The End of Detroit (9 page)

However, it took more than a decade for the auto company to build up a head of steam. Given the complexity and slow growth of the Japanese car market, Toyota decided not to produce cars in its early years, choosing to build simpler small trucks instead. Then World War II intervened, and the government stepped in to regulate production, although, unlike in the United States, automobile manufacturing never stopped in Japan. However, the bulk of orders for new vehicles during the war years came from the government, providing little incentive for companies to continue their investments beyond a minimum level or come up with new designs. Even so, Toyota came within a hairsbreadth of being completely destroyed in its infancy. American military documents, discovered by Eiji Toyoda after the war, showed that Toyota City was scheduled to be bombed on August 21, six days after Japan’s surrender. The day of Japan’s defeat was miserable and memorable for the workers who remained at the Toyota complex. The announcement of Japan’s surrender, broadcast on radio, was the first time many of the workers at the Toyota complex had ever heard Emperor Hirohito’s voice. The news of defeat stunned them. A number simply packed up their things and went home for the day. On August 16, a company executive, Hisayoshi Akai, called everyone in the complex together. “We lost the war,” he said, “but mark my words, in five years we’ll be on our feet again.”

Rebuilding the company, like rebuilding the country, wasn’t quite so simple. Immediately after the war, Toyota had no market for its small trucks. Instead, it produced dinnerware and fish paste, based on Kiichiro Toyoda’s theory that even if they couldn’t afford vehicles, people still had to eat. Then, as its trucks began to sell, boosted by liberal financing terms, the company was hit by two crises: a cash crunch and a series of labor strikes. Kiichiro and Risaboro Toyoda sparred on how to get the company out of danger. Risaboro, a better businessman than his brother-in-law, argued that the company had to cut more deeply. Kiichiro resisted, arguing that Toyota needed to be loyal to the workers who had seen it through its darkest days. But Toyota’s fortunes worsened dramatically and the situation came to a head in 1950, when Kiichiro Toyoda tearfully stood before his workers and told them that he had to cut 1,600 jobs. One of them would be his own. Kiichiro stepped down from the company he had founded, heartbroken. But it was the right move. Under new management, Toyota quickly regained its footing, becoming solvent in less than a year. The board invited Kiichiro to return. Sadly, it was a short comeback. In 1952, he suffered a fatal heart attack, never to see the vast global growth and accomplishment that Toyota would achieve.

It was the United States that saved Toyota in the 1950s and provided the stepping-stone to its future. Eiji Toyoda, who had joined his uncle’s business after graduating from school in the 1930s, set off for Dearborn, Michigan, to visit Ford’s sprawling operations. The company, which was producing just 40 trucks a day, decided to establish ties with an American company. There had always been symbiotic, if unofficial, relationships between Toyota and Ford. Kiichiro Toyoda was a deep admirer of Henry Ford’s business practices and a great fan of Ford’s book
My Life and Work
, which he made required reading for his staff. The pair had talked about a joint venture before World War II, only to see the idea scrapped by the outbreak of fighting. With Toyota on its feet again, Toyoda sent a letter to Ford to gauge the company’s interest in reviving discussions. Ford didn’t commit to a business deal, but its executives invited Toyoda to visit anything he wanted to see.

He combed its factories, studying how the massive Rouge complex turned out 800 vehicles a day, examining how Ford produced engines, learning about its international operations, which had then revved into action in Argentina, Israel, France and Spain. He talked his way into Chrysler’s factories, too, looking for a point of comparison. As he was preparing to head back to Japan, Toyoda said to himself, “Detroit isn’t doing anything that we don’t already know.” The joint venture didn’t prove necessary, because as Toyoda returned home, he found that Toyota’s plants were slowly increasing production, thanks to a slew of orders from both the United Nations and the American military. The U.S. Army decided to buy trucks from Japanese manufacturers in order to transport troops in Korea, where conflict had broken out. Ordering trucks from American companies would cost too much, and it would take too long to ship them overseas. Even after the Korean War ended, the military’s orders from Toyota continued for years. But they didn’t last beyond 1962, when American officials belatedly realized they were subsidizing a Japanese industry to the detriment of their own companies.

Shortly after Eiji Toyoda returned to Japan, one of the greatest figures in Toyota’s history, Taiichi Ohno, who would become as famous as its founder, came forward to implement ideas that he, too, had learned in Dearborn. His concepts proved to be far more of a breakthrough for Toyota, and far more influential to the company’s future, than any joint venture with an American company might have been. Ohno was an engineer who had joined Toyota in 1946, attracted by the company’s long emphasis on mistake-free engineering. In an attempt to produce the best-quality textiles, the Toyoda loom company had invented a safeguard called
jidoka
, in which machinery would stop working in the event of any kind of manufacturing error. It kept the company from shipping flawed material, ensuring the company’s reputation for quality, and it alerted the company instantly when its tools were broken and needed maintenance. Ohno thought that similar processes might be applied to the automotive assembly line. He decided to travel to the United States, where automobile factories had roared back to life after World War II, to learn more about production. Like Toyoda, Ohno explored Ford’s Rouge operations, but with a slightly different motivation, which was to study the production process from start to finish.

He saw how Ford took in vast carloads of copper, iron ore and coal on its own freighters, which arrived at its own docks from its own mines in northern Michigan, and transformed the raw materials into steel, glass and auto parts that were fed to its assembly plants. He studied the manufacturing lines that had been Henry Ford’s contribution to automotive greatness. And then he went to a supermarket. Here he made the real discovery that would lead to the Toyota Production System (TPS), which is the company’s functional foundation and the secret that sets Toyota apart.

Back home in Japan, consumers relied on tiny “mom-and-pop” stores that stocked only a few kinds of goods. One might specialize in something as simple as plum buns, called
anpan
. Another might sell dried snacks, a third fresh fruit. Shopping trips were quick: One asked the merchant for the quantity required, and it was provided. In America, however, customers chose from a vast array of products, in precisely the quantities they wanted, and shopped according to the pace they desired. As supermarket shelves emptied, they were restocked, often from the front, allowing merchandise like cartons of milk or containers of eggs to be constantly pushed forward within consumers’ reach. Ohno saw that markets didn’t keep huge stocks of cornflakes or boxes of paper towels piled up in back. They received constant deliveries, so money wasn’t tied up in unneeded merchandise.

From his observations, Ohno created three basic principles that required the involvement of everyone in the company. First, management had to make a strong commitment to the system, participate in implementing it and reinforce its philosophy constantly with middle management. Second, all employees, from the shop floor to the executive offices, had to participate. Third, everyone involved in making an automobile, from hourly workers, to suppliers, to dealers, had to accept that this was the way Toyota was run, and to be constantly trained and updated on the system.

Under TPS, every Toyota factory, whether in Tahara, Japan; Cambridge, Ontario; or Huntsville, Alabama, is run on the same key principles. A fundamental element is the concept of just-in-time delivery, which has been widely applied in all manner of factories around the world, including those of Detroit companies. As with the replenishment of goods in a supermarket, every component that Toyota uses, whether engines on the assembly line floor or SUVs shipped to dealers, arrives as it is needed. This is called a “pull system,” meaning that the required goods are pulled out of inventory according to demand. It’s vastly different from, and more difficult than, Detroit companies’ traditional practice of stockpiling supplies of parts and automobiles and selling down the supply, which is called a “push system.”

The pull system requires a daisy chain of communication. As Toyota engineers set out to develop new vehicles, they spend months talking to consumers and dealers to find out what kind of features they want. Likewise, once those vehicles reach the showroom, dealers must keep track of what consumers are requesting and stock their lots with vehicles that will move quickly. They relay these sales trends back to the company, which then orders parts and builds vehicles according to customer demand. As those vehicles are being produced, Toyota’s workers follow a preestablished series of steps called standardized work, another important TPS concept that applies all through the company. Near every workstation in a Toyota plant hangs a laminated card that shows how a task is to be performed, and workers are expected to do so to the letter, in the amount of time and with the number of steps that are prescribed. That is not to say that such tasks are set in stone; in fact, Toyota employees at all levels of the company are drilled in another key TPS concept, called continuous improvement, or
kaizen
. If there is a better way to do the work, from handling customer service telephone calls to installing headlights, Toyota wants to hear its employees’ suggestions, and it implements them on a regular basis.

Nobody buys a car just because of the Toyota Production System, and probably most of the people who own Toyota vehicles have never even heard of it. But it’s what makes Toyota cars and the company itself so sound. TPS isn’t just the way Toyota cars are built; it’s the foundation that the company is built upon. TPS is the reason that Toyota can bring out cars and trucks that fit together and run perfectly. TPS refines the concept of continuous improvement, using every kind of resource as efficiently as possible, and giving employees a real say in their jobs. It is both a set of guidelines for the factory floor, and a philosophy that guides the company. Because Toyota has TPS, it doesn’t have to reinvent the wheel every time it wants to try something new. It doesn’t have to communicate new slogans or rely on the personality of a new chief executive to motivate the troops. TPS basically puts everyone at Toyota on the same page and gives them the same frame of reference, which is the customer. The customers’ needs and desires are the starting and ending point of TPS. The most humbling and frustrating aspect of TPS is that it is impossible to become completely proficient. Even now, when Toyota is the biggest, most profitable and most powerful company that it has ever been, Toyota executives say they have mastered only 50 to 60 percent of what Ohno hoped Toyota could achieve through the production system. That kind of thinking all but guarantees that Toyota will not become complacent.

One of the executives who best understand TPS today sits right at the top of the company: Fujio Cho, Toyota’s chief executive, whose own career mirrors Toyota’s most important steps during the past 35 years. Cho, along with Toyota’s chairman, Hiroshi Okuda, is the architect of the plan that Toyota hopes will result in its becoming the world’s largest automobile company by the end of the decade. Unlike the founders of the company, Cho did not have an engineering degree or any background in manufacturing. He studied law at Tokyo University, joining Toyota in 1960 and serving in a variety of staff jobs across the company. Were it not for an unusual assignment, Cho might have simply ended up in the ranks of Toyota’s salarymen, with a modicum of responsibilities and no substantial authority.

Cho had been at the auto company for 14 years when he was assigned in 1974 to work with Dr. Ohno on improving the efficiency of Toyota’s administrative operations. Previously, TPS had been applied only within its factories. Cho had paid deep attention during all the lectures, workshops and plant visits that had been part of his education and training process at the company. And when it came time to attack his assignment, he did so with zeal. Like many world economies that had suffered setbacks during the early 1970s, Japan’s economy was in a recession as Cho took on his assignment. Keeping in mind TPS’s emphasis on streamlined supplies, he decided that the company needed to reduce its inventories of all types of goods and services, from office furniture to typing staff, to the minimum amounts that would allow it to function properly.

And so he squeezed the excess out of Toyota’s operations all across Japan, saving millions of yen. He expected that the activity would earn Dr. Ohno’s praise. Instead, he received his master’s scorn. “Are you stupid?” Ohno thundered. Cho, in slimming down the inventory levels, had paid no attention to company forecasts that showed that Japan was about to emerge from its economic doldrums. “We are going to be in a boom. We will need more inventories, not less!” Ohno said. He told Cho that he had to learn to look forward, not backward. It was a lesson that Cho learned well and applied many times in the future. It paid off for him not long after, when he convinced Ohno to publish TPS in English. Though noticed by only a few academics at the outset, the decision to make TPS available in another language raised Toyota’s profile in the global auto industry—and raised Cho’s standing in Toyota as well.

But before Toyota could run, it had to learn to walk. And as with all toddlers, its first steps were stumbles. Its first attempt to sell a car in the United States, the Toyopet, was a disaster. The Toyopet was a linchpin of Toyota’s lineup in Japan, a small, inexpensive car meant to coax cash-strapped customers back into the market. It arrived in the middle of the most ostentatious era in American automobile history, when cars were draped with chrome, interiors resembled living rooms, with plush, sofalike seats, and rear ends were shaped like fins. In short, the Toyopet was nothing like what American buyers were used to, and Toyota was forced to retreat from the market and rethink what it would take to compete. It was a slow process. Returning in 1959, it took Toyota 10 years to sell 100,000 cars a year in the United States, a mark that it achieved in 1970. During that time, the company began setting up its dealer organization, which would eventually prove to be one of its most valuable tools. Unlike Detroit companies, which seemed to have a showroom in every sizable town across the United States, Toyota decided to be selective and choose areas where population growth was taking place. For one thing, it did not have the money to seed the kind of vast dealer network that the Big Three had established. Even today, GM has more than 7,400 dealerships, and more than 5,000 at Chevrolet alone. The total number of Toyota dealerships is 1,287.