a lot more emotion," he says. Lexus is also developing a new styling direction.

Jim Lentz, 48, group VP-marketing of Toyota Division, concedes the automaker spent more time and resources on engineering, relative to what it devoted to styling, "and as a result there was a problem."

But he says that has "changed fairly rapidly" in the last few years with a conscious effort to devote more resources to styling. Still, Mr. Lentz adds, cutting-edge styling won't work in every area, citing segments such as minivans.

Toyota's kaizen concept of continuous improvement hasn't worked in advertising, experts contend. "If Toyota wants to reinvent itself, it better have marketing people," notes another former Toyota manager. Not surprisingly, Mr. Lentz disagrees and says the advertising succeeds in developing consumer awareness and consideration of the vehicles.

Mr. Lentz believes Toyota won't, like other automakers, crash after a string of high-flying years. "Because we're paranoid, because we chase very lofty goals and we gain energy from the pursuit," he says, Toyota's troops "never gain the arrogance because we never accomplish our goals."

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