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Toyota, Japan Inc., needs strategic gear change

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In Brief

I was in Washington, DC recently while congressional hearings were held into the massive recalls announced by Toyota Motor Corp. I sensed that public sentiment in the United States was rapidly becoming critical of the auto giant, which is now a synonym with lemons.

An article published in the New York Times on February 21 under the headline, ‘Doubts raised on book's tale of atom bomb’, drove home the point to me. The newspaper noted that the author of ‘The Last Train From Hiroshima,’ Charles Pelegrino, used quotes from an individual who falsely claimed he was a last-minute substitute on an observation plane that accompanied the Enola Gay on its mission to destroy Hiroshima by atomic bombing. An expert is quoted in the article as saying, ‘This book is a Toyota. The publisher should recall it, issue an apology and fix the parts that endanger the historical record.’


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Noted automobile analyst Maryann Keller was also critical of Toyota. ‘It is astonishing that the world’s largest automaker should be so incompetent in protecting its image and managing the recalls,’ she said in her commentary. ‘The company operates in the US and elsewhere not as a single organisation, but as a group of divisions reporting individually back in Toyota City where all important decisions are made.’ The root of Toyota’s problems according to Keller is its ‘lack of management clarity,’ or closed management structure.

Included in the series of massive recalls was one for the hybrid Prius, Toyota’s biggest money-maker.

A company that prided itself on almost perfect quality control and serving as a symbol for all of Japan, where it chalked up its largest profits, has stumbled on quality and safety issues. As Toyota President Akio Toyoda testified during the congressional hearings ‘in recent years we didn’t listen as carefully as we should – or respond as quickly as we must – to our customers’ concerns.’

What is wrong with Toyota? For that matter, what is wrong with Japan?

Major changes are occurring in the automobile industry’s global map. It’s in a totally different ball game now. A dependence on gasoline has been the automobile industry’s business model for the past 100 years. But the energy crisis and climate change put paid to that.

Moreover, in the wake of the global economic crisis, many governments are trying to foster next-generation industries; in particular, those that are green such as electric cars.

On the other hand, with the collapse of the Big Three in the United States, consumers now have a more advantageous relationship with automakers. The problems that plague Toyota emerged amid the churning of these two waves of greater state involvement in the automobile industry and heightened consumer standing.

A three-pronged battle will likely arise in the future that pits gasoline-powered cars against hybrid and electric models.

US automakers are having difficulty playing catch-up with Toyota in hybrid technology. There have been suggestions that US automakers sought to take advantage of Toyota in this latest scandal by slamming the brakes on the spread of hybrid cars to allow them to leapfrog over Japan in electric cars.

At the same time, China and India are also emerging as huge car markets with the birth of their respective middle classes measuring in the hundreds of millions. Those two nations are also seeking to leapfrog over Japan in electric cars.

BYD Co., China’s largest manufacturer of cell phone batteries, acquired a failed state-run automobile company and is making inroads in the field of electric cars. India’s Tata Motors garnered global headlines last year by placing the compact Nano car on the market for about 200,000 yen ($2,250). Tata is also moving to develop electric cars. On March 1, BYD announced it had signed an agreement with Daimler AG of Germany to develop electric cars for the Chinese market.

Experts are already predicting the day when ‘Made in China’ electric cars will be sold in Walmart outlets across the United States.

Electric cars are moving steadily toward mass commercialisation following advances in motor and battery technology. Because the energy needed to drive electric cars can be generated through solar cells, electric cars use only about one-fourth of the energy of gasoline-powered cars. The number of parts used in electric cars has also been reduced to about one-third that of gasoline cars. This will lead to a flattening of the structure of the automobile industry, which is now supported by a wide base of suppliers.

At the next stage, the spread of electric cars will lead to the distribution around the nation of vehicles with batteries installed. Combined, those batteries would produce the equivalent of a huge electric power storage plant. A smart grid could very easily be constructed with those car batteries serving as a buffer for shifts in the supply and demand of electricity.

In that manner, electric cars could change the very nature of the industrial structure.

Japan has taken the lead in both hybrid and electric cars. However, hybrid cars are just a transitional technology. The price of electric cars is still out of the reach of ordinary consumers. Further improvements will have to be made in battery performance to achieve a wider dissemination of those vehicles.

In Japan, seven or eight companies are competing in battery manufacturing. They produce batteries of all shapes, from cylinders to boxes to cubes. Those Japanese companies also face fierce competition from rivals in the United States, China, Europe and South Korea.

Last summer, Mitsubishi Motors Corp. released its i-MiEV electric car. Touching upon the slow pace of policy in Japan, Mitsubishi Motors President Osamu Masuko said, ‘In both China and South Korea, the governments are fully behind the efforts to develop the next-generation electric car. In the West, development of next-generation batteries is being done from the standpoint of national security. Compared with those efforts, in Japan it is still not clear what the government stance is.’

The government must develop an environmental growth strategy if it really is serious about creating a low-carbon society. A new industrial policy must be established to set the course for the next generation of products. The key will be to provide momentum to the spread of eco-cars, including electric models. That will require infrastructure, such as recharging facilities. There is no time to waste. Japan should take a leading role in setting standards and specifications for battery performance and safety evaluation methods.

In that realm, what will be indispensable is what I like to call ‘automobile diplomatic power.’ This concept would require the cooperation of the public and private sectors in seeking out astute tie-ups with governments and companies of other nations. The ultimate goal is the complete conversion to electric cars. But in the initial stages, the most realistic course would be a three-pronged strategy. This would mean increasing the market share of electric cars while providing low-priced cars for developing markets as well as selling money-making hybrid cars.

In clearing a path to the next generation of products, Toyota bears a special responsibility. It also possesses the opportunity to take the lead in developing the technology and vision for electric cars.

Naturally, priority must be placed on safety. But that should not force Toyota to shirk from the challenge it faces. The company should also shift gears in its management style. It must stop being confined within Toyota City and open up to the world. Only by doing that will Toyota be able to form close relationships with companies around the world as well as grab the initiative in the battle to establish global standards and specifications.

An American diplomat I met while in Washington had the following comment about the recent developments:

Listening to the congressional hearings, I was struck by what a huge strategic decision it was for Toyota to invest directly in the United States since the 1980s. Many Americans considered Toyota to be their company. Politicians, employees and dealers in states where Toyota invested all did everything they could to protect Toyota this time.

The diplomat worked under Mike Mansfield when he was ambassador to Japan during the 1980s. Mansfield was one of those who welcomed the news of Toyota’s direct investment in the United States. At that time, Mansfield said that while the initial investment for local production may be large, over time the rewards would also be great.

Toyota must now make another such huge strategic decision by saying sayonara to fossil fuels. In fact, the same thing can be said for Japan as a nation.

This article was first published here at the Asahi Shimbun.

Yoichi Funabashi is Editor-in-Chief of the Asahi Shimbun in Tokyo.

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