Damage Control

VW Could Learn from Toyota

Toyota president Akio Toyoda speaks next to a fourth-generation Prius hybrid vehicle at the Tokyo Motor Show in Tokyo, Japan, on Oct. 28, 2015. Source: Bloomberg
Toyota president Akio Toyoda speaks next to a fourth-generation Prius hybrid vehicle at the Tokyo Motor Show in Tokyo, Japan, on Oct. 28, 2015.
  • Why it matters

    Why it matters

    Toyota and Volkswagen have long been rivals, and now Toyota is pulling ahead while VW remains mired in scandal.

  • Facts

    Facts

    • Toyota is the world’s largest car maker.
    • Last week it said it will spend $1 billion on research over five years.
    • Its main rival is Volkswagen which has long held ambitions to become the biggest car maker in the world.
  • Audio

    Audio

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Last week Toyota, the world’s largest car maker, announced an impressive set of quarterly results, and an ambitious plan for its future.

The tone and results were in stark contrast to Volkswagen, which will have to spend billions to deal with its ever widening emissions-rigging scandal.

Toyota meanwhile has said it will invest heavily in artificial intelligence. It plans to spend $1 billion in research over the next five years, with a special focus on the new Toyota Research Institute, based in Silicon Valley, which will start operations next year.

Toyota’s chief executive, Akio Toyoda, does not just want to make smarter cars, but also robots and other innovative products. It is significant that Mr. Toyoda would prefer to speak about the future than boast about current achievements: and it’s an indication of the cultural differences between the leader Toyota and Volkswagen, which sees itself as Toyota’s main challenger.

Toyota's sales, unlike VW, aren't concentrated on Europe and China, but are more evenly distributed around the globe.

Volkswagen’s former chief executive Martin Winterkorn made no secret of his goal to make VW into the world’s biggest and best car maker by 2018, knocking Toyota off its perch. It appears that he may have wanted to achieve that at any cost, even sacrificing honesty, if necessary.

Mr. Toyoda is less worried about remaining the biggest car maker, and wants to focus on making the best cars possible.

This attitude is nothing new. Whether it’s weaving looms, which is where the firm started, or the cars it has produced since 1937, or with artificial intelligence as the firm looks towards the future, the Japanese philosophy of Kaizen – the principle of continuous improvement – has guided the firm.

There was a period, not long ago, when Toyota did focus on rapid growth, and incurred huge losses during the financial crisis. In 2009 and 2010, it had a high profile set of recalls in the United States, mainly related to faulty accelerator pedals. Mr. Toyoda, who had just taken the top job at the time, blamed a culture of arrogance within the company for the faults.

As the  great-grandson of the founder of Toyota Corporation, and grandson of the founder of Toyota Motor Corporation, he began to reteach his workforce the old company mantras. And that’s paying off now.

Most analysts now recommend buying Toyota because the firm appears to have emerged from the financial crisis stronger than it was before.

Certainly luck seems to be on Toyota’s side at the moment. Though sales have been falling, profits have been sustained by a favorable exchange rate.

But management must also be given some credit for the strong figures. That, and Toyota’s ability to learn. Mr. Toyoda halted the construction of new factories even though, during the three years of the financial crisis, production had soared to 10 million cars.

He focused instead on making sure existing plants were more productive and, above all, more flexible. He wants to put the company in a position where it can make rapid adjustments in production and still be profitable if sales figures decrease.

The group is also the world leader in all types of engines, and its hybrid and electric motors count among the world’s best.

Toyota’s sales, unlike VW, aren’t concentrated on Europe and China, but are more evenly distributed around the globe.

The recovery of the U.S. market, where Toyota is one of the frontrunners, has helped offset the current weakness in the threshold countries and in China.

And the best part: Toyota has rewarded its shareholders. The group has been one of the highest dividend payers among Japan’s carmakers. This past Thursday Toyoda also announced share buybacks amounting to €6 billion, or $6.5 billion.

In light of all that, investors are perhaps more ready to accept that Toyota is pouring money into new ventures including a prefabricated house division, floriculture and a department dedicated to care-giver robots.

Even Toyota’s billions of investment in artificial intelligence look like small change in comparison – with one important difference. The company’s newest activity could see the corporation eventually become the market leader in the development of self-driving cars; or the robotics division may eventually become the group’s main industry. 

Valuable time will pass before Volkswagen’s management once again have the leisure and money to think optimistically about the future and begin investing in tomorrow.

 

The author is Handelsblatt’s Tokyo correspondent. You can reach him at: koelling@handelsblatt.com

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