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NINETY EIGHT REGENCY

A scion's battle for the soul of Toyota

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A scion's battle for the soul of Toyota

Hans Greimel

Automotive News -- March 1, 2010 - 12:01 am ET

TOKYO -- As he sat high atop Toyota Motor Corp.'s new 46-floor office building in Nagoya at the end of 2007, an aging Shoichiro Toyoda was discussing the risks of the company's rapid growth. He was clearly worried.

The Japanese auto juggernaut already was showing cracks in its facade. In fact, the gleaming Midland Square skyscraper, dubbed the company's "third" headquarters, behind offices in Toyota City and Tokyo, symbolized its overreach.

"He said he was already aware that Toyota had expanded too quickly," recalls a longtime associate who was at that meeting with the honorary chairman. "He also did not want the Toyoda family fortune and legacy to decline."

It had been 12 years since the last Toyoda commanded the executive suite. But within a year, Shoichiro's son, Akio Toyoda, would be chosen as the company's youngest president.

Today, the 53-year-old "prince," as Akio is known in the Japanese media, is at the center of what insiders and experts describe as a battle for the soul of the world's biggest automaker.

On one side is the Toyoda family, led by Akio Toyoda, wielding the influence of the clan name in a drive to restore the values that transformed a parochial Japanese loom maker into a global paragon of engineering excellence, skilled manufacturing and product quality. Shoichiro just turned 85 but left the board of directors only last June -- and he still lingers in the background as an abiding presence.

On the other side are the forces of a new modern corporate culture -- forged during the last decade of voracious growth and shaped in large part by nonfamily members -- that prizes growth, global expansion and a Western-style dedication to pleasing investors.

"As you well know, I am the grandson of the founder, and all the Toyota vehicles bear my name," Akio Toyoda testified before the U.S. House Committee on Oversight and Government Reform last week. "For me, when the cars are damaged, it is as though I am as well."

Toyoda, grandson of founder Kiichiro Toyoda, said the company's traditional priorities -- first, safety; second, quality; third, volume -- have become "confused."

'Anti-family ... pirates'

One outsider -- and former high-ranking Toyota executive -- paints a dramatic picture of the inner turmoil at Toyota.

The company's former North American chief, Jim Press, says Toyoda is battling "anti-family, financially oriented pirates," and only scion Akio can turn things around.

"Akio Toyoda is not only up for the job, but he is the only person who can save Toyota," said Press, who left Toyota in 2007 after 36 years, for the former Chrysler LLC."The root cause of their problems is that the company was hijacked, some years ago, by anti-family, financially oriented pirates," Press wrote, referring to the company's move away from Toyoda family leadership over the past decade.

"They didn't have the character necessary to maintain a customer-first focus. Akio does."

Press didn't name names. But the Toyoda name took a back seat starting in 1995, when the independent-minded and aggressive Hiroshi Okuda became president after Tatsuro Toyoda, Akio Toyoda's uncle, suffered a stroke. Okuda was followed by Fujio Cho and then Katsuaki Watanabe.

Much of Akio Toyoda's task will be imparting his own stamp onto a corporate culture largely transformed by Okuda.

Okuda was the first non-Toyoda family member to head the automaker in nearly 30 years. Okuda, a former executive vice president for finance, favored professional management over the family's reliance on personal ties.

That approach was billed as a check on nepotism in a publicly traded company.

Okuda aspired toward a more Western-style, financially driven company. He listed Toyota on the New York Stock Exchange in 1999, forcing it to adopt U.S. accounting principles. Toyota's skimpy dividends had been a sore point with institutional investors; Okuda boosted them sharply.

Rather than rely on informal ties to influence minicar specialist Daihatsu Motor Co., Okuda increased Toyota's ownership of the company to a controlling 51 percent.

Okuda-ization of Toyota

And he took control of Toyota's massive cash stockpile, spending money at unprecedented rates. He used the cash to open factories from India to Indiana, to raise Toyota's shareholdings in Toyota Group companies, to launch stock buybacks, and to raise r&d budgets, especially for alternative powertrains. The results included global expansion and the innovative Toyota Prius hybrid.

When Cho became president in 1999 -- long after he led the expansion in the United States with the construction of the Georgetown, Ky., assembly plant in 1988 -- the tenor subtly changed, but a new type of tension -- new to Toyota, at any rate -- was introduced.

While Okuda wholeheartedly was pushing rapid overseas expansion and the goal of grabbing 15 percent of global market share, a lower-key Cho endorsed the target as a mere rallying cry for the troops. Okuda was a calculating finance wizard, Cho an old-school manufacturing boss. Okuda was a hard-headed judo expert, Cho a quiet listener with a natural curiosity for the world beyond Toyota's corporate halls.

Cho's most lasting legacy is the codification of training, designed to ensure that the rapidly expanding automaker continued to follow the Toyota Way espoused by the founding family.

Okuda handed Cho the presidency, which is typically the hands-on, operational boss in a Japanese company, and assumed the normally ceremonial role of chairman. But soon the two engaged in a tug-of-war, and Okuda was not just ceremonial.

Cho and his successor, Watanabe, gave Akio Toyoda increasingly important and wide-ranging assignments, from running China to running all Asian manufacturing.

Okuda was surprisingly open in opposing Akio Toyoda's rise, dropping oblique comments to the effect that a person's family name shouldn't automatically qualify him for an executive post.

All the while the company kept expanding by leaps and bounds. Global sales shot up from 5.2 million vehicles in 1999 to a peak of 8.9 million in 2008 on the eve of Akio's ascension.

A wrong turn

Increasingly, Akio Toyoda is saying the company took a wrong turn.

"We pursued growth over the speed at which we were able to develop our people and our organization," Toyoda said last week during his congressional testimony. "The pace at which we have grown may have been too quick."

But does the greenhorn CEO have what it takes to right the course?

Akio joined the family business in 1984. But he was initially rebuffed by his father, himself president from 1981 to 1992. "Nobody will want to be your boss," his father told Akio, according to unofficial corporate lore. The gist: People would handle him with kid gloves.

Akio Toyoda spent his career rotating through the company's most important posts -- handling quality control, domestic sales, China and international operations, among other duties.

The American-educated fan of car racing and field hockey consistently sidestepped public comment about his famous forefathers. Insiders say that would have been considered gauche and presumptive. Plus, they say, talk of following their footsteps might work against his climb.

Toyota still operates by the consensus of its elder executives. And the inexperienced Toyoda has called back many of the old guard to serve as his inner circle, including Yoshi Inaba, who was brought back from semiretirement and sent to head U.S. operations for a second time.

Critics say Akio Toyoda needs their experience to compensate for the lack of his own. His oft-repeated mantras from the Toyoda family precepts, such as "customer first" or genchi genbutsu -- Japanese for "go and see" -- are merely hollow catch phrases, they say.

'The Child President'

The increasingly skeptical Japanese media have now rolled out a new nickname: The Child President.

"There are two different camps at Toyota, the family members and the professional managers," says Masaaki Sato, a noted Japanese auto industry watcher who has written such books as The House of Toyota and The Toyota Leaders. "Nobody in the company is speaking out against Akio, but many of them -- especially at the top -- harbor doubt in their hearts."

Sato took issue with Akio Toyoda's claim to Congress that his name was on the cars, saying it was arrogant to assume a family member should be at the helm.

"In this day and age," he said, "It's a big mistake to assume that a Toyoda family member should be at the head of such a big global company just because he's a Toyoda."

Although he has spoken publicly about the need to turn the company around, it must be remembered that Akio Toyoda was part of the upper management that steered the company wrong. He was promoted to executive vice president, a board-level position, in 2005, at the height of Toyota's growth frenzy.

Yet Akio is still a Toyoda. And although the family owns and votes only 2 percent of the company's stock, it benefits from a hard-to-measure extra clout that the Japanese call plus alpha.

At a press conference in January 2009, after Akio was named the next president, he called his father, Shoichiro, a "flag" around which the company traditionally rallied in tough times.

The son then added: "I am not yet that flag, but I intend to do my best so that maybe 20 or 30 years from now, people may look back and refer to me as a flag."

James B. Treece and Lindsay Chappell contributed to this report

THE REIGN OF TOYODA

The house of Toyoda has long held sway at its namesake company. A look at the carmaker's presidents and their starting dates.

1937: Kiichiro Toyoda founds company; Risaburo Toyoda appointed first president

1941: Kiichiro Toyoda

1950: Taizo Ishida

1961: Fukio Nakagawa

1967: Eiji Toyoda

1981: Shoichiro Toyoda

1992: Tatsuro Toyoda

1995: Hiroshi Okuda

1999: Fujio Cho

2005: Katsuaki Watanabe

2009: Akio Toyoda

Read more: http://www.autonews.com/article/20100301/OEM02/303019934/1128#ixzz0gw7J6pzQ

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