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Get Four
|  | DECEMBER 21, 2005
By Ian Rowley Toyota: King of the Car World in '06?It's getting the wheels in motion to become the No. 1 global auto maker. The challenge: Maintaining quality amid such speedy growthKatsuaki Watanabe is a man in a hurry. On Dec. 20, the Toyota CEO announced that the Japanese auto giant will bump up production by 10% in 2006, to more than 9 million vehicles -- increasing the likelihood that Toyota (TM ) will surpass General Motors (GM ) as the world's largest auto maker in the next 12 months. The bullish projections come on the heels of a remarkable 2005 for Toyota. It's on track this year to report an 8% increase in sales at a time when GM and Ford (F ) have been going the other way. But while Toyota's ascent may seem a given, a smooth transition to No. 1 still poses plenty of hurdles. One concern will be keeping Toyota's trademark quality intact as production is stepped up. This year the company has already shown signs of growing pains. In the U.S., Toyota recalls have doubled compared to 2004, including 75,000 Prius hybrids that had a software problem. And while Watanabe says Toyota will step up its commitment to quality, analysts are concerned about the potential for more problems. "Maintaining quality is often an issue during periods of significant expansion," says Nikko Citigroup analyst Noriyuki Matsushima. "We think 2006 will prove a challenging year for Toyota." "PRETTY AMBITIOUS." Then there's the issue of managing Toyota's global growth. Producing an additional 800,000 cars -- at a time when GM and Ford are scaling back production -- isn't something that can be achieved by simply increasing output in a few key markets. Instead, Toyota has to expand across the board. "Where's Toyota going to find the extra units? It might sound boring, but the answer is from everywhere," says Kurt Sanger, an auto analyst at Macquarie Securities in Tokyo. "Toyota's targets are pretty ambitious." Indeed, the Japanese giant is ramping up production from Texas to Thailand at a startling pace. This year, it increased production -- both by opening new plants and by adding capacity at existing sites -- in China, the Czech Republic, Indonesia, and Japan. Next year, output will be stepped up at factories in France, Thailand, Indonesia, China, and Texas. The latter is a brand-new, $850 million factory opening next fall in San Antonio that will eventually churn out 200,000 Tundra pickups a year. In Japan, production is slated to increase by 8%, to 4.1 million, while exports from Toyota's home market are expected to climb 15%, to 2.35 million. And in 2007, annual capacity will jump by 350,000 more vehicles with additions in Thailand, Russia, and China. CAN CAMRY KEEP UP? At the same time, Toyota will have its hands full with a host of new vehicles. In North America -- where it expects to increase sales by nearly 10%, to 2.46 million vehicles -- it will launch more than a half-dozen new or fully revamped models in the next 12 months. They include the Lexus GS hybrid sedan, the Yaris compact, and at yearend Tundra trucks from the San Antonio plant. Perhaps most important, a new Camry -- Toyota's best-selling model in the U.S. -- will debut at the Detroit Auto Show ahead of an expected launch later in the year. Boosting Camry sales won't be easy, though. "The Camry is the big one. It already sells more than all the Lexus [models] put together," says Sanger. "The problem will be finding [additional] growth." Outside the U.S., the pace of new model introductions will be almost as hot. In China, where Toyota aims to increase sales by 60%, to 290,000 vehicles in 2006, it will begin producing Camrys for the first time. And on Dec. 15, Toyota and Chinese joint-venture partner FAW held a ceremony to herald local production of the Prius, which will go on sale for about $36,000 next year. "I'M NOT WORRIED." . Steady sales growth is also needed in less-explosive markets. In Europe, where Toyota sells around a million vehicles a year, it will rely on a redesigned Yaris, the RAV4, and the recently launched Aygo compact (built in conjunction with Peugeot at a plant in the Czech Republic) to boost sales by 11%. Even in its near-stagnant home market, Toyota is aiming for 3% growth in 2006, in part by building on the successful launch of the Lexus brand in Japan in August. Add it all up, and it sounds like the ambitions of a company hell-bent on global dominance. But Watanabe -- perhaps wary of U.S. backlash if Toyota were to overtake GM -- says he's is just giving the market what it wants. "I'm not worried about being the world's No. 1 producer," he told reporters on Dec. 20. "We're concerned with satisfying the demands of customers." Given Toyota's recent track record, it sure looks like it's giving consumers cars they like. So while the auto maker faces some mighty big challenges in reaching its goals, few doubt it will make them. "Toyota is a company that doesn't promise what it can't deliver," says Yasuhiro Matsumoto, an analyst at BNP Paribas in Tokyo. Indeed, Toyota may not be promising global dominance, but that sure looks like what it's set to deliver in 2006.  Rowley is a BusinessWeek contributing correspondent in Tokyo
BW MALL
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