Akio Toyoda, grandson of Toyota Motor Corp.’s founder and the company’s next president, will confront a challenge largely unknown to his ancestors — decline.
Toyoda, 52, will succeed Katsuaki Watanabe, 66, as president of Toyota this year, sources have said. He will take over as the carmaker’s two largest markets, the United States and Japan, are plummeting, forcing Toyota to reduce inventories by halting production. The company plans to slash about 5,000 temporary workers in the two countries in the face of its first operating loss in 71 years.
“The company’s path of rapid growth until now is unsustainable,” said Takashi Aoki, who helps manage about $1.3 billion at Mizuho Asset Management Co. in Tokyo. “Now, it faces shrinkage and possibly the need to get out of some businesses.”
Toyoda took on responsibility for the domestic market in 2007. Sales have dropped on his watch as vehicle demand in the country dried up. He added overseas sales to his portfolio last year, in time for a 15 percent decline in U.S. sales, the steepest slump in 34 years.
“He will have a very difficult time, given the very bad environment,” said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages $3.1 billion. “You can’t expect anybody to work miracles in a very short period of time.”
Toyoda declined to be interviewed for this story, through Toyota spokesman Hideaki Homma.
Toyoda has been groomed for the top job, with experience in the U.S., traditionally Toyota’s most profitable market, and China, the company’s most promising market.
Fluent in English, Toyoda graduated from Tokyo’s Keio University with a law degree in 1979. In 1982, he received a master’s in business administration from Babson College in Wellesley, Mass. He joined Toyota two years later.
After factory and finance jobs in Japan, he was assigned to make Toyota’s Japanese sales office more efficient. In 1996, Toyoda was the project leader for a service called G-Book that provides traffic updates. When directors declined to fund a prototype, Toyoda paid with $2,000 of his own money, according to the company.
By 1998, Toyoda was vice president of Toyota’s venture with General Motors Corp. in Fremont, Calif., producing Corollas for Toyota and Geo Prizms for GM.
When he ran Toyota’s China unit, he asked then Chinese Premier Zhu Rongji to allow Toyota’s partner in China, Tianjin Automotive Xiali Co., to be sold to Changchun, China-based First Automotive Works. Toyota needed the deal because FAW was one of three megacompanies into which the Chinese government was merging smaller automakers.
That helped set the stage for Toyota’s success in China, where its sales are still rising. In December, the company’s monthly sales, including imports, jumped 17 percent.
Toyoda’s assumption of the top job would mark the return of the founding family to the head of the company for the first time in 14 years. Kiichiro Toyoda, Akio’s grandfather, chose the name Toyota because, among other things, it could be written with eight pen strokes, fewer than were needed to write the family name. The number eight also symbolizes good fortune in Japan.
Toyoda, who is married and has a son and a daughter, has been the heir apparent for years, said Ichiro Takamatsu, chief investment officer at Alphex Investments Co. in Tokyo.
“It’s like he’s royalty,” said Takamatsu. “They’ve made sure he has the right education to take over.”
Toyoda’s first crisis as president will likely be the U.S. As the world’s largest economy contracts in 2009, car sales are forecast to fall to between 10 million and 10.5 million units this year from 13.2 million in 2008, according to IHS Global Insight. Last year’s total was the lowest in 16 years.
Falling sales have created excess factory capacity in North America. The company’s San Antonio pickup plant began making full-size Tundras in late 2006, just ahead of a surge in gasoline prices. That cut industrywide demand for such trucks in both 2007 and 2008.
In Japan, Toyota’s sales fell 7.4 percent to 1.47 million vehicles last year. An aging population and less interest in cars among young people will push industrywide sales to 4.86 million in 2009, the lowest tally in 31 years, according to the Japan Automobile Manufacturers Association.
Toyoda will be able to count on ample cash. The carmaker has ¥2.6 trillion on the balance sheet, earning it the nickname of “Toyota Bank” in Japan. That enables the company to offer interest-free financing on most of its vehicles in the U.S., as GM and Chrysler LLC turn to emergency loans from the government to keep from running out of cash.
Toyota also has an edge in fuel efficiency. It aims to press that advantage with the introduction of a revamped version of the Prius hybrid this year. It also plans to sell a tiny, battery-powered car in the U.S. by 2012 that can be recharged at electrical outlets. A concept version of the FT-EV “urban commuter” car was unveiled at the North American International Auto Show in Detroit this week.
Set against that is the company’s reliance on exports from Japan, which puts it at the mercy of currency markets. The strength of the yen, which surged 17 percent in the fourth quarter, is hammering earnings as every ¥1 gain against the dollar cuts Toyota’s annual operating profit by ¥40 billion.
In December, Toyota forecast an operating loss of ¥150 billion in the year ending March 31. That may worsen next year, according to the median estimate of 12 analysts compiled by Bloomberg. The company’s operating loss may widen to ¥390 billion for the year ending in March 2010, according to the analysts.