The End of Detroit (15 page)

And that’s no more than the minivan’s engineers—Odagaki, Benner and Berkman—could have hoped for when they spent so many miles crisscrossing the United States. Long before the Odyssey went into production in Lincoln, the trio had already gone on to their next engineering projects—Odagaki in charge of the Honda Civic, Benner assigned to the Honda Element and Berkman to work on the Acura CL and TL luxury cars. Even now, however, the Odyssey stands out in their memory as a project that typifies what Honda is all about: coming up with the best vehicle in its market segment, no matter how long it has been dominated by the competition. Said Berkman, “The Odyssey has become a pillar” for Honda and for its determined engineers.

CHAPTER FIVE

HOT DOGS, APPLE PIE
AND CAMRY

A VISIT TO TOYOTA
’
S CHAIRMAN,
Hiroshi Okuda, can be an intimidating experience. His office is in Nagoya, Japan, two and a half hours west of Tokyo on the bullet train, and an hour from Toyota City, the sprawling complex of factories, engineering labs and research facilities that is the center of Toyota’s global empire. Upon arriving at Toyota’s office building, visitors shoot down a ramp to an underground garage, where an assistant to Okuda stands waiting at an entrance near the elevator to greet them and whisk them upstairs and down silent corridors to a conference room, sparsely decorated with ten chairs, with low coffee tables in between and subdued paintings on the walls. Though it is a warm March day, a smartly dressed receptionist brings cups of steaming green tea. Then Okuda’s assistant returns, to remind his guests that the chairman has a full schedule. The meeting must start precisely on time and end on time, for he has a meeting afterward in connection with his role in charge of the Keidanren, the Japanese equivalent of the Business Council, a symbolic yet influential group of the country’s most important companies. The warning simply adds to the sense of tension, and the room falls silent.

Ten minutes early, Okuda bursts in. Unusually tall and broad-shouldered for a Japanese man, his face breaks into a smile beneath a sweep of jet-black hair, giving him a jaunty look that belies his 69 years. Greeting his visitors in English, he gives a quick command to his assistant. Within minutes the receptionist returns, removing the green tea and replacing it with refreshing glasses of iced tea, and makes yet another trip a bit later to bring orange juice and then ice water. In contrast to the formal atmosphere before he arrived, Okuda is relaxed, loquacious and happy to talk about where he thinks Toyota is headed, particularly in the United States, which in 2001 became its biggest market, outdistancing Japan for the first time. Speaking through an interpreter, but clearly understanding questions asked in English, he stays on for 20 minutes beyond the allotted time for the meeting, clearly enthusiastic about his role in crafting Toyota’s future.

The experience is analogous to the situation that Toyota itself is in—encumbered by formality and tradition, yet with executives who see that there is an opportunity to grow if Toyota can change the way it does things, and who are seeking the right pace and strategy for the company to achieve its goals. Though Okuda’s title is now mostly ceremonial—in Japanese companies, the chief executive has the greatest day-to-day influence—Okuda was a key driver in Toyota’s efforts during the 1990s to position itself for the global growth that is occurring now. During those years he served as chief executive, the first time the role had not been filled by a member of the Toyoda family. It was Okuda who backed Toyota’s expansion in American manufacturing, traveling to a farmer’s backyard in Princeton, Indiana, for the groundbreaking when Toyota launched its truck plant there. Okuda approved Toyota’s push into the light truck market, and he played a key role in the selection of his successor, Fujio Cho, who is now putting into motion the plans that Okuda crafted.

It’s tempting to say that what’s happening to Toyota is an Americanization process. That’s certainly how its efforts have been perceived by the media in the United States and Japan. It’s more accurate to say that Toyota is breaking out of the mold of a traditional Japanese company to become the world’s first truly global auto company. More than General Motors, Ford or DaimlerChrysler, Toyota has the best opportunity to be a player that meets the needs of consumers around the world, no longer relying on its traditional home market for the vast majority of its sales and revenue, as the Detroit auto companies do. Since 2001, the United States has been Toyota’s biggest market, followed by Japan, Europe, Asia and Latin America. While it has yet to make a significant impact in the European market, it has not yet given up. Its cars score top ratings on J.D. Power surveys there, and its plant in France is considered within the company to be its most efficient and advanced.

What’s more, Toyota has enormous financial strength from which to launch its plans. It earned an operating profit of nearly $12 billion in 2002, more than the combined profits of the Detroit auto companies during the past 5 years. It has $34 billion in cash and $100 billion in assets, and it is basically able to act as its own bank. Toyota’s quest to become the biggest global auto company by 2010 would be unthinkable without its Japanese roots, sunk deep in Toyota City, but it also would be unthinkable without its strength in the United States. In that, Toyota is pulling off something Detroit companies have not yet been able to do—provide itself with both a solid foundation and opportunities for seemingly endless growth for the future.

Until 2003, Toyota was the most Japanese of auto companies. It was governed by a 58-member board of directors, all of them Japanese males, many of whom had responsibility for Toyota’s day-to-day operations along with their directors’ jobs. The board had no women, no Americans, no Europeans and no one from outside companies. It was quintessentially Japan-centric. The structure was vastly out of sync with the way companies are run in the United States, where directors have oversight over company management but do not play an active role. And it was even at odds with other Japanese companies, particularly Honda, which had only a 25-member board, and Nissan, which was aiming to cut the size of its board to seven members. Throughout 2002, Okuda, Cho and the company’s management debated the best structure for the company going forward. Some of Toyota’s most conservative managers argued that no change was necessary: Toyota could keep the same structure and keep its power centered in Japan, just give more power to the regional executives. Their view represented a small faction within the company who thought that the American market’s dominant role was just temporary. Once Japan rebounded from its decade-long economic slump, they said, it would be Toyota’s primary market again. So there was no need to change. A few rebels, particularly those who had spent time working overseas, called for the board system to be completely dismantled and an American-style board created. They wanted to see a complete reorganization of Toyota’s management functions to reflect its global reality. “I have a lot of frustration, as a manager who’s been here 22 years, that Toyota is not globalized enough,” said Illingworth, the executive who left Chrysler for Toyota, subsequently ran Lexus and is now Toyota’s senior American strategist.

But Cho resisted efforts for a quick resolution, saying that the right structure would be announced when Toyota was ready. The result, like many things at Toyota, seemed like a modest first step. In March 2003, the company said it would cut its board by about half, to around 30 members. Below them, for the first time, Toyota would create a new layer of managing directors. This group included Americans, Europeans and executives who were younger than traditional board members, who generally got their appointments in their fifties and sixties. It was not radical change, but it was change. And it will not be the last step Toyota will take on the matter. Its history has shown that when it comes to key developments, it reaches its goals by evolution, not revolution.

There is no better illustration of how Toyota achieves its objectives than the creation and gradual dominance of the Toyota Camry. Just as the Model T symbolized Ford’s early history and the K-car the renaissance at Chrysler in the 1980s, the Camry sums up everything that Toyota has become in the United States. “The Camry is literally the straw that stirs the drink for Toyota,” said Peter DeLorenzo, editor of
Autoextremist.com
. “This one car was responsible for convincing a generation of Americans that there was a whole other world of transportation out there. It is transportation that is reliable—meaning
where things just didn’t go wrong
, a totally alien notion to American consumers. It changed the American market forever.”

Camry is the centerpiece of Toyota’s growth and achievement in the United States. While Toyota’s focus most recently has been on expanding sales of light trucks, none of it would be possible without the Camry as its linchpin. The Camry has been the best-selling car in the United States since 1997, despite a strong challenge from the Honda Accord. It has become to the car market what the Chevrolet Impala was in the 1960s, what the Ford Taurus was in the 1980s: the indisputable leader. It is the quintessential American family car. Every Camry sold in the United States is built in Georgetown, Kentucky, just north of Lexington, where it rivals Thoroughbreds and bluegrass as the most treasured icon in the state. “If there’s such a thing as a politically correct car in central Kentucky, it’s a Toyota,” said Mike Tewell, a local Toyota dealer. John Stewart, an assembly line manager at the Georgetown plant, said everyone there sees Toyota as a local company now. That wasn’t true when he was growing up. “When I first got hired here, I didn’t even know what a Camry was,” said Stewart.

But there are millions of other people who did. In the 20 years in which the Camry has been on sale in the United States, Toyota has sold nearly 6 million of them, whether sedans, coupes or station wagons. Moreover, nearly 5 million of them are still in operation, according to statistics from R. L. Polk & Co. Year after year, Camry gets high ratings from
Consumer Reports
, whose recognition of the car in the 1980s set it on its road to American dominance, despite whatever challenges have been posed by the Accord, the Hyundai Sonata and the Nissan Altima. One reason is its resale value. In 2003, a five-year-old Camry was still worth 52 percent of what a customer paid for it, versus less than 40 percent for a Chevrolet Malibu, according to calculations by
Edmunds.com
. Camry received an unexpected tribute in February 2003 from one of its rivals, proof how even Detroit companies can’t ignore what the Camry has come to symbolize. “Very frankly, Camry is a better product than Taurus today,” said Jim O’Connor, head of sales and marketing for Ford. O’Connor’s comments, made to journalists at the Chicago Auto Show in 2003, came as it was becoming clear that Ford would probably lose to Toyota its title as the number-one car-selling brand in the United States.

The 20-year track record doesn’t stop Camry from being seen by rival executives and many automotive enthusiasts as a vanilla-flavored car, especially the latest version, introduced in 2002, which struck some critics as particularly bland. Jim Press, chief executive of Toyota Motor Sales, doesn’t care. “Do you know what the best-selling flavor of ice cream is? Vanilla,” he declared. “It’s to our advantage that we’re not the flavor of the day. Our course of action is slow and steady growth. We don’t shoot up like a rocket and fall back down.” But Camry, to Toyota, is more than a single car. It is the foundation of its American product development. Working from the Camry, Toyota’s engineers through the years have developed a half-dozen different vehicles—including a coupe, a minivan, a crossover vehicle, and a large family car—that collectively represent 44 percent of Toyota’s annual sales in the United States. It is a feat that many auto companies have attempted over the years, only to fall far short of what Toyota achieved. And it began, as things do at Toyota, with a single idea: a car built specifically for North American customers, not for Japanese consumers. Press, the top-ranking American within Toyota’s sales operations, was involved in the car’s development from the outset. “It was the first car designed by an international car company for the American market. It finally created the awareness that the U.S. market could be self-sustaining with unique products, not just an outlet for excess capacity from Japan,” he said.

The concept for Camry took root in the late 1970s, when Toyota saw that its original American customers were starting to need more room than their subcompact Corollas provided. Toyota sold a mid-sized car called the Corona, which had originally gone on sale in Japan in 1964, but it was aimed at Japanese consumers: It was narrow, had a less-powerful engine and was rear-wheel drive. Then in charge of product planning for the United States, Press was emphatic that Toyota needed a car that was akin to American tastes. He argued that it should focus on interior space as well as fuel efficiency, and be equipped with front-wheel drive. He faced stiff opposition. The Corona was a hugely important car to Toyota in Japan. Toyota’s middle management thought the idea was ridiculous.

But Press found advocates for the vehicle in two Toyoda family members—Eiji Toyoda, the company’s chairman, who had spent much time in the United States during the 1950s, and Tatsuro Toyoda, the automaker’s president, who within a few years would launch the NUMMI venture with General Motors. With the backing of the Toyoda family members the project was approved, only to stall on a name. Toyota officials thought the car should simply be called the Corona, even though it would be completely different from the Japanese Corona. The Americans did not want to go that route. They suggested the name Crown, but again, there was already a car called the Crown in Toyota’s lineup, an upscale sedan that is still sold today. So a compromise was struck. The planning team took the Japanese word
kanmuri
(pronounced “CAN-murry”), which means “crown,” and Americanized it.
Kanmuri
became Camry, which seemed friendly and easy to pronounce, and also gave the marketing team a hook. “We called it the Family Camry,” Press recalled. The Camry went on sale in the United States in 1983, a year after the Honda Accord went into production in Marysville, Ohio, and in time to wake up Ford to the challenge that it had to meet with the Taurus.

For the first five years of its life, the Camry was built in Japan and shipped to the United States. Its popularity, plus the experience that Toyota had gained at NUMMI, helped to convince Toyota executives to build their first assembly plant in the United States. And Camry was clearly the ideal vehicle for Toyota to produce there, according to Press. “It was our strength, and it matched the mainstream of the market,” he said. “It was a high-volume product that had fairly consistent demand, it wasn’t affected by sales trends and it had pretty level production.” Because it was a bread-and-butter car, aimed across the breadth of the market, the Camry also didn’t experience a big drop in sales when it got to the end of its model run, five years out. That could have been a danger signal for Japanese executives, who were wary of building a car in a brand-new factory only to see interest in it wane after its first couple of years on the market. “It suited itself to being a single product in a single plant. If you can build a lot of the same kind of product, you can reap tons of efficiency. It was the right place for us to start,” Press said.