New York Times
February 17, 2002
Danny Hakim and Micheline Maynard

Hot Dogs, Apple Pie and Toyota

Georgetown, Ky - In the cafeteria, there are sticky rice and hush puppies, soy sauce and ketchup, chopsticks and forks.

This is Toyota, bluegrass style.

People used to buy only American here. But the Toyota plant has been on a flat patch of land between Lexington and Cincinnati for 14 years now. After a recent expansion, it could cover 156 football fields, and almost all its 7,000 workers are Kentuckians.

"If there's such a thing as a politically correct car in central Kentucky, it's a Toyota," said Mike Tewell, a local Toyota dealer.

And John M. Stewart, 32, an assembly-line manager who started here at 19, said, "I think everybody sees Toyota as a local company now." Like many other workers, he did not grow up driving foreign cars. "When I first got hired," he said, "I didn't even know what a Camry was."

Toyota, with 13 plants and operations in eight states and 29,000 local workers, becomes more American by the day. Last year, for the first time, it sold more automobiles in the United States — 1.7 million — than in Japan, excluding its half-owned Daihatsu unit. Toyota's sales were fourth in the American market, setting off speculation that overtaking Chrysler, which is just 500,000 ahead, is only a matter of time. In 1994, the gap was more than a million.

A decade ago, Chrysler's chairman, Lee A. Iacocca, said it was time for Americans to pull back Japan's "Teflon kimono" and realize that American cars were just as good. But it is becoming harder to put the competition in nationalistic terms. Sixty- three percent of the Toyotas sold in North America are now built in North America. And in 1998, Chrysler was acquired by DaimlerBenz of Germany to form DaimlerChrysler.

Still, the rise of foreign automakers has been a huge blow to the United Automobile Workers because the union has never succeeded in organizing a plant owned solely by a foreign manufacturer. As the Big Three's market share has dwindled, so has U.A.W. membership — to 700,000 from 1.5 million two decades ago.

"The majority of the parts come from the homeland," said Stephen P. Yokich, the union's president. "Not only have we lost jobs, but the suppliers have lost jobs as well."

Toyota has countered by saying that almost three-quarters of the parts used in the vehicles that it assembles here are domestically made.

Mr. Yokich said both European and Japanese automakers had built plants in areas where workers were used to low wages. "We're not denying they've brought jobs here," he said, "even though they're nonunion jobs and they bitterly oppose the union. The places they've built their plants are nonunion areas, down South."

Toyota poses two big threats to the Big Three. It is adding more pickups and S.U.V.'s, once the sole domain of Detroit. And Detroit has ceded much of the car market to companies like Toyota and Honda. If trucks are Detroit's profit center, cars are a crucial entry point; a car customer may never return.

Perhaps most galling to Detroit is the fact that Toyota earned $4.7 billion last year, according to a Morgan Stanley estimate. Chrysler lost an estimated $2 billion last year, and Ford Motor lost $5.4 billion. Even a resurgent General Motors made only $601 million, down 87 percent from 2000.

A big chunk of Toyota's earnings can be traced to the weak Japanese yen, which has made exchange rates highly favorable for cars and parts from Japan and for profits sent back home. Detroit has complained loudly about the advantage, but the Bush administration has not criticized Japan because its economy is deep in the doldrums.

Each of the Big Three has a particular worry. G.M. worries because Toyota leads the market in used cars that carry dealers' certifications, even though G.M. sells six times as many new vehicles. Automakers get a cut of these sales, and dealers love them because they are so profitable. Ford worries because the gap between the Camry and the Ford Taurus, America's best-selling car in the mid-1990's, is growing wider. Chrysler worries because its drive to profitability is being thwarted by every Toyota sale.

Toyota says overtaking Chrysler is not on its radar. "Focusing on whether or not we're going to pass Chrysler is largely irrelevant, it really is," said James R. Olson, Toyota's top Washington lobbyist. He added that Mercedes-Benz sales should be lumped in with Chrysler's anyway, just as Lexus sales are combined with Toyota's.

But Toyota has taken steps that show it cares more than it lets on.

Overcoming Obstacles

The introduction of the redesigned Camry, Toyota's flagship car, began 18 months ahead of time.

"It's a coordinated effort," said Donald V. Esmond, general manager of the Toyota brand in the United States. "I don't think there's another manufacturer that works as closely as we do with suppliers."

The process led to a month-long delay for the last new Camry, in 1996, when officials in Kentucky were having trouble getting it ready. Ten days before production was supposed to begin, the plant's general manager called Mr. Esmond to say he had good news and bad news.

The bad news: the side-view mirrors were falling off. The good news: that had occurred on only 3,000 cars. All were caught before they were shipped and could be fixed in three weeks. Mr. Esmond wanted it done faster. The next day, 27 employees volunteered, and a day later, 250 more. The cars were on their way in three days.

It wasn't so simple this time. Toyota began an advertising blitz on Sept. 5 but pulled the ads after Sept. 11. The Big Three, led by G.M., started huge campaigns that wrapped car sales in the flag, promoted interest- free financing and urged Americans, in G.M.'s words, to "keep America rolling."

Nothing tests globalization like a war, especially one in which the enemy favors Toyota pickups. (A Toyota spokesman, Wade Hoyt, said, "It shows that the Taliban are looking for the same qualities as any truck buyer: durability and reliability.")

In October, Toyota hired a polling company to conduct a telephone survey, asking 3,100 consumers how they would feel about Toyota if it passed Chrysler as the No. 3 American auto company.

Sixty-five percent had a favorable, or at least neutral, attitude, a margin that Toyota considers a victory. Of those who said they would have a problem with that, most were white men over 55 from the Midwest, never a core Toyota demographic group.

"Chrysler is not Chrysler anymore; it's owned by Mercedes- Benz," one respondent said in the poll, according to the results, which were not made public. "So if Toyota is displacing them, I don't care. G.M. owns Saab, Ford owns Jaguar, and Toyotas are made in America."

Soon afterward, Toyota resumed its Camry campaign. Dealers had already been notifying previous Camry customers to tell them that the car was coming. By December, Toyota's overall sales were still growing faster than any of the Big Three's.

A World of Sharp Elbows

"It's not that we're passing Chrysler," said James E. Press, executive vice president and chief operating officer of Toyota's American sales arm. "Chrysler stopped."

In October 2000, a former Mercedes executive, Dieter Zetsche, was dispatched to take over Chrysler and stop its precipitous decline. Wall Street thinks highly of Mr. Zetsche, but that does not mean it believes that he, or anyone, can return Chrysler to the good old days.

"Somebody else is more interested in crushing them than we are," said Yoshimi Inaba, president and chief executive of Toyota Motor Sales U.S.A.

That somebody would be G.M., whose interest-free financing push did reignite sales, but at a cost to profits. Toyota and Honda maintained sales while offering less of a financing incentive because they could rely on customers' loyalty.

"It's unavoidable" that the Big Three attack one another, said John Casesa, an analyst at Merrill Lynch.

"These companies have huge fixed costs and a huge motivation to keep the factories running," he added. "In the long run, Toyota is the competitive threat. In the short run, you're more likely to steal sales from competitors in Detroit."

In a few ways, Toyota is not so different from a Detroit company, especially given its growing reliance on truck sales. Many of its American executives started at the Big Three. And even though Toyota's earnings growth is the envy of Detroit, Toyota draws as little interest from American investors as the Big Three automakers' stocks do, but for different reasons. Japanese investors have already given Toyota an expensive valuation, and its disclosure is less frequent and extensive than that of American companies.

Analysts say Toyota's biggest hurdle is one that beset G.M. and Ford in the 1970's and 1980's. Art Spinella, president of CNW Marketing Research, summed it up as the "I don't want to drive my father's Oldsmobile" problem.

"The same younger generation buying Korean cars today don't want to buy their fathers' Toyota Camry," he said, adding that Toyota was "a little concerned about Hyundai because they are doing nifty stuff and capturing some of that youth market."

Toyota appears close to starting a third, youth-oriented brand in addition to Toyota and Lexus. But one challenge, analysts say, will be the problem of shaking the Japanese automakers' conservatism when it comes to style.

Some potential for attracting youthful buyers can be seen in the 2003 Toyota Matrix, a funky vehicle known as a crossover design because it combines elements of a car with a small S.U.V. Toyota is running advertising showing spies on a manhunt struggling to describe the car but unable to find the words. The Matrix swooshes by, undetected.

Paying Attention to Details

The factory floor sounds like a video arcade invaded by ice cream trucks and riveters. Floating overhead is the piped-in sound of "Suzy Q."

"We do country, we do oldies, adult contemporary, rock," Rick Hesterberg, the plant's communications director, said as he piloted a golf cart, weaving around workers on three- wheeled bicycles and automatic carts. "We try to keep everybody happy."

In one cavernous corner, a huge yellow claw descends to scoop up coils of steel that weigh up to 17 tons. The coils are hauled over to machines that unroll them, chop them into pieces and stack them. Robotic arms pass the flattened sheets through enormous presses that crunch together in thundering industrial rhythms, while recognizable shapes — a hood, a roof — are impressed on the steel.

Toyota Motor Manufacturing Kentucky produces the Camry and Avalon sedans and the Sienna minivan. The path from coil to car, by way of myriad assembly lines, presses and a paint shop, takes about 20 hours. Every 55 seconds or so, a car or minivan comes off the line.

To an untrained eye, it is hard to tell what makes one auto factory different from the next. There are few Japanese employees, but some telltale Japanese devices, like scoreboards, called andons, that blink when a certain segment of the line stops. Such scoreboards are now found in some Big Three plants.

Toyota's overriding philosophy, honed since it began life in the 1930's as a loom-making company, preaches putting the customer first. That does not sound radical — Burger King does the same. The difference is that everybody's a customer at Toyota, starting with the next guy down the assembly line. Pass on a problem, let down a customer.

Mr. Stewart explained how workers could treat one another as customers. He manages a part of the assembly line called Trim 1, where wires are hooked to a piece of the frame in the front of the car.

"Before, you had to do the work hanging over the fender," he explained. But a group of line workers, recruited to consult with Toyota's designers, suggested that the front metal strip be added farther down the line so workers could easily step inside the front of the car.

Obviously, details are important, but Toyota does make mistakes. This month, Toyota started sending letters to 3.3 million customers, offering to repair engine sludge damage in some 1997 to 2001 models. Some customers criticized the company for not moving sooner to fix the problem, which Toyota says stems from improper maintenance.

And not all of Toyota's vehicles have been hits. The light sales for the Echo subcompact and T-100 pickup, the predecessor of the current Tundra, attest to that.

Mr. Esmond said bluntly that Toyota officials in Japan had not given the American operation a vehicle that could compete with G.M. and Ford pickups. But the Tundra, rated the nation's best pickup by Consumer Reports, reversed that. Mr. Press added that the American operation had gained even more leverage with the home office now that the United States was Toyota's biggest market.

So far, glitches have not dented the company's brand.

"People overlook that stuff if their overall experience is good," said Mr. Spinella, of CNW. "These things aren't junk — they're just off the mark as far as Toyota is concerned."

At Home in America

One of the American converts to Toyota's approach is Gary Convis. He started at G.M. Then, as a Ford executive, he moved five times in 18 years — to Southern California and Michigan, then to Ohio and Kansas City and back to Detroit.

"I never owned a foreign car," he said.

Frustration with the approach of the Big Three convinced him that American workers could do better. He became the head of Toyota's first foray into the American work force, at a plant in Fremont, Calif., operated jointly with G.M. Now, as president of the Kentucky operation, he is one of Toyota's most prominent American executives.

"We don't think we're foreign," he said. "We're an American company. We are as American as they are."

Copyright 2002 The New York Times Company