Cost cuts, fast growth cited in Toyota's ills

[NINETY EIGHT REGENCY]

Cost cuts, fast growth cited in Toyota's ills

Former U.S. exec: Carmaker hijacked

BY ALAN OHNSMAN, JEFF GREEN AND KAE INOUE

BLOOMBERG NEWS

Katsuaki Watanabe, Toyota Motor's former president, did something at his first meeting with U.S. investors out of character for a leader of Japan's biggest carmaker: He boasted of what he'd accomplished.

On the job as Toyota's CEO for less than three months, Watanabe told New York's financial community at the Sept. 12, 2005, gathering that a cost-reduction program he designed had wrung out more than $10 billion of savings over six years. Called Construction of Cost Competitiveness in the 21st Century, the initiative was only a start, he said.

"Under CCC21 activities, which I led, Toyota realized cost reductions of more than 200 billion yen ($2.2 billion) a year on a consolidated basis," Watanabe said. Next was an "aggressive version of CCC21" Watanabe called Value Innovation that promised more savings by making the entire development process cheaper and further trimming parts and production costs.

The programs, a steroid shot to Toyota's trademark "kaizen" approach of steady, gradual cost reduction, were blessed by its board and investors attracted after Toyota listed shares in New York and London in 1999. An obsession with cost reductions and rapid growth help explain how a company long revered for quality is under fire from U.S. legislators and lawyers amid recalls of 8.5 million autos worldwide.

'Hijacked'

"The root cause of their problems is that the company was hijacked, some years ago, by anti-(Toyoda) family, financially oriented pirates," said Jim Press, Toyota's former U.S. chief and the only American to hold a seat on the company's board.

Those executives, whom Press didn't identify, "didn't have the character necessary to maintain a customer-first focus," he said. Press left Toyota in 2007 after an unwanted job transfer.

All automakers are focused on reducing cost, said Jim Wiseman, Toyota's vice president for North American corporate communications.

Watanabe, now a vice chairman for Toyota, wasn't available to comment, said Mieko Iwasaki, a company spokeswoman.

The world's largest carmaker has lost $32.6 billion in market value since a Jan. 21 recall to fix gas pedals that can stick.

That followed a recall for accelerator pedals that can be trapped by floor mats and cause unwanted acceleration. It's also adding braking software on millions of recalled and future vehicles to help stop unintended speedups and adjusting brake programming on the Prius and other hybrids.

Federal grand jury

The company also faces at least 85 class-action lawsuits involving sudden acceleration and at least 25 individual cases filed in courts in the U.S. and Canada.

Toyota said in a regulatory filing this week it received subpoenas from a federal grand jury in the Southern District of New York on Feb. 8 and the Los Angeles office of the Securities and Exchange Commission on Feb. 19 for documents related to potential product defects.

Watanabe, trained as an economist, not as an engineer, also said at the New York conference that the Toyota City, Japan-based company was able to slash time to bring models into production once a design was final to about 12 months, compared with an industry average of between 24 and 36 months.

The shorter production time "enables us to develop a variety of vehicles that reflect market needs and demands while fulfilling the advanced development structure," Watanabe said.

Akio Toyoda, who succeeded Watanabe in June 2009, acknowledged this week that such changes may have contributed to product defects.

"I fear the pace at which we have grown may have been too quick," Toyoda, whose grandfather founded the company in 1937, said Feb. 24 at a hearing in the U.S. House of Representatives. "Priorities became confused, and we were not able to stop, think and make improvements as much as we were able to before."

[Intrepidation]

Sounds a lot like old Detroit.