Toyota, profits and soul-mobiles

Our writer jousts at a Japanese windmill…

By Alex Ricciuti

08.06.2007

I was once watching a cooking show on TV5, the global French language network, and there was Gerard Depardieu in his country kitchen being interviewed about his love of food (I concur, although my preferred cuisine is Italian). When asked about fast food, a look of disgust came over his face. “It has no soul,” he said. Food has to be made with love, affection, craft and an appreciation for tradition, to paraphrase what he said.

Craftsmanship and an artisan’s expertise is essential. It is what I look for in any product that I buy, be it food or shoes or automobiles. I may be obsessive about this point but professionalism and being good at what you do is what I admire most in people. Not success, not power, not money – but simply being good at your job. The cab driver who has the whole city mapped out in his mind’s eye, the chef who doesn’t need to measure anything to get the recipe perfect, the system administrator that e-mails you back in 3 minutes with a simple,”Fixed it.”

Critics of globalization accuse corporations of putting profits before people. I accuse them of putting profits before product. Which brings us to Toyota’s latest earnings.

I’ve written this before but it can be stated again: Toyota is the most successful corporation in history and the latest news continues to confirm this. Toyota’s second quarter results brought it a record profit of 4.13 billion dollars (US). Sales rose 16 percent globally. The company is valued at 214 billion (US), more than 11 times that of GM. This year Toyota will surpass GM in total sales to be the largest automaker in the world.

You can’t argue with that success. But I will.

I wrote above about how I accuse companies of putting profits over product. Am I accusing Toyota of making bad cars? No. Do they make boring, soul-less cars? Yes. But isn’t it great for consumers that they make the best quality cars that rarely break down? Yes. So what’s the problem? I didn’t say there was a problem. Am I asking and answering my own questions like Donald Rumsfeld? Yes. Is it annoying? Yes.

Here’s my theory on Toyota: They deliberately make boring cars. Why? Predictability in their famous/infamous production system.

Take the Toyota Camry, which has more or less been the best-selling passenger car in the US market for the last 10 years. Toyota sells about 400,000 of them a year. It’s consistent. They know they will sell about that many in 2008, in 2009 etc. Regardless of where they are in the model cycle because the model doesn’t change that much. The styling is always pretty much the same. The customer never knows where you are in the cycle. They don’t say,”Well, it’s 5 years old and due for a face-lift. I’ll wait until the new model comes out next year or go buy a Chevy instead.”

Knowing how many cars you will sell is knowing exactly how many cars to build and that kind of predictability gives you great advantages in your manufacturing process and ability to control costs.

Most other automakers have to deal with the unruly aspects of production and sales. You just came out with a new model, and it’s hot and trendy; great news. So you ramp up production, start paying overtime and your factory is running at near capacity, which is good. But the overtime pay isn’t. Then 3 years into the model, it’s not so hot anymore. You have to draw down production, lay people off, creating problems with the unions, and run a production plant at far less than capacity which creates costs. Then you update the model with a whole new design, which requires a big investment,. You have to ramp up production again, re-hire, etc. This all creates costs and costs that are less than definable.

Toyota doesn’t want to build the next Mini or the next 500. They don’t care about those successful models because they know how many Auris or Aygo or Yaris cars they will build for Europe and how many Camrys or Tundras they will need for the US market. That’s what they need to be profitable.

Toyota focuses on quality, which gets them the customers who see an automobile most like a reliable appliance. Toyota, as a company, is geared towards satisfying those types of consumers because their appeal is rational – we build quality cars – and rationality will give you predictability. If you build cool, trendy cars, then the trend will end and you won’t be cool some day 5 years down the line. Then what? You’re on a treadmill always trying to come up with a cool product that will draw consumers who buy a car just because they like the way it looks.

So is that a criticism of Toyota? Certainly not from a business perspective. But the driver in me wants a car to have character. I like automakers whose engineers create a car that really thrills the driver while also delivering on quality and practicality. A car that isn’t just about process – delivering quality and comfort. A car that has it’s own identity and not one created by marketers. A car that someone cared to make.

Alex Ricciuti is a freelance writer and automotive journalist based in Zurich, Switzerland. He writes frequently for Automotive News Europe.

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Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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12 Comments

  1. Your understanding of Toyota is a bit off. Fact is they do NOT know how many of each vehicle they should build. They make predictions like all other automakers, but Toyota never rigidly sticks to a production estimate. You forgot to mention a key aspect of Toyota’s production system is the fact that it is so flexible and so adapatable.

    If Camry demand goes up, Toyota can raise production at a number of plants. That is because all of Toyota’s plants are flexible and can build several different models on the same line. Toyota’s Japanese plants are the most flexible, where on one production line they can build many different models that are on different platforms too.

    If Camry demand goes down, Toyota simply reduces Camry production and simply adjusts the production volume to build another model that is in demand.

    There is also the fact that Toyota’s production system is a “pull” system not a “push” system like other automakers use.

    With a “push” system, an automaker predicts the demand of a new model, and builds based on that prediction. If the prediction was too high, the automaker is stuck with a high inventory of models.

    You incorrectly described Toyota as using a “push” system. Toyota uses a “pull” system, where production is based on and driven by demand. Toyota always low-balls their prediction as to what demand will be. Toyota traditionally builds vehicles at a slighter lower level than what demand is at. That minimizes costs and maximizes efficiency. That is why Toyota has small inventory levels, but *just enough* to meet demand. Sometimes demand ends up being a lot higher than production, in which case Toyota dynamically changes production at certain plants to quickly meet the demand. With a “pull” system that Toyota uses, it’s very rare for demand to be lower than production. Even in such a circumstance, production levels can quickly be changed.

    You’re incorrect about rational practical cars being very predictable in terms of demand. GM, Ford, and Chrysler also make rational and practical vehicles, but their sales and thus production levels are a rollercoaster of ups and downs. That is because they use a “push” system while Toyota and Honda use a “pull” system.

    You’ve also failed to mention that “soul” or “character” is something completely subjective and a matter of opinion. Did you mean to refer to cars having a “sporty soul” or “sporty character”. Although you may not agree, a Camry has “soul” and “character” too. It is one of refinement and zen-like calmness. Your definition of “soul” or “character” is no better than mine or anyone elses since it’s a subjective topic.

  2. the next question is now, how long and how far their success will go? I taught for a moment of Sony who had seen his pants caught down by Samsung and a revived Matsushita/Panasonic.

    Also, another factor who will come to influence in the next years is the rental fleet market (Avis, Hertz, Entreprise, National,Thrifty, etc…), there some Camry who begins to be used for rental fleets recently and the number of Camry destined for fleet might grow over the years.

  3. realist, I must disagree with your statement about Toyota using a pull system. They are push all the way, with the ability to dial in extra production as needed. You are incorrect in stating that Toyota manufacturing is based on pull.

  4. Just to be clear:

    A “push” system sets production at a level based on historical trends and ordering patterns from customers.

    A “pull” system sets production at a level based on actual customer demand, instead of forecasted or estimated demand by a company.

    A key aspect of Toyota’s Production System is “Kanban”. It is essentially a “pull” system.

    So in fact, ‘9outof10doctors’ you are incorrect.

    If you are unfamiliar with how Toyota’s production system is a “pull” system, here are some links to enlighten you:

    http://www.toyotageorgetown.com/tps.asp

    http://en.wikipedia.org/wiki/Toyota_Production_System

    http://en.wikipedia.org/wiki/Kanban

    I could post more links, but it would be redundant.

  5. With all of Toyota’s sales success, maybe they could cut down on the TV commercials. With the great reputation that Toyota deserves, it’s a wonder they need to advertise so much. Then again, it’s very competitive out there and they’re obviously not a company to become complacent.

  6. push or pull, there are too many boring cars on the road, and Toyota is responsible for a lot of them

  7. Wagstaff, how insightful your comment is. Whether a car is “boring” or not is purely subjective. Let’s say if a person is not a fan of Ferrari, no matter how exciting a Ferrari is to the general masses, that one person will find a Ferrari “boring.” Catch my drift? Of course you do, and in which case, Toyota isn’t the only manufacturer who’s solely responsible for the flood of “boring” cars that you were talking about.
    Bottomline is, every manufacturer can or have managed to produce “boring” cars, depending on who you talk to or who you ask.

  8. My Toyota cannot be boring because, well, because, wouldn’t that make me kind of boring? I think you hit a nerve, Wagstaff.

  9. Whether it’s 4,000 or 400,000 doesn’t really matter. What it comes down to is that Toyota makes boring, appliance-like general-purpose, basic modes of transportation. Nothing more, nothing less. My refrigerator has no soul, neither does your Camry. 🙂

  10. Professor Wagstaff and Dr. Quackenbush – two Marx Brothers fans on the same post. Now that’s unusual.

  11. Hey, lighten up on the Toyota buyers. Not everybody considers a car an extension of themselves. There are a lot of people who feel very strongly about something else besides cars, and all they want is a driving appliance that breaks down as little as possible. Just because they’re into kayaking or photography or whatever and they don’t really care too much about what kind of car they drive, they’re still interesting people even if what they drive is sort of bland. If someone came into my house and they were really into computers, I’m sure they’d turn up their nose at my PC. Or if someone that was really into clothes saw my wardrobe, they’d say BORING. Toyota owners have other interests just as fascinating as our interest in cars.

  12. Boring and soulless. Thank you.
    So many people have asked me why
    I don’t buy a Toyota, the most reliable and best built vehicles on the planet. And I never dispute that fact.

    And I’ve always had to tell them:
    “Toyota’s just don’t make my blood flow.” They just don’t get it.

    Jerry Steele

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