The Hindu Business Line : Auto industry: Asia on fast track

Toyota Motor is well poised to overtake ailing competitor General Motors as the world's largest automaker. While Ford is busy remoulding into a smaller company, shutting down two plants and shedding thousands of jobs, and DaimlerChrysler too plans to slash US production, Toyota moves on to enhance overseas production by as much as 40 per cent of its 2005 level to five million vehicles by 2008, including a 20 per cent higher production in the US, to 1.84 million vehicles.

Toyota's plans include scaling up production above one million units in Asia, excluding Japan and China. With its domestic production rising to 4.15 million vehicles by 2008, Toyota's global output will aggregate 9.1 million. Toyota's worldwide production in 2005 was 8.23 million autos against 9.05 million by General Motors. Toyota overtook Ford in 2003 and the latter has been falling farther behind. The automotive industry worldwide turns out some 60 million cars and trucks a year.

Since 2000, the output of the global industry has risen by about three million vehicles, to some 60 million: Of that increase, half came from Toyota alone, hailed as the world's most efficient carmaker. Honda revealed plans to spend $1.18 billion on new plants in the US, Canada and Japan.

JAPAN: METAMORPHOSIS

The transformation wrought by Japan in its industrial manufacturing has been a great success story. It is especially so in the automotive sector. Japan's post-Second World War policies reflected three approaches:

Protection: Tariffs - favourable for small, that is, domestic cars and unfavourable for large, that is, imported cars and controls on inward Foreign Direct Investment.

Promotion: Technology imports, financial assistance, domestic demand creation, and infrastructure support such as highway construction.

Trade-dispute mediation: With other governments in respect of voluntary export restraints. Soon Japan overtook the European automakers and emerged the second largest automaker, next to the US. Between 1951 and 1984 Japanese companies entered into nearly 42,000 contracts for importing technology at a cost of about $17 billion. The automobile industry is a major example of MITI intervention.

For Nissan, MITI encouraged and supervised a seven-year tie-up with Austin beginning in 1952, first to assemble and then to produce Austin A-40 cars in Japan. In 1966, MITI arranged a merger between Nissan Prince Motor Co and Nissan. By 1983, Nissan Japan overtook Ford, US, to become the third largest automaker after GM and Toyota.

JAPAN SETS NEW TRENDS

An automobile is composed of some 20,000 parts. The industry is composed of a small number of automakers and a large number of component makers. Japanese automakers are less vertically integrated — they make fewer parts and buy more. Each Japanese automaker, with the exception of Honda, has kyoryoku kai (suppliers associations), each of which includes 1,000-3,000 parts makers.

The MCI (the Japanese Ministry of Commerce and Industry) encouraged small-and medium-size enterprises to form associations, particularly for exporting. The MCI played an active role in promoting technology transfer and devolution as part of its production rationalisation campaign. Japanese engineers and managers grew accustomed to the idea of "using the factory as a laboratory".

Simple practical concepts helped create a conducive work ethos and environment, for example, the Saturday machine maintenance, which involves senior managers participating in cleaning machines. Every Saturday, at 4-30 p.m. (shift change time), all senior managers were expected to come to the shop-floor and clean a specific machine, creating an environment and feeling of togetherness and a greater cohesiveness within the workforce.

TOYOTA: A TRAILBLAZER

In 1938, Kiichiro Toyoda, founder of Toyota Motor Corp, instructed his understudy, Eiji Toyoda, to build a factory on land cleared from a red-pine forest in central Japan. That plant, located in what is now called Toyota City, pioneered concepts such as just-in-time inventory control, Kaizen, constantly adjusting the manufacturing process for savings and quality improvements, and Kanban, parts labelling — all disciplines common today in factories from Detroit to Stutttgart.

In 1929, Mr Toyoda's understudy toured car factories in the US and Britain. He spent his days reverse-engineering Chevrolet engines. By 1935, the Kiichiro-Eiji pair developed a prototype called the A1, a Chrysler DeSoto Airflow knock-off. After Kiichiro's death in 1952, Eiji became a Managing Director, and was sent to the US to study Ford Motor Co's River Rouge plant. He returned impressed by Ford's scale but scornful of the inefficiencies. He, with veteran machinist Taiichi Ohno, fine-tuned Toyota's operations.

Ohno's basic concept of the system `thorough elimination of wasteful practices' is supported by two fundamental principles — "right on time", and "automation". The inspiration behind JIT, the idea that inventories can be virtually eradicated in the production process, came from Kiichiro Toyoda, two years before the production of the first Toyota car, in 1937. The lean production technology pioneered at Toyota Motor Company, under the leadership of Taiichi Ohno, constitutes the essence of its unique competitiveness.

Toyota developed the concept of multi-machining opposed to open machines lay-out in `U' shape with a single worker overseeing a group of machines around him/her as opposed to a straight line layout with one person per machine. The task of workers shifted from being mere operators of a single machine to maintaining machines and seeking precise modifications so that machines would not shut down. Workers thus became problem-avoiders.

Toyopet, Toyota's first entry in the US market in the late 1950s, was a failure. It was unreliable, unattractive, unsafe; it did not sell. This forced Toyota back to the drawing board, before re-entering the market, nearly a decade later. To increase production flexibility and product variety radically is illustrated by an example from General Motors-Toyota joint venture plant in Fremont, California, where a typical die-change time was reduced from 12 hours to 15 minutes.

Whereas the Ford assembly line was "self-moving", the Toyota line was designed to be "self-working". A self-working machine is designed to detect abnormalities and stop automatically before any defective products are produced.

Between 1993 and 2003, Toyota's overseas production more than doubled to two million units, while in Japan it declined from 3.5 million to 3 million. In 1980, Toyota had 11 factories in nine countries; in 1990, it had 20 in 14 countries; today, it has 46 plants in 26 countries. Toyota is leading the way with hybrid electrics en route to full-scale fuel-cell cars.

GREAT GERMAN AUTOMAKERS

Another great car-making country Germany also has several lessons to offer. Altogether 3.27 million new passenger cars were introduced in the market in 2004. In the last 10 years, German car exports have swelled by 62 per cent and those of commercial vehicles by 95 per cent. The German groups have expanded their worldwide production to over 13 million vehicles. One vehicle in five produced anywhere in the world is a German brand and among cars the proportion is 23 per cent. Every second diesel car sold in Western Europe comes from a German firm.

ZOOMING IN ASIA

According to an annual global survey of automotive leaders conducted by KPMG LLP, the next big surge in global automotive demand will be from Asia. Asian automakers have already wrested a substantial 13.3 per cent of the European market.

The Chinese auto industry is shifting from manufacturing only for fast-growing domestic market to become an export base for the rest of the world as well. Its 3-million vehicle production capacity currently outstrips demand by about half a million vehicles. They are likely to follow the Japanese and Korean examples. With an average $2 vs $22 per hour in Korea, and more than twice of the Korean wages and benefits in the US, China is well poised to compete in the overseas markets.

(The author is a former Managing Director of Concor.)