Despite Setback, Toyota Plans No Layoffs; Will Grow Through Lean and Innovations

Despite Setback, Toyota Plans No Layoffs; Will Grow Through Lean and Innovations

For those of us in the Lean Community who teach the Toyota Production System, the recent announcement that Toyota will lose money for the first time in 70 years is evidence that implementing Lean alone does not insure financial success. There is much more to developing a robust business plan then just implementing Lean.

The root cause of Toyota's current problem is the decision in the late 1990s to become the top global auto sales company. Toyota aggressively added capacity around the world and by 2008 had passed GM as the global sales leader. By focusing on expanding capacity to meet the sales goals, it required Toyota to borrow cash. In today’s market, this objective to become the sales leader made Toyota vulnerable with excess capacity if there was a steep drop in demand. This changed philosophy, to embrace growth and to become the biggest in sales, without regard to financial impact is not the lean way. Simply put, “Toyota lost its’ Way” of making small incremental and profitable improvements, and not to over extend financially.

A severe drop in demand, especially in North America, Toyota’s largest market, accounting for one-third of vehicle sales, and profit erosion from a surging yen were too much for Japan's No. 1 automaker. A strong yen hurts results because Toyota must convert overseas profits into the Japanese currency. With the U.S. auto sales not expected to recover until late 2009, and with the dollar already at a 13-year low against the yen, this could create additional hardships on Toyota.

Despite the setback, the automaker is still poised to stay ahead of its main U.S. rival, General Motors Corp., and be the No. 1 world carmaker in 2008. Toyota reported it sold 7.05 million cars worldwide during the first nine months of the year, compared with 6.66 million for GM for the same period. Toyota had reported strong growth in recent years, boosted by heavy demand for its innovative fuel-efficient models like the Camry sedan and Prius gas-electric hybrid.

Toyota Motor Corp., is committed to zero layoffs, and has not had any layoffs since the 1950s. This practice has become a part of their culture to ensure employment and stability for employees. Toyota announced it has no intention of drifting from its practice of avoiding layoffs for full-time employees either globally or for its 14 U.S. factories located in the South and Midwest. Instead, it assigns other tasks for employees when plants become idle, such as training or community service. Employees can also take unpaid time off. This practice has helped the automaker resist unionization at its factories; saving it from the high costs of labor plagued by its U.S. counterparts, making any U.S. layoffs by Toyota in the future unlikely.

Toyota is a relatively old-style Japanese company that offers lifetime employment, and only in recent years has hired and let go of temporary workers to adjust production.

Toyota vowed it would grow profitably through lean and innovations, this is what we call “Leanovations”, and it would return to profitability even if its worldwide sales fall as low as 7 million vehicles. The automaker will focus on hybrids and small cars, and invest in environmentally friendly technology to prepare for long-term growth.

Companies implementing Lean must continue to teach the Toyota Production System, and the foundation of Lean with smart innovations and profitable growth. It is obvious to us at Leanovations, that the Toyota executive team will reflect carefully, refocus their plans, develop corrective actions, and build a brighter future. Be assured Toyota will learn from this and become stronger, providing even better products and services. Can we say the same for the U.S. Automakers?