Toyota to become world's largest auto company

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http://www.nytimes.com/2006/12/22/bu...rtner=homepage

Toyota’s Sales Projections Show It Surpassing G.M.

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By MARTIN FACKLER
Published: December 22, 2006

TOKYO, Dec. 22 — Toyota Motor said today it plans to sell 9.34 million vehicles next year, a figure that analysts said would put it ahead of troubled General Motors as the world’s largest auto company.

Toyota reported global group sales this year of 8.8 million cars and trucks, below G.M.’s 2006 sales forecast of 9.2 million vehicles. But the figures released today showed the two rival car giants on starkly different trajectories, with Toyota expecting to add a half million vehicle sales next year, at a time when G.M. is shuttering plants and laying off workers.

Surpassing G.M. would be a crowning achievement for Toyota, a company that got its start in the 1930s by reverse-engineering G.M. and Ford cars, and that spent decades catching up with Detroit. It would also end G.M.’s 81-year reign over the global auto industry, and mark another step in the rise of Asian carmakers.

However, becoming the global leader would also have its pitfalls for Toyota, analysts warned. The Japanese automaker could become a victim of its own success and follow G.M.’s decline if it grows complacent, or lets quality control slip amid its rapid expansion, analysts said. Being at the top could also make Toyota a fatter target for critics, particularly in Congress, where the company’s rise could fan a protectionist backlash, analysts said.

“Does being No. 1 matter? It matters for G.M., and for America,” said Hirofumi Yokoi, an auto analyst at CSM Asia. “It becomes a political issue when America gets passed in a core industry. Toyota will have to be even more sensitive and cautious in the U.S. market.”

Toyota’s emergence as No. 1 would also realign the global auto industry. The Japanese car company would become the new industry benchmark, say analysts, and one that would be tough to match. While G.M.’s strength in recent years has been its finance arm, Toyota’s success is grounded in its formidable manufacturing prowess. As the world’s most profitable carmaker, it also has the cash to invest heavily in new technologies and products, analysts said.

Analysts also said reaching the top would not exhaust Toyota’s opportunities for growth. They said Toyota will continue to gain in the American market, where higher gas prices have increased the popularity of smaller, more fuel-efficient vehicles. They said Toyota was expanding in developing markets, particularly China, and into alternative-energy vehicles, like hybrid and fuel-cell technologies.

Toyota’s rise would also prove a victory of sorts for its unique corporate culture, the so-called Toyota Way, which is rooted in an obsession with craftsmanship and constant improvement, or “kaizen.” Analysts said the Toyota Way would likely become enshrined as the industry’s gold standard, and the model to mimic or surpass for new challengers from South Korea and China.

“This proves that the Toyota Way is more than just an odd, quirky theory,” said Chester Dawson, author of “Lexus: the Relentless Pursuit.”

“Being No. 1 means Toyota now sets the standards that everyone has to beat,” he said.

For Toyota, the immediate concern appears to be avoiding any political fallout from passing G.M. This morning, Toyota’s president, Katsuaki Watanabe, treaded lightly around the issue of his company’s overtaking G.M., while announcing may open another factory in North America. At a press conference in Nagoya, near his company’s Toyota City headquarters, Mr. Watanabe said passing G.M. “is just a question of results,” and not a significant event for Toyota, according to Bloomberg News.

Toyota is also considering another factory somewhere in North America, Mr. Watanabe said. The company just opened a $1.28 billion pickup truck plant in San Antonio, Tex., last month, and has another factory under construction in Woodstock, Ontario slated to open in 2008.

Toyota has been building plants in the United States since the 1980s, partly to blunt trade criticism. The expanded production will help Toyota to meet U.S. sales gains without increasing exports from Japan, a Toyota executive vice president, Tokuichi Uranishi, said, according to Bloomberg News.

Mr. Watanabe also addressed Toyota’s growing number of recalls this year, which have tarnished the company’s reputation for sterling quality. In Japan alone, Toyota has recalled 1.2 million vehicles this year, prompting the transport ministry to order the company to improve quality control.

“There will be no growth without quality,” Mr. Watanabe told reporters, according to The Associated Press. “We’d like to continue our efforts to make good products that win support from our customers.”

Analysts say the growing number of defects could seriously undermine the company in the long run, especially if they are a symptom that Toyota is losing its grip on quality control as it charges forward with expansion.

“Now that it’s Toyota’s turn on top of the industry,” said CSM’s Mr. Yokoi, “Toyota has to figure out how to keep from following G.M. into decline.”

So far, the recalls have not slowed Toyota’s pace of growth. The company said today that it and its affiliates expect to build 9.42 million cars and trucks next year, up from 9.04 million this year. The Toyota group includes two subsidiaries, truck-maker Hino Motors and Daihatsu, a builder of compact cars.

Toyota also gave a regional breakdown for next year’s forecasted sales of cars built by the parent company, which bear the Toyota and Lexus brands. The largest market will remain the United States, where sales are expected to rise 6 percent to 2.68 million vehicles.

The company also said it expects a 9 percent rise in Europe and a 15 percent gain in Asian markets, including China.

Asked if becoming the industry leader would have any real impact on Toyota’s core business of building cars, most analysts said no. They said Toyota would likely keep doing what it has been doing so far: grabbing global market share by producing reliable, high-mileage vehicles.

Some also noted with irony that being No. 1 has not helped the current titleholder, G.M., which lost $10.6 billion last year.

“Being on top won’t change anything in terms of share price or earnings,” said Atushi Kawai, an auto analyst at Mizuho Investors Securities in Tokyo. “In fact, if you look at who’s been No. 1 until now, you see that there really aren’t many benefits at all.”