Toyota’s Turbocharged U.S. Drive: Life in the Car Wars? Fast Lane

Today may well be the king of today?s worldwide Car Wars.

But its surge to becoming a true global powerhouse began more cautiously in the 1980s.

The globalization was a nervy — and nervous– drive down a road paved with billion-dollar bumps. Despite its potent global clout, Toyota at the time had almost no experience in operating non-Japanese facilities. Toyota City headquarters surged with anxiety.

Consider a page in Toyota?s 1989 annual report: Pictured is a stern-looking, hard-hatted worker at the US$1.3 billion Georgetown, Ky., plant, Toyota?s first in the USA, which went online in July 1988. The text spells out Toyota?s American work-force challenge: ?This was our fear, a worker whose face we could not read. We had developed a very finely tuned production system. What would happen if we turned it over to him??

Anxiety was also endemic in tiny Georgetown (pop. 12,000), which found the unsettling new experience, well, foreign. The critical clamor over Toyota?s $150 million incentives deal with Kentucky upped the anxiety ante.

What a difference a decade makes.

Today, the 7,000-employee Georgetown plant is Toyota?s fastest-growing, with capacity soon reaching 500,000 vehicles, twice 1988 levels. Capital investment has ballooned to $3.4 billion, and 100 auto-parts plants and 100 Japanese-owned firms have followed Toyota?s wake to Kentucky.

Jim Cooke, now head of real estate at Torrance, Calif.-headquartered Toyota USA Motor Sales (TMS), saw the Georgetown transition firsthand. Cooke was based in Lexington, Ky., a 30-minute drive from Georgetown, managing Toyota?s East Coast non-manufacturing projects.

?Toyota?s image in Georgetown before and after the plant is completely different,? Cooke says. ?People in Kentucky, particularly around Lexington, now feel very personal pride they had a hand in making one of the world?s best cars.

?But a lot of people still don?t see the benefits from the outset. Some people we talk to in Princeton, Ind. (where a $700 million, 2,000-employee Toyota plant opens next year) — who?ve heard the Georgetown story, but haven?t seen it — have a strong Midwest approach: If it?s got a foreign name, it?s a foreign product.?

?A U.S. Company?

Hardly a ?foreigner,? today?s Toyota is the pace car in U.S. market penetration. And it?s still accelerating, like today?s 30-mph (48-km.) gusts that loudly snap the Toyota, U.S. and California flags outside the 13-year-old subsidiary?s sales headquarters. But Bob Pitts, TMS USA vice president for finance and administration (and Cooke?s boss), sounds a cautionary note based on 26 years with Toyota.

?People still refer to us as Japanese,? Pitts says. ?I still surprise neighbors when I say we produce more than 60 percent of our product here. TMS is just what it says: a U.S. company that employs Americans. Clearly, a lot of things we?ve done are models for all Toyota. But we?ve haven?t done the PR work well about how many U.S. people we employ and our economic benefit.?

The caution isn?t unfounded: Globalism notwithstanding, one-third of Americans still say they?d never buy a Japanese car; one-half say free trade cuts high-paying U.S. jobs.

But after $6 billion in North American investment, Toyota USA is the U.S.?s fastest-growing automaker. Toyota?s autobahn speed in gaining ?made-in-the-USA? status is reflected in its 96,000 U.S. workers — 21,000 manufacturing jobs, plus executive and support staff and 1,400 dealerships (including those for the hot-selling Lexus, still only made in Japan).

The Japanese Job Machine

But U.S. corporate media-meisters obscure those facts, Pitts asserts.
?Their spin is, they?ve lost jobs, [not that] some new jobs have gone to other Americans.? Pitts says. ?Within 24 months, we?ll have the capacity to produce 1 million-plus units, a big share of North American sales. And we?re developing more U.S. suppliers (now topping 500), a big issue when President Bush visited Japan. So I think Toyota has really stepped up its responsibility.?

Business Becomes Stateless

In autos, it?s a huge fundamental shift fueled by facility location strategy. ?National? cars are fading as worldwide expansion blurs corporate identities into ?statelessness.? It?s the dawn of local cars, breaking most briskly in the USA. But being a world auto firm is far thornier than in newer fields like high tech, where national identities are far less perceptually fixed.

Still, Toyota?s localized manufacturing has made it the acknowledged auto leader in achieving true global status. Says Pitts, ?Toyota?s attitude is that it?s an international marketplace.?

The Okuda Factor

?I?ve had the benefit of knowing Mr. Okuda 20 years,? Pitts says. ?His English is excellent, and he?s very easy for us to work with. He understands well the strategic U.S. market, our largest outside Japan, a quarter of worldwide sales.

?Like his predecessors, he has a lot of vision and charisma. The thing Mr. Okuda has really accelerated is creating greater global presence, domestically manufacturing for each market.?
In fact, Okuda vows Toyota will be the first foreign auto firm ?recognized as a U.S. company.? Backing that commitment, Okuda in a single day last year broke ground on the Princeton plant, then jetted to announce a $400 million engine plant in Buffalo, W.Va.

A Yen for Expansion

?Because of the yen, Toyota is one of the more aggressive companies in pricing and product issues, which we didn?t do in the early 1990s,? he says. ?The Camry is a really good example of how that?s really changed.?

Now the U.S.?s No. 1 seller, the 1997 Camry is priced $1,500 below 1996. Up 21 percent, 1997 Camry sales are on a pace to total 360,000, equaling 1996 sales for Taurus, last year?s No. 1, whose ?97 sales are up only 4 percent. U.S. pricing pressures will intensify, with 1998?s Camry priced $1,500 less, analysts predict. Only 80 yen to the dollar puts Toyota at break-even on each vehicle.

Add to that the sizable advantages of U.S. manufacturing, which shaves $2,000 off the Camry?s sticker by eliminating import barriers and cutting manufacturing/distribution costs 10 percent. Little wonder Pitts says, ?This is the first time in a long time the Camry is being sold with no incentives.?

And that?s only the tip of Toyota?s expansive U.S. iceberg. By 2000, Toyota will offer North Americans a fully loaded vehicle menu, 75 percent built domestically.

Plumping the Portfolio

For instance, Toyota in 1996 opened its new U.S. manufacturing headquarters in Erlanger, Ky. (near Cincinnati), closer to its heartland hub, anchored near the 500-mile (800-km.) swath of I-64 some call ?Toyota Road.?

Toyota has favored the small towns of Norman Rockwell Americana along that road, making staggering per-capita investments: In addition to Georgetown, there?s the $700 million Princeton (pop. 8,200) plant and the $400 million Buffalo (pop. 1,000) plant, plus and the $150 million Toyota invested in the Troy, Mo. (pop. 5,000) plant of Bodine Aluminum (a 1990 Toyota purchase).

Those towns? right-to-work status wasn?t a site selection factor, Toyota officials say. But Toyota?s lack of union problems has boosted U.S. competitiveness. GM lost $900 million in ?96 with two Ohio brake plants? 17-day strikes.

For Kentucky, Toyota?s manufacturing headquarters adds some 600 well-paying jobs (with 2,000 a long-term possibility). It?s sweet icing on the initial incentives rhubarb.

?Martha Collins (Kentucky governor when Toyota arrived) took a lot of flack and still is,? Cooke says. ?But the benefits are there, and the negative impacts people were afraid of aren?t.?

At Toyota?s 10-year Georgetown celebration, Collins said, ?I would do these kinds of deals every day.? Echoes current Gov. Paul Patton, ?Anybody who doesn?t think Toyota was a good deal for Kentucky simply doesn?t know much about what they?re talking about.?

For its manufacturing headquarters, Toyota only asked for standard-issue tax breaks granted any firm creating white-collar jobs. ?You go to the well when you need to,? Cooke explains, mirroring the firm?s soaring fortunes. Stock is up 80 percent from 1995, when Toyota was knocked for slow decision-making and complacency.

A Big Distribution Hit

?In the past, Japan would send us all North American parts to distribute,? Cooke says. ?With our dramatic U.S. supplier increase, a U.S. location makes sense? — as does the facility?s space-shaving impact.
?A few years ago, we were talking with the operational folks about doubling our 250,000-to-400,000-sq.-ft. (23,000-to-37,000-sq.-m.) parts centers,? Cooke says. ?With one Ontario facility, we don?t have to expand now. And stocking things at Ontario cuts inventory at manufacturing sites? regional vehicle delivery centers.
?Our parent is handing off responsibility for North American parts, which wouldn?t have happened without the move to U.S. production.?

The U.S. subsidiary?s growing independence reflects Okuda?s aversion to nemawashi — Japan?s traditional consensual decision-making, which can devour time.

?We have liaisons in each major department [giving] parent company input,? Pitts says. ?But more responsibility is being pushed over here. Our executive committee here is now redoing our authorization chart.?

A Global Model?

Since then, some of the most significant changes have been ones that didn?t happen.
One was the envisioned Americanization of Everywhere that once unnerved international firms. The same fate has met the Japanese business model, which doesn?t rule world business, as many hand-wringing Westerners feared in the late 1980s.

Instead, a hybrid business model has evolved, one Toyota USA reflects.
?We are a U.S.-run, U.S.-based company with the benefit of our parent?s Japanese heritage, a mixture of cultures that?s the best of both worlds,? Pitts says.

?Everyone looks to Japan for efficiency models, but Japan looks to the U.S. In Japan,? he adds with a smile, ?the highest honor is the Deming Prize, which comes from the U.S.?