Toyota Motor

Last edited by Phil Mattera on July 20, 2010 - 6:14am
Company Snapshot: 

Toyota used its professed obsession with quality and efficiency to turn itself into the world’s leading automaker, but a safety scandal that erupted in early 2010 has seriously damaged the company's reputation. Although the Japanese-headquartered company has production and sales operations around the world, its success was based to a great degree in the United States, where it built a series of heavily subsidized plants, and took advantage of the weakened condition of Detroit’s Big Three to capture market share. Aside from a long-standing (but now defunct) joint venture with General Motors, Toyota has kept its U.S. operations non-union. The company has a much better reputation in the environmental arena, thanks to the enormous success of its Prius, although that hybrid has also been tainted by the company's safety problems.

Profile editor: 
Phil Mattera
Ownership status: 
Publicly traded
Number of employees worldwide: 
320,000
Chief executive officer: 
Akio Toyoda
Global Fortune 500 rank: 
10
Tel: 
+81 565 28-2121
Net Income: 
-US$4.4 billion (loss)
Total revenue: 
US$189 billion
Corporate accountability
Accountability overview: 

For years, Toyota took pride in a safety and environmental record that seemed superior to that of its competitors, especially the major U.S. automakers. But a growing scandal involving unsafe accelerator pedals has put the company in a new and highly unfavorable light.

Labor: 

After the end of the Second World War, U.S. occupation authorities encouraged the establishment of new trade union organizations in Japan. One of these was the All-Japan Automobile Industry Labor Union, known for short in Japanese as Zenji. U.S. officials instituted deflationary measures in 1949 that prompted Japan's major auto companies to eliminate thousands of jobs. Zenji unsuccessfully protested the cuts, but at Toyota conflict over the issue was serious enough that President Kiichiro Toyoda had to resign to restore labor peace.

In 1953 Zenji was on the offensive again, demanding substantial wage gains in contract negotiations. Toyota and Isuzu reached compromises with the union, but Nissan stood firm, which led to a three-month strike (and later lockout) that ended when Nissan management successfully persuaded many workers to ally themselves with a new, less militant union. In the wake of the defeat, Zenji collapsed, and company-oriented unions took over at all the major automakers.

The harmonious union-management relations that followed did not translate into job satisfaction on Toyota's shop floor. In 1972 journalist Satoshi Kamata took a job as a temporary worker at a Toyota plant, and later wrote a book describing a "factory of despair" because of the punishing pace of the assembly line and the strict regimentation.

When Toyota and General Motors established their New United Motor Manufacturing Inc. (NUMMI) joint venture in 1983, the two companies agreed to accept the United Auto Workers (UAW) as the employees' collective bargaining representative even before anyone had been hired. Deciding that cooperation was called for, the UAW signed a contract with NUMMI that provided a high degree of management control over the workplace. Soon the NUMMI facility, like Toyota's domestic plants, drew criticism for overworking its employees, and running a system of "management by stress." In mid-2009 General Motors announced it was leaving the NUMMI joint venture.

When Toyota decided to set up its own manufacturing operation in Kentucky in the mid-1980s, the company did not extend the welcome mat to the UAW. Toyota was successfully pressured to use union labor for the plant construction, but the production work has remained non-union. The UAW avoided serious organizing drives at Toyota’s U.S. operations until 2007, when worker unrest over issues such as high injury rates changed labor-management dynamics at the company’s Kentucky operation. Some workers were also angered over a leaked company memo suggesting that Toyota was seeking to lower its U.S. wage rates. Yet the union still has not asked for a representation election. The Kentucky branch of the activist group Jobs With Justice convened a Workers Rights Board in 2007 that heard testimony about the unfair treatment of workers, and issued a series of recommendations.

Toyota has also faced disputes over its U.S. pay practices. In 2003 workers in the paint shop at the company’s Kentucky operations filed a complaint with the state labor department because they were not being paid for time spent donning and removing protective clothing, and walking to and from work stations. In 2006, after the U.S. Supreme Court ruled in a separate case that such time is compensable, Toyota offered $4.5 million in back pay. According to the June 25 issue of Labor Relations Week, NUMMI had to pay its workers more than $862,000 after a U.S. Department of Labor investigation found that the company had failed to include overtime pay when calculating end-of-year production bonuses. In July 2009, after GM backed out of the NUMMI joint venture, Toyota announced that the plant would be shut down.

In 2006 Toyota was the focus of an international campaign protesting the alleged firing of union organizers in the Philippines. A 2008 report by the National Labor Committee charged Toyota with continuing to overwork its employees in both domestic and overseas operations.

Toyota affiliate Denso Guangzhou Nansha was one of the companies affected by a wave of strikes carried out by Chinese workers in 2010 to demand substantial pay increases. The walkout at the supplier forced Toyota to suspend production at one of its assembly plants in China for several days.

Sexual Harassment:

In May 2006 a female employee of Toyota Motor North America filed a sexual harassment lawsuit against the company’s president, Hideaki Otaka, accusing him of making unwanted sexual advances. Otaka denied the charges but gave up his post. The woman’s lawyer alleged that the company had taken no action in response to her complaints prior to the filing of the lawsuit, which sought damages of $190 million. The case was settled out of court with no details disclosed.

Environment and product safety: 

In 1999 Toyota Motor Sales was hit with a lawsuit filed by the U.S. Environmental Protection Agency, which asked for penalties of $58 billion in connection with an accusation that the company sold 2.2 million vehicles with defective smog-control computers. Toyota chose to fight the case, which dragged on for years. In 2003 Toyota finally agreed to settle by paying a $500,000 civil penalty, and spending about $34 million on anti-pollution measures. Those measures did not involve the company’s own vehicles, which Toyota insisted were not defective, but rather 3,000 diesel vehicles, including older school and municipal buses.

In recent years Toyota has enjoyed a favorable reputation among many environmentalists because of its role in promoting hybrids such as its popular Prius. In 2007 groups including the Natural Resources Defense Council put heat on Toyoya when it initially lined up with other automakers in opposing stricter fuel economy standards. After receiving an outpouring of protests from Prius owners and others, the company took a more favorable stance toward the improved standards.

In November 2009 Toyota announced it would repair the gas pedals of about four million of its cars in the United States to resolve a problem with unintended acceleration. Shortly thereafter it was reported that U.S. safety regulators had opened an investigation into Toyota's Corolla and Matrix cars for randomly stalling while on the road.

In January 2010 the company issued a second U.S. recall, involving 2.3 million vehicles, that was also tied to faulty accelerator pedals. Then it took the unusual step of announcing a suspension of production and sales of eight of its models while it sought to solve the gas pedal problem.

A few days later, the company said it had a fix for the problem and was shipping the necessary materials to dealers to make the repairs. Yet public confidence in the automaker was shaken by reports that it had known about runaway vehicles for years but delayed taking steps such as installing brake override systems.

In April 2010 the U.S. Department of Transportation proposed a fine of $16.4 million, the maximum allowable, against the company for waiting more than four months before notifying regulators about the gas pedal problem. A week later the company suspended sales of its Lexus GX 460 SUV after the influential magazine Consumer Reports issued a do-not-buy warming to its readers because its testing had shown that the vehicle had a dangerous handling problem that could cause rollover accidents.

In July 2010 Toyota admitted for the first time that at least some of the incidents of sudden acceleration were due to problems with sticky accelerator pedals and floor mats.

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History

Toyota emerged indirectly out of the work Sakichi Toyoda, a famed Japanese inventor. In 1926 Toyoda established a company to market an automatic loom he had invented. Three years later he sold rights to Platt Brothers, a British company that then led the textile machinery industry. Toyoda gave the proceeds from the sale to his son Kiichiro, also an inventor, but who had grown interested in an area other than spinning and weaving.

The younger Toyoda, then in his mid-30s, had become enamored of motor cars, and his father encouraged him to explore the business possibilities. In 1933 he established an automotive division within the loom company, and set out to improve his car through reverse engineering American models.

Prospects for the car business were substantially improved by the protectionist policy the Japanese government adopted in 1936. This advantage prompted Toyoda to spin off the auto operation the following year into an independent company called Toyota Motor. There are a variety of stories about why the spelling of the family name was changed, ranging from ease of pronunciation, to numerological superstitions about the number of calligraphic strokes required.

If the hope was that "Toyota" would be luckier, that was not immediately the case. The government suspended passenger car production in 1939, and Toyota was compelled from then until the end of WWII, to devote its attention to trucks.

After the war Toyota benefited from the fact that, although it had ties to Mitsui, it was not a direct subsidiary of one of the zaibatsu conglomerates that U.S. occupation authorities were dismantling. Unlike Nissan, Toyota was able to retain its top executives. Although Nissan had more experience in making automobiles, Toyota was ready with its own product, the Toyopet, when Japan introduced its first postwar cars in 1947. The company underwent dramatic changes a few years later--including a major labor dispute over job eliminations, and the splitting off of the marketing operation into a separate company (Toyota Motor Sales)--but in the early 1950s Toyota began to move ahead of Nissan.

That lead grew during the remainder of the decade as Toyota Motor Sales built a formidable dealer network, and Toyota itself made major advances in product quality and efficiency. The later were based on the adoption of the kanban (just-in-time) system for managing the flow of parts and the kaizen philosophy of continuous improvement.

Toyota Motor Sales soon began looking abroad for market growth, and in 1957 established a small American subsidiary in California. However, like the Datsuns (now Nissan) of the time, the company's Toyopets were ill-suited to U.S. roads because their small engines and relatively weak chassis could not stand up to prolonged high-speed driving. It was not until the mid-1960s, when Toyota returned with new cars--first the Corona and then the Corolla--that it started to gain a significant position in the U.S. market.

Toyota's U.S. sales took off in the late 1960s, and by 1971 the company was selling nearly 300,000 cars a year in America. The rise in demand for compacts following the oil price increases of 1973-74 gave the company an even bigger boost. By the end of the decade its U.S. car sales topped half a million units. Toyota was also growing elsewhere in the world. It zoomed past Fiat, Chrysler, and Volkswagen to assume the number three spot in the world auto industry, trailing only General Motors and Ford.

After reabsorbing the sales company in 1982, Toyota Motor followed the path of other Japanese automakers in initiating U.S.-based production. While Honda and Nissan established their own plants, Toyota began by forming a joint venture with General Motors. The plan, announced in 1983, was for the two companies to cooperate at a GM factory in Fremont, California, to produce a subcompact car using Toyota's manufacturing and personnel practices.

While GM received a fair amount of criticism over the joint venture, New United Motor Manufacturing Inc., Toyota was seen by many as the savior of auto production in the United States. While it had the upper hand, Toyota decided to go a step further and open its own U.S. assembly operation, in Georgetown, Kentucky. The step was part of Toyota's "Global 10" strategy, a plan to increase its share of world vehicle production from about 8 to 10 percent.

Toyota pursued that goal in part by going upscale. Like Nissan, it created a new line of luxury cars, called Lexus, that began to encroach on the market that had traditionally been dominated by German car makers such as Mercedes-Benz and BMW. Toyota's top-of-the-line Lexus LS 400 got off to a good start in the U.S. market, despite some technical problems that led to a recall.

Although Toyota, like other automakers, experienced the effects of the economic slowdown in the early 1990s, by the middle of that decade it was optimistic enough to expand U.S. production with a new truck assembly plant in Indiana and a big boost in capacity at its Kentucky facilities. These plants, like its other U.S. operations, received sizable subsidies from state and local governments. Toyota also opened new plants in Canada, India, and France while expanding joint venture operations in China.

In 2003 Toyota attained its a goal of a 10 percent worldwide market share, and in doing so overtook Ford for second place among the world’s automakers. Toyota then began closing in on General Motors. As part of this effort, Toyota continued to expand its North American operations with the 2003 announcement of a pick-up truck assembly plant in Texas and the 2007 announcement of a plant in Mississippi.

Toyota also laid the groundwork for a revolution in automobiles with the introduction of the Prius, which combined a highly efficient gas engine with a self-regenerating electric motor. The first generation hybrid had significant flaws, but the redesigned model introduced in 2003 was a sensation.

In 2008 Toyota finally outpaced a weakened GM, and became the largest auto producer in the global market. Still, it was not immune from the recession that emerged that year, and contributed to Toyota's first annual operating loss since 1938. Responding to the slump, the company indefinitely delayed construction of a new Mississippi plant, and, for the first time, offered buyouts to U.S. workers. Its growth hopes are now pinned to a great extent on the third-generation Prius introduced in May 2009.

In June 2009 General Motors announced it was leaving the NUMMI joint venture. The following month Toyota announced that it planned to close the operation.

In late 2009 and early 2010 the company was rocked with a crisis centered on reports that many of its vehicles were susceptible to uncontrollable acceleration.

Financial information
Fiscal year: 
2009
Fiscal year: 
2009
Major lines of business/segments: 

Automotive (90 percent of revenue). Toyota’s automotive operations include the design, manufacture, assembly and sale of passenger cars, minivans and commercial vehicles under the Toyota, Lexus, Hino and Daihatsu brands. Toyota sells its vehicles in more than 170 countries and regions, but its biggest markets are Japan (26 percent of unit sales in fiscal 2009) and North America (29 percent). In 2009 the company sold more than 7 million vehicles worldwide. Its main production facilities are located in Japan, the United States, Canada, the United Kingdom, France, Turkey, Czech Republic, Thailand, China, Taiwan, South Africa, Australia, Argentina and Brazil. The main U.S. assembly plants are in Kentucky, Indiana, Texas and California (the latter being the former NUMMI joint venture with General Motors now slated to be shut down).

Financial (7 percent). Toyota’s financial services business consists primarily of providing financing to dealers and their customers for the purchase or lease of Toyota vehicles. Toyota’s financial services also provide retail leasing through the purchase of lease contracts originated by Toyota dealers.

Other businesses (3 percent). This segment includes relatively small businesses involved in fields such as prefabricated housing, marine engines, biotechnology and information technology located mostly in Japan.