For Toyota, a slow climb to overtake GM

Japanese automaker becomes world leader, toppling U.S. giant with quality, efficiency

April 25, 2007|By Robert Little | Robert Little,SUN REPORTER

David L. Lewis remembers well the little snub-nosed compact car that Toyota Motor Corp. introduced in the United States in the mid-1960s, and he can recall the reaction of executives on the 14th floor of the General Motors Corp. headquarters, where he worked at the time.

"We all figured, `It's just a little tin can.' We didn't give it any thought at all," said Lewis, now an automotive historian at the University of Michigan.

"Well, they sure knew what they were doing. And now we all have to refer to Toyota as the leading automaker in the world."

The mantle passed yesterday with all the excitement of a turtle race. Three weeks after General Motors announced quarterly sales of 2.26 million vehicles - and restaked its claim as "the world's largest automaker" and "the global industry sales leader for 76 years" - Toyota announced quarterly results of 2.35 million vehicles.

The car industry's tectonic plates, which have been shifting across the Pacific Ocean for decades, had finally crashed into Detroit and established Toyota as the world's top automobile manufacturer.

The news was neither sudden nor surprising, nor was it particularly troubling for the national economy, analysts said. Yet it was a poignant milestone in an industry that was once almost exclusively American but has long since been off-shored and globalized. With its reputation for quality and timely investments in new technologies and fuel efficiency, Toyota has dethroned the American king.

"I'm a firm believer in competition and capitalism, and you're seeing it take place right here in front of you," said Louis Galambos, a professor of business history at the Johns Hopkins University. "And it's good for American consumers."

Galambos said his own car-buying habits illustrate what happened. He and everyone else in his family owned GM cars exclusively for decades, until 1978. That's when he bought a Honda Civic - he thinks it could have fit inside his last Chevy, an Impala station wagon - and hasn't bought an American car since. Each time he explores the ratio of cost to quality, Japanese cars come out ahead, he said.

Some observers said the fate of the American car was apparent even in the 1970s, when tiny Toyota Coronas and Honda Civics and Datsun B-210s were still a novelty. Gas prices soared in 1973 and 1979, and American manufacturers were slow to design fuel-efficient models. The manufacturers have reprised that role in recent years, with gas prices scaring customers away from GM's trucks and SUVs and toward such cars as Toyota's Prius gas-electric hybrid.

Toyota established its top-selling model, the Camry, in the 1980s, when American cars suffered from a comparative dearth in quality. And it has since built a successful luxury line - Lexus - from scratch, while American companies purchased and struggled to integrate foreign luxury lines such as Mercedes, Jaguar and GM's Saab.

"They're better at making cars than we are," Galambos said. "In a global economy, we'll do the things we do best and our strength now is in other industries."

General Motors once claimed almost 50 percent of all cars sold in the United States but has consistently lost market share, particularly to Toyota. Now it holds roughly 22 percent of the American market. After posting a $10.6 billion loss in 2005, the same year it closed a manufacturing plant in Baltimore, the company announced plans to close a dozen plants and lay off more than 30,000 workers, a downsizing process that is still under way. It lost $2 billion last year.

Toyota, meanwhile, has grown steadily and expects to have 15 plants operating in North America by 2008, of more than 60 around the world. It reported an $11.7 billion profit in its past fiscal year.

General Motors certainly isn't dead. The sales announced this month, while below Toyota's for the first time, were nonetheless a first-quarter record for the company. And GM is growing outside the United States, where roughly 60 percent of its vehicles are sold. The company's second- and third-largest brands, behind Chevrolet, are Opel, sold primarily in Europe, and Wuling, sold in China.

Company officials say they would have preferred to stay ahead of Toyota but they are focusing on their customers more than their largest competitor.

"That wasn't news that we wanted to hear, but it's almost a story of two winners," said John McDonald, a GM spokesman. "These are two huge, global corporations, and we're very well positioned in markets around the world."

Still, Toyota's dominance is expected to continue. Its cars sell well in almost every market in the world, particularly the United States, where it is third in sales behind GM and Ford.

And GM, like other American automakers and many old-economy manufacturers, is burdened with high employee health care and pension costs and huge, intractable assembly operations that restrict its ability to be nimble and creative, observers say.

"They seem like they're stupid. Everyone thinks: `What a dumb company. How could they not understand what's happening to them?'" said Timothy J. Sturgeon, a researcher for the Massachusetts Institute of Technology's Industrial performance Center who has written several papers about trends in the automotive industry. "Well, they do understand. But understanding and being able to do something about it are different things."

robert.little@baltsun.com

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