Why Toyota Isn't Happy About Being #1

In the first three months of 2007, Toyota sold 2.38 million vehicles worldwide to GM’s 2.26 million, which means that Toyota is now the biggest car company on the planet. And yet, according to a few news releases, Toyota is not comfortable with being #1 and didn’t seek to be #1. “I don’t believe that”, said one of my clients, an executive who thinks about boosting sales every day. “I’m sure they’re thrilled with being the top dog.” Well, maybe. I worked with Toyota for years and interacted with the top American and Japanese executives of the firm, and with that experience I frankly do believe that their ambivalence with being #1 is real. Three reasons: 1. The first reason is political. Toyota is dependent on global sales, especially to the U.S., and it doesn’t want to provide protectionists with ammunition. It prefers to stay under the radar scope as a quiet underdog. 2. The second reason is complacency. It’s a lot easier to become complacent when you’re #1. Like most great companies, Toyota leaders know that complacency is much more debilitating than any products that GM or Ford can throw into the marketplace. Look at business history and you’ll see that one of the best predictors of corporate failure is corporate success, because that little intervening variable “complacency” creeps in and slowly smothers urgency, change and innovation. 3. The third reason is profitability. This one is at the heart of the differences between how GM and Toyota approach their businesses. GM’s mantra has always been: do whatever it takes to maintain market share and sales, regardless of the impact on bottom line. Toyota has always been about steady, prudent, profitable growth. That’s why GM’s incentives to buyers have been more than double that of Toyota. Put another way, American customers have agreed to pay an average of 12% more per Toyota car than a GM car. On the cost side, Toyota’s obsession (and that’s not too strong a term) with cost reduction means that Toyota’s productivity growth is double that of GM’s, and the company averages $2400 of profit more than GM does per car sold. So even as GM has maintained its lead in global sales (until Q1 in 2007, at least) and still leads in market share in the U.S. relative to Toyota (23.3% vs. 15.7%), GM lost $2 billion globally in fourth quarter 2006 (including a $799 million loss in the U.S.). In short, Toyota doesn’t want to catch GM’s “being biggest at all cost” disease, and that is why Toyota executives approach their new #1 status gingerly. By the way, in what appears a masterful public relations rationalization, GM is now making noises that size is no longer as important as profitability. Yeah, right. Bill Ford said the same things a few years ago about his company, but it seems like business as usual has prevailed there. Profitable growth is part of Toyota’s DNA, not yet in GM’s.