Toyota projects first operating loss since 1941

At one level, this news drives home the state of the global economy. But let’s parse the story a bit and see if there is contrast about how Toyota handles this vs. how their competitors do.

First, of course, is the “…since 1941” part, compared to the record losses that have been reported by the rest of the sector for many quarters now. This is the first time the leadership has had to report a loss.

Gloom dominated the annual news conference by Toyota’s president, who in recent years had outlined ambitious expansion plans. This year, Toyota President Katsuaki Watanabe even refused to give a worldwide vehicle sales goal for 2009.

“The tough times are hitting us far faster, wider and deeper than expected,” he told reporters at Toyota’s Nagoya office. “This is an unprecedented crisis requiring urgent action.” [emphasis added]

So what will they do about it?

Watanabe vowed Toyota would grow so lean it would realize profitability even if its worldwide sales slid to as low as 7 million vehicles  — what he called the basic “bottom line” for Toyota.

“We must change to become more slim, muscular and flexible,” he said.

While I am certainly not inside anyone’s board room, here is what I am reading between the lines.

In Lansing (GM), the attitude is that external forces are causing an otherwise well managed company to suffer hard times. “We can’t do anything about this, it’s not our fault.”

In Nagoya (Toyota) the attitude is  “If we had managed well enough, this would not have happened. We need to examine ourselves and do something about this so it doesn’t happen again.”

Of course the whole mess is fraught with U.S. politics which will complicate things immensely. But it will still be interesting to watch.

Oh – and, while they are certainly in trouble, I believe our friends in Dearborn (Ford) got off the denial train a while ago. Time will tell if it was soon enough for them.

3 Replies to “Toyota projects first operating loss since 1941”

  1. This brings up a interesting subject regarding Lean. Lean incorporates things such as operating the company to meet the customers need. Just in time. Etc.

    In a perfectly Lean company, I’m guessing the company could grow and shrink in perfect response to the customers demand. In fact if the demand shrinks, a company could go out of business in a orderly manner, never losing any money. Customer demand completely goes away. The company goes through a slow orderly shutdown. Everyone gets paid off, the doors close and there is one penny left on the floor as they leave. Is this possible with Lean???

    I’m guessing Toyota’s statement, “If we had managed well enough, this would not have happened” means if they were perfectly Lean, they would be at the exact correct size to meet current or shrinking customer demand. Am I thinking correctly here???

    1. Thanks for the comment Jim.
      To be clear, “If we had managed well enough, this would not have happened…” is my interpretation of the thinking I see rather than a quote of any Toyota exec.

      Looking at the executive public comments in the article, it appears they are saying they need to reduce their break-even point to around seven million vehicles / year. This has a couple of interesting implications. First, that they believe they have failed to reduce cost sufficiently to weather this downturn (which is consistent with what I understand about Toyota’s thinking – they control what they can (cost) rather than blame what they cannot (the market).)

      Second, and perhaps more profound to me, is that if they achieve the above, then the margin on every vehicle over 7 million will go directly to the bottom line. My prediction is that, when things turn around, they will not allow their costs to grow again, and will become that much more profitable.

      To directly answer your question, I don’t think they would allow their business to go to zero, even in an orderly manner. But if the core business is trending to zero, I would expect an orderly transition into something else. Note that this is extraordinarily difficult to do in practice. I refer the reader to The Innovator’s Dilemma by Clayton Christenson.

      This is, however, exactly the scenario that has been facing Eastman Kodak for the last 6-7 years. As their traditional film based business implodes, they have been engaging in exactly your scenario – an orderly retreat while holding profitability in the face of shrinking business; while they have been building a “new company” on a base of digital and electronic imaging technology. It hasn’t been easy for them.

  2. Thanks Mark. I understand what your saying. I grossly over-simplified what could happen if the customer demand was shrinking down to zero. I was just speculating how a lean company would react to a shrinking customer demand.

    Great point about Kodak. I guess a good innovative company would never “slowly” let themselves disappear as the demand for their product slowly disappeared…..

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