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Posted: 12/21/2005 5:22:52 AM EDT
[Last Edit: 12/21/2005 10:19:12 AM EDT by warlord]
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Toyota Closes In on G.M.

The New York Times
December 21, 2005

By MICHELINE MAYNARD and JAMES BROOKE

DETROIT, Dec. 20 - After reigning atop the global auto industry since the depths of the Depression in the 1930's, General Motors may finally cede its spot next year to Toyota. The Japanese company's ascendancy underscores the enormous obstacles faced by G.M. on many fronts.

On Tuesday, Toyota announced from its offices in Nagoya, Japan, that it planned to produce 9.06 million cars worldwide in 2006. That would be a 10 percent increase for the company, which has plants on every major continent.

The expected output level - arriving four years ahead of previous projections - means that Toyota and G.M. will be in a tight battle for the crown as the world's biggest carmaker in 2006, a race that will pit the industry's strongest company against its struggling giant. But even if G.M. retains the title next year, the industry already views Toyota as the premier automaker, flush with cash and posting a steady increase in sales in the United States, Europe and parts of Asia during the past decade.

Toyota passed Ford to become the world's second-largest carmaker in 2003.

"G.M. is not the company it used to be, and it's not going to be what it was ever again," said Jeffrey K. Liker, a professor of engineering at the University of Michigan and the author of "The Toyota Way," the best-selling book that examined the Japanese company's management principles.

Reflecting that view, G.M. shares on Tuesday fell to their lowest level since the stock market crash in 1987. They closed at $19.85, down $1.20, on the Toyota estimate and the news that the billionaire investor Kirk Kerkorian had sold 12 million shares of his G.M. stock. This year, G.M. shares have lost 50 percent of their value, the more recent pullbacks coming amid speculation that it may have to seek bankruptcy protection to overhaul its sagging North American operations.

Toyota has long been coy about its ambitions to become No. 1, preferring to stay out of the spotlight as it grows. In 2002, it unveiled a goal of expanding its world market share to 15 percent in 2010, from 10 percent. When analysts realized that the goal would make Toyota the world's largest carmaker, the company stressed that its mission was only an expanded market share.

At the news conference in Nagoya, held to announce the company's plans for 2006, Toyota's president, Katsuaki Watanabe, repeatedly played down talk of a race to the top.

"Whether Toyota is going to become No. 1 in the world or not is not something that I know," Mr. Watanabe said. "I am not conscious if Toyota is going to become No. 1 in the world or not."

That sentiment was echoed by one of Toyota's top manufacturing executives in the United States, the auto company's largest market.

"We don't have signs out there that say we want to beat G.M., we want to be No. 1," Dennis Cuneo, senior vice president at Toyota Motor North America, said in an interview Tuesday. "That's not the way we operate."

G.M. declined to comment Tuesday on Toyota's projections. It has not released a global production forecast for 2006, but analysts estimate that it will build about 9.08 million cars in 2005. Last month, G.M. said it would close three plants in North America next year, part of a plan to close all or parts of 12 plants through 2008 and eliminate 30,000 jobs.

The difference between Toyota's production goal for 2006 and where G.M. is expected to end up this year is essentially the output of one assembly plant. And Toyota is expanding well beyond that in North America alone.

Next year, the company plans to open a truck factory in San Antonio able to make 200,000 pickups a year. The next year, a Subaru plant in Indiana will start making 100,000 Toyotas a year. And in 2008, Toyota is to open an assembly plant in Ontario, its second there, with a capacity to build 100,000 vehicles annually.

The expansion drive, coupled with growth elsewhere, has stretched Toyota's management resources. At a recent board meeting, company directors warned executives not to become complacent or overconfident as the company accelerates, according to a person who participated in the discussions but spoke on the condition he not be identified because the information was closely held.

Toyota's growth plan, however, speaks louder than its caution, said James P. Womack, an author and expert on manufacturing efficiency. "I think they think they're at an unavoidable point," Mr. Womack said Tuesday. With G.M. traveling in reverse, "it's less awkward to get over in the left lane and just pass," he added.

But some analysts said G.M. could stay ahead of Toyota given the American company's expansion outside the United States, where G.M. now makes more vehicles than at home. G.M. is aggressively expanding in Asia, where it has sold one million vehicles this year, and it wants to make China its second-biggest market behind the United States.

"I am not sure that it is such a layup for Toyota," Kurt Sanger, Japan automotive analyst for Macquarie Securities Japan, said in Tokyo on Tuesday. "If G.M. is going to grow 15-20 percent in China, they are not going to roll over."

But it is far easier for Toyota to finance its plans, given its strong financial position. During the third quarter, for example, Toyota earned a net profit of $2.6 billion. G.M., weighed down by heavy pension and health care costs, lost $1.63 billion, and some analysts expect it to lose as much as $5 billion on its North American operations this year.

This year, Toyota's American sales are up 9.9 percent, and it is likely to sell nearly 2.3 million vehicles in the United States in 2005.

By contrast, at G.M., despite deep discounting in the summer, American sales have fallen 3.7 percent this year. G.M. is expected to sell about 4.2 million cars this year in the United States, its biggest market.

Mr. Womack said the drop to second place might be good for G.M., if it focused the company on its comeback effort. Analysts have often criticized G.M.'s obsession with shoring up its dwindling market share, which has forced it to push mediocre vehicles through showrooms with hefty incentives, rather than develop cars that can sell without rebates.

Still, G.M.'s chief executive, Rick Wagoner, is vowing not to become the industry's silver medalist.

This year, Mr. Wagoner said the fight for industry dominance was broader than just a one-on-one battle between his company and Toyota; G.M. has car-building and other development ventures with Toyota. "I'm not conceding anything to anybody, " Mr. Wagoner said.

But with Toyota opening plants in Texas and Ontario, even Michigan's governor, Jennifer M. Granholm, is courting Toyota. The governor, a Democrat, has been relentless in her efforts to win a small-engine plant, which Toyota may open to supply engines to support vehicles built at the Subaru plant in Indiana.

Toyota's likely rise to the top spot is "one of the reasons we would like to have them in Michigan," Ms. Granholm said in an interview Monday. Toyota already has a technical center in Ann Arbor, Mich., and has announced plans to add a design center in the state.

Regardless, Mr. Womack said that Toyota itself would benefit from real competition posed by G.M. and Ford. "It's never good for the leader to go unchallenged," he said. "The world would be a better place if G.M. and Ford were playing a better game."

Kerkorian Sells 12 Million Shares

WASHINGTON, Dec. 20 (Reuters) - The Tracinda Corporation, the holding company of the billionaire investor Kirk Kerkorian, said on Tuesday that it sold 12 million shares of General Motors this month for federal and state tax purposes.

Tracinda said that it was eligible for "substantial" federal and California corporate income tax savings if it incurred a capital loss before the end of its fiscal year, which ends on Jan. 31, and that the loss would offset certain capital gains realized by Tracinda in an unrelated transaction.

The sales left Mr. Kerkorian and his investment arm with 44 million shares in the automaker, or a 7.8 percent stake, according to a filing with the Securities and Exchange Commission.

Micheline Maynard reported from Detroit for this article and James Brooke from Nagoya, Japan. Jeremy W. Peters contributed reporting from Detroit.

* Copyright 2005The New York Times Company
Link Posted: 12/21/2005 5:46:25 AM EDT
I'm looking forward to seeing how the Camry Hybrid does.
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