By Chester Dawson

By slamming the brakes on costs, incoming chief Katsuaki Watanabe put his career -- and the car maker's profits -- in the fast lane

When Toyota Motor's (TM ) newly anointed president isn't busy making auto-part suppliers cry uncle, he likes to stretch his own vocal chords as part of a men's choir. Japan's largest carmaker announced Feb. 9 that Katsuaki Watanabe, 62 -- cost-cutting guru, vocalist, and executive vice-president -- will take over from President Fujio Cho, 68, in June.

The shakeup among Toyota's chiefs of staff came as a surprise to industry observers. Many expected Cho to extend his nearly six-year tenure through mid-2006.

Toyota officials describe Watanabe's fast-forwarding as part of a wider reshuffle designed to bring new blood to the ranks of upper management. That includes Akio Toyoda, 48, grandson of the company's founder and the current head of Toyota's business in China, who'll become an executive vice-president.

STREAMLINED MODEL. It's not hard to fathom why Watanabe was chosen to lead Toyota at a time when efficiency and quality are the watchwords of the automobile industry. His promotion is widely seen as a reward for his success at trimming the fat, thus giving Toyota a critical edge over the competition. "One of the biggest factors [in Watanabe's promotion] is that he has been so good at slashing procurement costs," says Koji Endo, analyst at Credit Suisse First Boston in Tokyo.

Indeed, Watanabe, who graduated with an economics degree from Keio University in 1964, is best known in Japanese business circles for his knife-wielding prowess. It was on Watanabe's watch in 2000 that Toyota launched its Construction of Cost Competitiveness for the 21st Century (CCC21) streamlining initiative, which has helped it save nearly $10 billion over the past five years. CCC21 targeted about 180 key parts for 30% price cuts across the board.

The success of that effort has made Toyota the industry's cost and quality leader. And all indications suggest Watanabe has no plans to let up on the relentless streamlining once he becomes top dog.

At a press conference in Tokyo shortly after his appointment, Watanabe made it clear that Toyota's big concern isn't when it will overtake General Motors (GM ) as the world's No. 1 carmaker -- expected to happen as soon as 2008 -- or outfoxing domestic archrival Nissan Motor. Rather, the most daunting issue facing Toyota, according to Watanabe, is complacency. "I feel that being successful may make us arrogant and want to stay in a comfort zone," he says. "That is the threat."

HARD BARGAINER. For now, Toyota is firing on all cylinders. On Feb. 3 it reported a 3.5% gain in net profit, to $2.9 billion for the October-December quarter. That was on a 5.9% rise in sales, to $45 billion. And although it hasn't provided earnings guidance for the fiscal year ending in March, it is expected to best last year's record profit take of $11.3 billion.

A big reason: The cost cuts achieved under CCC21 aren't about to come undone anytime soon. "Efforts to cut [costs] are still having a positive earnings impact," noted Nikko Citigroup analyst Noriyuki Matsushima in a recent report. In fact, the results should spread throughout Toyota's vehicle lineup later this year, as it introduces a slew of new models built with lower-cost parts vetted under the CCC21 program.

While Watanabe lacks the international experience of his two immediate predecessors, the easygoing Cho and the outspoken chairman Hiroshi Okuda, 72, he's the face of Toyota to hundreds of affiliated companies, or keiretsu, and outside auto-part makers. His duties have also included overseeing the company's housing unit and Toyota's key Motomachi plant near company headquarters.

Watanabe also is said to have played a major role in Toyota's decision in December to help bail out troubled Misawa Homes Holdings. Toyota will essentially integrate that company into its own housing unit to create Japan's third-largest single-family homebuilder.

MENTOR ROLE. Watanabe's managerial touch is so highly regarded in Japan Inc. that he was invited last fall to give a special lecture to senior executives at rival Mitsubishi Motors (MMTOF ) and Mitsubishi Heavy Industries. Analysts say the new chief will likely be doing more lecturing inside Toyota, because his chief duties will include nurturing Toyoda, who is expected to succeed him as president in a few years.

"Watanabe obviously knows Akio [Toyoda] will become president sooner or later. And he may have been chosen because he is such a good teacher," says Credit Suisse's Endo.

Nissan CEO Carlos Ghosn may be known as "le cost killer" for having whittled procurement costs by 20%, but when Watanabe takes his new job, Ghosn will have more than met his match.

source : Businessweek

 

Gotta be careful, though. Toyota.....and especially Lexus.....didn't get to where it is today with its reputation for quality by playing skinflint or bean-counting. Quality parts and components don't come cheap

Hyundai has already discovered that. With its astounding increase in quality in the last few years has come upwards-creeping prices as well.....still a bargain though compared to many other makes..

 

Wow Toyota overtaking GM? Now that's what I like to hear.

 

Goodness, I'm with MMarshall. I get very scared anytime I hear Cutting costs, as when u look at some other car makers, its hella obvious in many of their products.
Toyota has always been good at hiding where they have cut costs and working with suppliers. Lets hope that continues.

 

cost cuts dont mean less quality... In fact, every new model that came out after this measures started implementation had excellent pricing, and significantly better package (quality, performance, styling). For example compare new Avalon with old one - higher quality materials, much better engine & overall package at the same price as before. Same thing in Europe where models like Avensis are at top of the class quality wise and yet cost less than most competitors.

Thank god for cost cuts, or we would end up selling cars that cost too much ;-).
I have yet to see one new model that didnt have substantially higher quality materials than previous version. For example, new Corolla in Europe is considered (by German top magazines) as car with highest quality interior (both perception of quality (materials used) and build quality), which was unheard of 3-4 yrs ago for an Toyota...

 

Actually, at least according to the latest JDP survey, Toyota's initial quality has slipped a bit (not Lexus though,which remains on top), whether that has anything to do with their recent cost-cutting measures by Wantanabe, I'm not sure . . .

 

I like this guy already

 

Cost-cutting doesn't mean cheaper parts Watanabe's term. I think he wants to cut cost on some of the useless parts that will not effect the quality of the vehicle and still maintain the high level of luxury.

For example: The 98-00 GS400's engine cover has 4 metal bolts holding the cover onto the engine, but the 01-04 GS430/LS430 only has 2 bolts and a metal clip to holding the cover onto the engine. The engine cover still there, but minus 2 bolts. If you're talking about 2 metal bolts time it by 1,000,000 vehicle. I can't imagine how much the money they can save.

If you open the hood of any newer Lexus model, such as GX, LS or RX330 you will see that they used plastic clips and plastic nuts to cover the whole engine by plastic insulators all over the engien. Instead of use the metal bolts which is more expensive and the top part of the engine don't generated too much heat at all, so they save themselve a few million dollar by using the plastic clips, plastic engine covers and reduce noise at the same time.

One of the guy I'm trainning right now asked me " Why the IS300 has single exhaust and the 98-04 GS300 has dual exhaust and both cars share the same I-6 engine and drivetrain?"

Well, the answer is, the GS300 share the same body with the GS400/430, so it's make no sense for Lexus to make 2 bumpers, one for the single exhaust GS300 and one for the dual exhaust GS400. More money to spend for them.
Plus, they have to realign where the exhaust have to be mount on the GS300 if the GS300 has single exhaust. The easiest solution is using the same dual exhaust from the center of the car back all the way to the bumper, done deal.

I think this is the way Toyota's cost-cutting is where the customer can't notice it. Those little things that they can save money on will go to improve on the big thing that we can see and feel.

If they can save $2.00 a car by using plastic clips where the metal bolts are overkill. Then time that by how many cars, trucks, boats, or forklifts Toyota make per year and you will see where the extra money is coming from.

 

I agree with you on the Corolla....the present one has perhaps the highest-quality Corolla interior yet.
Definitely not the case inside with the Avalon. I looked at and test-drove an XLS today (see my extended comments in the Avalon-280 HP thread). Great powertrain and brakes. Well-assembled but cheap-looking interior with cheap-feeling parts and hardware, except for the nice Lexus-type backlit gauges. The first U.S.-market Avalon (1994-1999) had a superb-quality interior that IMO neither the second or third-generation Avalon could match.