The automotive industry was recently treated to a strange sight: Akio Toyoda, the unassuming, bespectacled CEO of Toyota Motor Corp., standing shoulder to shoulder with Norbert Reithofer, the CEO at BMW AG. The pair were in Munich to reveal a new partnership that included plans for a jointly produced sports car. “At the Nürburgring, there is always a car that passes me,” Toyoda, 56, said, referring to the 24-hour endurance races he’s driven behind the wheel of a Lexus on Germany’s famed track. “It is a BMW.”
There were several odd things about that moment. One was Toyoda’s casual reference to his penchant for racing fast cars, an unusual personal detail in the world of conservative, grey-suited Japanese businessmen. (Toyoda, as his company increasingly likes to point out, is both a gearhead and a test driver.) Another was the pairing of two very different carmakers. BMWs are all about passion, style and driving experience. Toyotas are generally considered about as much fun to drive as a washing machine. And since when do chief executives praise rival automakers for making better cars than they do?
Of course, these aren’t normal times for Toyota. Once the most admired carmaker on the planet, its reputation for quality was badly damaged after it recalled nearly nine million vehicles in 2009 and 2010 because of sticky gas pedals, which could become trapped in poorly designed floor mats. The impact of the crisis was compounded by the effects of the Japanese earthquake and tsunami on Toyota’s supply chain last year.
Toyoda, the grandson of the company’s founder, vowed to lead the company out of the wilderness. And, so far, he’s gone about it by doing some very unToyota-like things. That includes, most visibly, championing Toyota’s return to selling sports cars, a segment it had all but abandoned since axing the Celica in 2005. In addition to working with BMW on a “future sports vehicle,” Toyota has also partnered with Subaru on another sports car, the Scion FR-S, and has invested $50 million in the electric car company Tesla, maker of the $109,000 Roadster.
But an even more critical change has been a rethinking of Toyota’s historically top-down and conservative corporate culture. Toyoda is an outspoken car guy at heart, and his influence on the company has been compared to that of General Motors’ former vice-chairman and “car czar” Bob Lutz, a cigar-chomping former Marine who was also known to spend some time on the racetrack.
It appears to be paying off. Sales are rebounding, up more than 60 per cent in both Canada and the U.S. last month, while people are once again talking positively about a company that auto bloggers had nicknamed “Beige” for its bland offerings. “We can say, without a doubt, the 2013 Scion FR-S is a car that makes us pretty damn ecstatic,” wrote MotorTrend. Add it all together and Toyota’s turnaround is shaping up to be the quickest and most successful in an industry that’s seen plenty of comeback stories in recent years.
Toyoda’s bid to ﬁx the family business started disastrously. Shortly after being named CEO in 2009, he was confronted with reports of U.S. drivers whose Toyotas had sped out of control, a phenomenon dubbed “sudden unintended acceleration.” With public anger growing, Toyoda was criticized for taking too long to take responsibility for the crisis, the worst the carmaker had ever faced. His performance before a U.S. congressional committee was so awkward that some speculated his resignation was imminent.
Then something unexpected happened. Seemingly overnight, Toyoda appeared to doff the stereotypical Japanese businessman persona in favour of a more take-charge demeanour. With the recall crisis and effects of the tsunami finally fading, Toyoda has emerged as an energetic pitchman. He is frequently photographed wearing his racing suit and crash helmet—a constant reminder that there is a CEO behind the wheel who understands cars. Meanwhile, behind the scenes, Toyota has worked feverishly with its dealers to keep customers happy, while engineers kept the product pipeline full. As a result, the company is forecasting a US$9.5-billion profit in the current fiscal year, up from $3.5 billion in the 12-month period that ended last March. The optimistic forecast is based on a recovering U.S. market and 19 new or updated models scheduled for this year, an unusually high number. They range from the smaller Prius c to the Lexus GS mid-size luxury sedan.
Though it’s tempting to assume that Toyoda found religion in a dark place, those who watch the industry closely say it’s likely the other way around. “He was a little slow off the mark simply because it’s not a part of the culture,” says Art Spinella, the president of CNW Marketing Research. “But I think the fear inside Toyota was that it was on the wrong path. And I think that fear forced the company culture to change enough to let Mr. Toyoda blossom.”
Toyoda was allowed to put his foot down and implement previously unthinkable changes. One of his first acts as CEO was to approve production of the $375,000 Lexus LFA supercar (which competes with the likes of Lamborghini and Ferrari). Meanwhile, the FR-S, which sells for $25,990 in Canada, was built not because executives in Toyota City conducted a laborious cost-benefit analysis, but because Toyoda decreed that an affordable sports car was needed. The partnership with Tesla was cemented after Toyoda took one of Tesla’s Roadsters for a drive in California (the deal will see Tesla’s electric powertrain technology used in Toyota vehicles, while Toyota will supply Tesla with access to its vast manufacturing know-how).
Such gut decisions can be risky at a $226-billion company, but they also promise to result in fewer bland, designed-by-committee cars. And that’s critically important in a market in which both American and Korean automakers have caught up and, in some cases, surpassed Toyota when it comes to quality. “If you look at GM or Chrysler, it’s only when the car guys are in charge that you see unique or exciting products,” Spinella says. “I don’t want to say Toyoda is a Japanese Lee Iacocca”—the outspoken, pro-America CEO who rescued Chrysler in the ’80s—“but for a Japanese businessman in the auto industry, that’s effectively what he is.”
Toyoda’s influence isn’t limited to the corner office. He test drives some 200 cars a year and provides feedback, the most visible example of his adherence to the Toyota principle of genchi genbutsu, roughly translated as “go see for yourself.” In an interview with the New York Times in 2008, before being named CEO, he said he wanted to be the “owner-chef” of Toyota. “I taste my car, and if it tastes good, I provide it to the customer.”
But he also knows when to step back. One of the biggest changes he has implemented has been to give more responsibility to executives outside Japan. The first big test for the new way of doing things will be the 2013 Avalon. The sedan represents the first time that Toyota has designed and built a vehicle entirely in the U.S.—part of a bid to come up with a product that registered a more “emotional” connection with American drivers. The result is swooping lines, a gaping grill and a cavernous interior. Basically, the most American-looking Toyota the company has ever made. Toyoda’s response when presented with the finished product? “Don’t change a thing.”
Nevertheless, there remain a myriad of issues yet unsolved—many hidden deep within Toyota’s boardrooms, assembly plants and dealer networks around the world. “To have that kind of guts, which Lutz had, and to know cars and to understand them, is helpful,” says Michelle Krebs, a senior analyst at car website Edmunds. “But I think the bigger question is, can you change that whole bureaucracy of Toyota? I just don’t know if one person can change a big organization like that.” Krebs argues that it’s one thing to throw out the rule book on a redesign of a slow-selling model, but notes that so far Toyoda hasn’t been nearly so cavalier with the automaker’s bread-and-butter vehicles. “If they ever do something more exciting with the Camry and Corolla, then we’ll know he’s really made an imprint,” she says.
Although, given that the Camry remained the bestselling car in the U.S. during the first six months of this year, Toyoda may be well-advised to follow a more North American business precept: “If it ain’t broke, don’t fix it.”