Toyota the city rides out the storm

Troubled car giant's namesake home in for a penny, in for a pound

by Jay Alabaster

The Associated Press

TOYOTA, Aichi Pref. — Even in its hometown, the great automaker has lost some of its mystique.

Rising out of the barren winter rice fields of Aichi Prefecture, this city of 400,000 is probably the most Toyota-friendly place on the planet. Renamed after the company 51 years ago, it hosts the corporate headquarters as well as enormous factories and is beholden to the automaker for tens of thousands of jobs and the bulk of its tax income.

Residents say they, like the rest of the world, were surprised by the safety problems that have led to mass recalls of Toyota vehicles. But it was the company’s response that was more shocking — the global icon came across as dithering and unprepared.

“Maybe Toyota isn’t any different from ordinary companies,” said Akari Mizunaga, who works at a local trading company that depends on Toyota for much of its business. She spoke while killing time at a cafe before an English lesson.

Jun Morikawa, who works at a company that transports car parts for Toyota, was among many who voiced concern about the recalls and the financial implications.

“The company just managed to get into the black, and now it looks like it might fall back into the red,” he said.

For many Japanese, Toyota is a source of pride because of the legend of its success — from when its founders tore apart a Chrysler in 1933 to see how it worked, to the company eventually passing General Motors and becoming the No. 1 automaker in the world two years ago.

Now the fear in Toyota is that the company’s recent stumbles could see it lose the top spot.

“This is a chance for American companies like GM, who could catch up,” said Ueyama.

As Toyota grew in the 1930s from its roots as a producer of mechanical looms, it has transformed the formerly rural town into a thriving municipality. Toyota dealerships are strung along the city’s main street, and the automaker’s curly T logo is everywhere — on cars, signs and buildings.

“You can’t really separate the town from the company,” said Hideki Nagata, who works independently in auto repair. “And now there is this sense of — are we OK?”

None of the people interviewed in Toyota said they would hesitate to buy one of the company’s vehicles in the future, and several said they think the automaker will now work harder to ensure quality. But there was a palpable disappointment in the way it has handled the recent safety concerns, almost as if let down by a relative.

Akio Toyoda, who took over the company in June, is a grandson of Toyota’s founder and was seen as a charismatic choice who would lead it back from deep losses incurred during the global economic slump.

But the company’s leader kept a low profile after Toyota announced recalls last month to fix defective gas pedals in a number of its mainline models that could cause sudden acceleration. Together with earlier recalls, that has covered more than 7 million cars in the U.S., Europe and China.

Toyoda was briefly cornered for an interview by a Japanese TV crew a week later in Switzerland, then finally gave a new conference Friday that was widely panned in the media as belated and unconvincing.

Toyota’s problems have even spread to the prized Prius hybrid after complaints in the United States and Japan about problems with its complex braking system. The quality issues threaten two of the company’s core assets — its sterling reputation for reliability and safety, and its world-beating technology.

In the company museum at corporate headquarters — whose address is 1 Toyota Town — there is nothing subtle about the safety message. Main exhibits are devoted to subjects like “Active Safety,” “Passive Safety,” and “Intelligent Safety.” A large room in a prime site next to the entrance is devoted to the hybrid, with a dissected, flashing Prius demonstrating how it works.

Kazuhide Ueyama, 54, visited the museum Saturday on a tour from his home in Osaka.

“This trip was planned before these problems came up, but everyone was talking about it on the bus over here,” he said, referring to the recall woes. “I have no doubt they will deal with the problems firmly, but it does raise some questions.”

The city of Toyota has suffered in the latest global downturn along with the company, which cut temporary workers at its Japan plants to 3,000 workers at the end of the last fiscal year from 9,000 a year earlier.

Toyota sank to its first annual loss in nearly 60 years last fiscal year, and as the automaker’s tax payments fell the city’s income has also shrunk.

The city expects corporate tax revenue to fall 96 percent to ¥1.6 billion this fiscal year through March, off from ¥44.2 billion the previous year. City officials don’t release a breakdown of contributions by individual firms but confirmed that Toyota’s contribution is “well over” 50 percent. Local media reports have put the figure at 70 percent.

The city has tried to cover the shortfall by relying on its cash reserves, tripling the amount of debt it issues and postponing long-term projects.

Despite the loss, many point to the company’s strong financial standing. Unlike competitors in the U.S., the company boasts solid finances — at the end of last year it said it had about $24 billion in cash and cash equivalents. A report from investment research firm Morningstar on Jan. 27 after the gas pedal problems came to light described Toyota’s balance sheet as “fortress-like.”

Last week Toyota said it would become profitable again in the current fiscal year through March, after earlier forecasting more deep losses. It now expects a profit of ¥80 billion versus an earlier projection for a ¥200 billion loss. But that was without any potential costs from the latest Prius problems factored in.

Until the recent safety issues, the company was seen by some as more creditworthy than the Japanese government. On Friday, however, ratings agency Standard & Poor’s put Toyota under review for a possible downgrade.