Business Success Story: Toyota Motor Corporation: From Brink of Bankruptcy to World’s No.2 Auto Maker

By | December 8, 09

Business Success Story: Toyota Motor Corporation: From Brink of Bankruptcy to World’s No.2 Auto Maker

The story of Toyota Motor Corporation is a complete lesson to business owners on how to grow their business, take it out of difficult times, and establish it as a global company. It is a story of focus, resilience, and passion to succeed against all odds.

It will inspire, motivate, and fill you with ideas to take your business to a higher level. Enjoy it

In 1933, a Japanese man by name Kiichiro Toyota traveled to the United States, where he visited a number of automobile production plants. Upon his return to Japan, the young man established an automobile division within his father’s loom factory, and in May 1935 produced his first prototype vehicle.

General Motors and Ford already were operating assembly plants in Japan, but U.S. preeminence in the worldwide automotive industry did not deter Toyota.

Since Japan had very few natural resources, the company was naturally drawn to developing engines and vehicles that were highly fuel efficient. In 1939, the company established a research center to begin work on battery powered vehicles.

This was followed in 1940 by the establishment of the Toyota Science Research Center (the nucleus of the Toyota Central Research and Development Laboratories, Inc.) and the Toyota Works (later Aichi Steel Works, Ltd). The next year, Toyota Machine Works, Ltd was founded for the production of both machine tools and auto parts.

When World War II ended in August 1945, most of Japan’s industrial facilities had been wrecked, and the Toyoda (or Toyota as it became known after the war) production plats had suffered extensively. The company had 3,000 employees but no working facilities, and the economic situation in Japan was really bad.

But the Japanese tradition of dedication and perseverance proved to be Toyota’s most powerful tool in the difficult task of reconstruction.

Just as the Japanese motor industry as a whole was beginning to recover, there were fears that American and European auto manufacturers would take control of the Japanese market with their economic and technically superior automobiles.

Japan’s auto marker knew that they no longer count on government protection in the form of high import duties or other barriers as they had before the war.

Since American manufacturers were concentrating their efforts on medium-sized and larger cars, Toyota’s executives thought that by focusing on small cars, the company could avoid head-on market confrontation.

Kiichiro Toyota likened the postwar situation in Japan to that in England. In his word, “The British motorcar industry also faces many difficulties, but its fate will be largely determined by how strongly American automakers feel they should concentrate on small cars.”

Therefore, Toyota’s focus was placed on building small cars, and by January 1947, the company’s engineers completed their first prototype for a small car: its chassis was of the backbone type (never used before in Japan), its front suspension relied primarily on coil springs, and its maximum speed was 54 miles per hour. After two years of difficulties, the company seemed headed for success.

But this was not to be accomplished as early as expected. Two years later, in 1949, Toyota suffered its first and only serious conflict between labor and management.

Nearly four years had passed since the end of the war, but Japan’s economy was still in bad shape: goods and materials of all kinds were in short supply, inflation was rampant, and people in the cities were forced to trade their clothing and home furnishing for rice or potatoes to survive.

Japanese auto manufacturers found themselves unable to raise the funds needed to support their recovery efforts, for the new governmental policy had discontinued all financing from city banks and the Reconstruction Finance Corporation. Under these conditions the company’s financial situation deteriorated.

Production dropped to 992 vehicles in March 1949, to 619 in April, and to 304 in May. Crucial restructuring efforts included a proposal to incorporate Toyota’s sales division as a separate company, leading eventually to the formation of Toyota Motor Sales Company Ltd. in April 1950.

Toyota Motor Sales Company handled all domestic and worldwide marketing of Toyota’s automotive products until July 1982, when it merged with Toyota Motor Company.

In the meantime, discussions between labor and management finally focused on whether to admit failure, declare bankruptcy, and dissolve the company, or to agree on the dismissal of some employees and embark upon a rebuilding program.

In the end, management and labor agreed to reduce the total workforce from 8,000 to 6,000 employees, primarily by asking for voluntary resignations.

At the management level, President Kiichiro Toyoda and all of his executive staff resigned.

Kiichiro, Toyota’s founder and a pioneer of the Japanese automotive industry, died less than two years later.

Not long after the strike was settled in 1950, two of the company’s new executives, Eiji Toyoda (then the new Chairman of Toyota Motor Corporation) and Shoichi Saito (later Chairman of Toyota Motor Company), visited the United States.

Seeking new ideas for Toyota’s anticipated growth, they toured Ford Motor
Company’s factories and observed the latest automobile production technology. One especially useful idea they brought back home from their visit to Ford resulted in Toyota’s “Suggestion System”, whereby every employee was encouraged to make suggestions for improvements of any kind.

On their return to Japan, the two men inaugurated an even more vital policy that remained in force at Toyota through the 1990s: the continuing commitment to invest in only the most modern production facilities as the key to advances in productivity and quality.

Toyota moved quickly and aggressively in the 1950s, making capital investments in new equipment for all of the company’s production facilities. Not surprising, the company began to benefit from the increased efficiency almost immediately.

In 1955, ten years after its defeat in World War II, Japan became a member of the General Agreement on Tariffs and Trade (GATT), but automobiles remained one of Japan’s least competitive industries in the international arena.

Toyota, foreseeing the coming age of the large-scale international trade and capital liberalization in Japan, decided to focus on lowering its production costs and developing even more sophisticated cars, while at the same time attempting to achieve the highest possible level of quality in production.

This was a joint effort conducted with Toyota’s many independent parts suppliers and one that proved so successful that ten years later, in 1965, Toyota was awarded the coveted Deming Prize for its quality-control achievements. That was also the years that the Japanese government liberalized imports of foreign passenger cars. Now Toyota was ready to compete with its overseas competitors both in price and quality.

In 2005, Toyota, combined with its half-owned subsidiary Daihatsu Motor Company, produced 8.54 million vehicles, about 500,000 fewer than the number produced by GM that year. In some months in 2006, Toyota passed Ford in selling cars.

Toyota now has a large market share in the United States, Europe and Africa, and is the market leader in Australia. It has significant market share in several fast-growing Southeast Asian countries.

In the 2006 Fortune Global 500, Toyota Motor was the 8th largest company in the world, outpacing Ford Motor Company in all listings in terms of revenue and growth and also in the 2006 Forbes Global 2000, it was the 12th largest company in the world with revenue of $185 billion.

How did Toyota achieve this monumental success? Find out by clicking here: Toyota’s Business Strategies.


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