The road to nowhere: How Toyota turned 50 years of growth into a multi-billion-pound loss

The launch of a new supercar to take on Ferrari should be a cause for celebration. But for Toyota, the £330,000 LFA is the latest symbol of trouble at the world's biggest carmaker, which has turned 50 years of seemingly unstoppable growth into spectacular and humiliating loss

Lexus LFA

With its 560hp ten-cylinder engine and ultralight carbon-fibre monocoque chassis, the Lexus LFA will crack 60mph in 3.7 seconds and will run to well beyond 200mph

Fifteen seconds ago this car was stationary. Now it's near the top of fourth gear and doing almost 135mph. The rev counter is flashing red for the next up-change when I decide to brake for the corner. The carbon-ceramic discs kill the speed so viciously that I'm left hanging in my harness and can hear the huge front Bridgestones squealing in protest...

No time for pity. I pull twice at the left shift-paddle, the Formula 1-style, six-speed sequential gearbox drops back to second with a sharp jolt and the vast V10 engine screams again as the revs surge. With just a quarter turn of the flat-bottomed, carbon-fibre-and-leather steering wheel, the car immediately slices into the corner with composure and accuracy. Then I'm hard on the gas again, eardrums drilled by the deep, deafening, metallic howl being piped straight back into the cabin.

This is not your father-in-law's Toyota. This is unlike any Toyota you've ever seen before. For the first time, the company that built its vast fortune making dull-but-reliable Corollas by the tens of millions has made a hypercar that takes direct aim at Ferrari, Lamborghini and McLaren. The launch of the Lexus LFA should have been a moment of celebration for Toyota. Instead, it comes at the car maker's darkest hour.

Lexus LFA's dashboard
Lexus LFA's exhaust

The driver's view of the dashboard (left) and detail of the exhaust (right)

With its 560hp ten-cylinder engine and ultralight carbon-fibre monocoque chassis, the LFA will crack 60mph in 3.7 seconds and will run to well beyond 200mph, figures on a par with its super-exotic rivals like the Lamborghini Murciélago. But the Lexus has one figure that exceeds all its likely rivals: its price. At a current price of £330,000 (you actually pay €368,000 and take the exchange-rate risk yourself ) this one Toyota costs almost as much as a Ferrari 599 and a new 458 Italia together.

And even then Toyota won't recoup anywhere near what it has spent developing the LFA; only 500 will be made, with production starting in 2011, although Live has already tested it at the Nürburgring. Fewer than 20 are coming to the UK.

But profit isn't the point. This car was conceived to be the link between Toyota's Formula 1 team and its standard road cars. That's why it has the V10 engine used in F1 when Toyota first entered the sport, the sequential gearbox, the carbon body and the money-no-object approach to its engineering. Work started on the car and the F1 team at around the same time. The LFA has been much delayed as Toyota's engineers have rethought and perfected it, but also, you suspect, waited for their first F1 win. That win never came.

Toyota FT -86 prototype

The Toyota FT -86 prototype unveiled in Tokyo in 2009

The LFA was also intended to be Toyota's reward to itself for a run of extraordinary growth and profit. The figures are mind-boggling; enough to melt the calculators of City analysts and break the hearts of the competition. Between 2003 and 2007 the company added half a million sales every year. It grew to include 500 subsidiary companies, employing one third of a million people. In 2007, it made record net profits of 1.7 trillion yen, or £6.7 billion.

It had such colossal reserves that it could have gone out and bought General Motors and Ford, then its closest rivals, for cash. GM had been the world's biggest car maker for 75 years, but in 2008 Toyota finally stole its crown and became the global number one automobile producer.

Toyota boss Akio Toyoda

Toyota boss Akio Toyoda: He personally tests at least 200 Toyota prototypes and rival cars each year

The LFA should have been launched then. Just 18 months later, the bleak situation at Toyota is unrecognisable. The global recession has devastated the car industry and hit Toyota especially hard.

From record profits, it has slumped to its first loss in 59 years, haemorrhaging $4.5 billion (£3.8 billion) in the financial year ending March 2009, and an eye-watering $7.7 billion (£4.8 billion) in the first three months of this financial year (April-June 2009).

The company had forecast it would sell ten million cars in 2009 but it struggled to reach seven million. Employees in Japan are taking extreme cost-cutting measures. To cut power bills they are climbing the stairs instead of using lifts, switching off office lights for an hour at lunchtime and disconnecting hand dryers in the toilets. But the most dramatic cut came in November 2009, when team boss Tadashi Yamashina wept in public as he announced that after seven seasons and an estimated cost of $1.6 billion (£1 billion) without a single win, Toyota was pulling out of F1.

This deeply conservative company has now turned to an unconventional saviour. Akio Toyoda is the grandson of Kiichiro Toyoda, the Japanese entrepreneur who established the car firm. At 53, he is young for a president of such a colossal Japanese conglomerate, but that's the least of the differences from the bean-counters who preceded him. Toyoda is a die-hard car-nut, a quality not previously thought important in a company that produced the automotive equivalent of white goods.

He personally tests at least 200 Toyota prototypes and rival cars each year. He's also a racing driver; three times he's competed in the infamous 24 Hours Nürburgring race, muscling a prototype LFA around the tortuous 13-mile circuit in darkness and appalling weather conditions. Toyoda's team's website refers to him simply as 'Morizo' - the name under which he also blogs.

2006 model of the Toyota Corolla

The 2006 model of the Toyota Corolla - the world's best-selling car

'His passion for cars was obvious the first time I met him,' says Miguel Fonseca, head of Toyota's UK operations. 'He came to Britain for the Goodwood Festival of Speed, and he'd just been racing at the Nürburgring. We had dinner with our wives but all he wanted to talk about was cars.'

In almost any other big business, the idea of a senior executive competing in such a risky race would cause a corporate panic attack. But being a Toyoda allows Akio to do things the business couldn't otherwise countenance - and that's exactly what he'll need to do to turn Toyota around.

Given that the British car industry was largely put out of business by the Japanese, it's ironic that Japan's biggest car maker was founded with £100,000 from Lancashire. Toyota began life as a loom-maker in 1918, and when it sold the patent to one of its designs to Platt Brothers of Oldham in 1929, the founder's son, Kiichiro, used it to start the Toyota Motor Corporation. He built 20 G1 trucks in 1935, but with typical Toyota expansionist zeal knocked out more than 1,000 of his new AA saloons the next year.

But it all very nearly came to a premature end. Toyota made military trucks during World War II, and plans for a bombing run by the U.S. Air Force on the Aichi headquarters it still uses today were well advanced. But then the atom bombs fell on Hiroshima and Nagasaki, Japan surrendered and Toyota was spared. Nevertheless, post-war Japan was an economic wasteland, and Toyota was reduced to making pots and pans alongside its trucks. But in 1950, Taiichi Ohno - a Toyota lifer whose career began on the factory floor of the original loom company - visited Ford's River Rouge plant in Detroit.

Admiring Henry Ford's mass production techniques but spotting its inefficiencies, Ohno devised the Toyota Production System (TPS). Ohno's principle is centred around the elimination of waste (muda) and more economic use of warehouse space using the just-in-time method; his kanban system involves moving little cards around the factory, which signal the need to restock particular parts.

The system has its own language and for Toyota it is almost as much a religion as a manufacturing process. It's been copied by just about every other industry, remains required study on MBA courses and is probably the single most important factor in Toyota's global dominance, allowing it to build cars efficiently, profitably and to a very high standard. Even Britain's Morgan Motor Company, which has been hand-assembling its cars at the same glacial rate at its Pickersleigh Road premises in Malvern since 1918, has adopted the kanban card system.

The company grew so fast that the town in which it was based was renamed Toyota in 1959. It later became a city, and officially incorporated six more towns in 2005. It is twinned with Derbyshire, home to Toyota's Burnaston factory, and ironically Detroit, which it could put out of business.

After 'lean-production' methods, the second pillar of Toyota's success has been its merciless overseas expansion. You might think that the best-selling car in America would be a Chevy or a Ford, but for the past decade it's been the Toyota Camry. Astonishingly, Toyota sells more cars in America, until recently the world's biggest car market, than any of Detroit's Big Three: GM, Ford and Chrysler.

The third element has been to give buyers what they want: reliability at an affordable price. Toyota's cars might be a little dull but they've won an extraordinarily loyal following for their dependability. The Corolla has rarely appealed to those who actually like to drive but it is the world's best-selling car, with an astonishing 33 million made.

Previous recessions and oil crises have only helped Toyota by forcing foreign car buyers to reconsider their loyalty to the home team and focus on what's really important: running costs and reliability. The Australians have a saying: 'If you want to get into the Outback, take a Land Rover. If you want to come back, take a (Toyota) Land Cruiser.'

'We're in trouble - there are no brakes!'

On August 28, 2009, California Highway Patrol received a 911 call from a Lexus speeding along a road near San Diego. At the wheel was one of their own, 45-year-old Mark Saylor, an officer with 20 years' experience whose responsibilities included testing school buses for safety. He'd borrowed the car from a local dealership for a test drive. With him were his wife Cleofe, 13-year-old daughter Mahala and brother-in-law Chris Lastrella.

The car's throttle had jammed open and despite his training and experience, Saylor couldn't bring the car under control. It was travelling at between 100mph and 120mph when Lastrella called the police. As he spoke to them, their Lexus hit another car at an intersection and flipped 150 metres down into the San Diego River basin. All four were killed.

The problem was put down to the accelerator pedal jamming against a removable floormat. Akio Toyoda, just two months into his new job, made a public apology and Toyota was forced into the biggest recall in its history, with 3.8 million cars in the U.S. going back to dealerships to have floormats modified.

But the U.S. safety watchdog has an open investigation into whether the cause of the accident is more serious than poorly fitting floormats, and the company has been hit with at least two class-action lawsuits in the U.S. related to its safety record.

One of Toyota's hi-tech production lines

One of Toyota's hi-tech production lines

'As a company we deeply regretted the lives lost and we apologised,' says Miguel Fonseca.

'In Europe we don't have the practice of fitting double floormats so cars here weren't affected by it. And I think that linking that one issue to wider quality problems in our vehicles is a big stretch. Every indication we have internally is that quality is improving.'

Still, this was the very last thing that Toyota - and Toyoda - needed. That reputation for quality, reliability and safety has won it a die-hard following. But it is being seriously, graphically and publicly questioned just when it needs it most, to weather the perfect storm that has engulfed the car industry since the collapse of Lehman Brothers in 2008.

Rising petrol prices, which were already hitting rivals such as GM and Ford, actually benefited Toyota with its more fuel-efficient line-up. But when the financial crisis descended, the car industry was hit hard and Toyota wasn't immune. The cheap credit that once succoured it dried up overnight. Those who have lost jobs or seen their investments shrivel can't afford new cars, and those who still can are being cautious, taking advantage of Toyota's famous reliability and hanging on to their old car for a few years more.

The global car market is going through the business equivalent of a nuclear winter. Toyota is the biggest player in the U.S. market and depended on it for its profits, but that market has been cut almost in half. In these conditions, just staying in business is a victory. Some haven't. Famous names such as Saab seem set to perish altogether, countless new models have been canned and GM and Chrysler have gone into Chapter 11 bankruptcy protection (which allows for reorganisation as opposed to liquidation).

'The timing was incredibly unfortunate,' says car industry analyst Max Warburton.

'When the crisis struck, Toyota had just started to do things they had avoided until now. They were entering new markets, building new products in new plants with new workforces which is something Ohno always vowed never to do. And despite all the hybrid talk, they'd made a definite decision to increase vehicle weight and power to chase higher profitability in the States and were really pushing the luxury Lexus brand.

An Avensis on the UK Burnaston production line

An Avensis on the UK Burnaston production line

'Most people describe Toyota's problems as Toyota-specific, but I'd say 70 or 80 per cent are macroeconomic. If you're the world's biggest car maker and hugely reliant on north America for your profitability and the U.S. market falls 50 per cent and the currency goes 30 per cent against you, it doesn't matter who you are, you're in deep trouble. But some of their decisions compounded their problems. They ran too fast and blew themselves up.'

So how does Akio Toyoda plan to save the family business?

First, with a back-to-basics programme that aims to again make Toyotas paragons of safety and reliability.

Second, an economy drive that aims to slash nearly $14 billion (£9 billion) in costs. Third, a harder push for its recession-and-eco-friendly hybrids, led by the Prius.

And last, a new model offensive to produce Toyotas with more sex appeal than the average dishwasher - cars you want, rather than need.

Jarno Trulli on track for Toyota F1

Jarno Trulli on track for Toyota F1

But figuring out how they'll do it and how much of this is being led by Toyoda himself is hard given Toyota's notoriously opaque corporate culture. Sergio Marchionne, the charismatic Fiat boss, who has also taken control of ailing Chrysler, recently gave a day-long presentation on how he planned to ensure both firms' survival. But there's been little detail on how Toyota plans to reverse its decline.

Tadashi Yamashina crying

Tadashi Yamashina announces the company's withdrawal from F1 racing

'They'll have been shocked at the severity and speed of the downturn,' says one former senior Toyota executive, speaking on condition of anonymity.

'This is a huge company used to gradual change. The number of changes in senior management shows recognition that action needs to be taken. Toyoda has always been influential, and as president he can get things done more readily because of who he is.

'The whole company is very thorough in what it does. A lot of people will have been given a lot of homework but once the decision is made they'll move, and move quickly.

'For years the cars did what people wanted; they were reliable but maybe not the most stylish. With others closing the gap on quality they need to focus on what's kept other buyers away, and moving to more aggressive designs might be a good idea.'

But Warburton is unconvinced about the speed and scale of the reforms Toyoda plans.

'Nissan and Honda moved quicker to rip out cost. Toyota doesn't appear to know quite what to do about it, but they've never had to do this before. They've been in unstoppable growth mode for 50 years. The plan seems to be to hunker down, avoid burning too much cash and hope the economy comes back.

Seventies publicity for the Corona Mark II

Seventies publicity for the Corona Mark II

'Would Akio be there if he wasn't a Toyoda? Probably not, but it's not unique in this industry that family members get top jobs and there have been some quite successful ones.

'As an analyst it's so difficult to get any visibility on who's running the company and what they stand for. It's so different to Western company culture. It's almost impossible to judge them as an outsider.'

And he cautions strongly against making Toyotas too exciting.

'This industry has too many "car guys" at the helm making vehicles for their own enjoyment rather than for the average consumer. They've got to be careful not to throw away what made them successful. Most people are not car enthusiasts.'

Toyota faces one last big challenge - not to its reputation or its bottom line but to its position as the world's biggest car maker. It claims that it never set out to achieve that status and when it finally overtook GM it modestly never referred to it.

But Volkswagen has said that it will depose Toyota as the global number one this decade, and despite the downturn it has stayed profitable, increased its market share, started an assault on the U.S. market and merged with Porsche.

Never having boasted about its success would make losing the title easier for Toyota but it would still shame Toyoda.

Will his new, sexier but just as boringly dependable Toyotas be enough to stave off Volkswagen, see the family business through the worst turmoil in its history and return it to stellar growth and profit?

You'll decide. 

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