Thirty-Year Decimation of the American Car Market

Toyota's impact on the American auto industry in less than 30 years cannot be overstated. From 1958 to 1988, Toyota increased its production efficiency by over 1400%, while Ford and GM remained relatively stagnant. In 1955, Toyota produced four vehicles per employee, while Ford and General Motors produced ten vehicles per employee. Toyota reentered the U.S. market with the Corrolla in 1965, following a false start with the Toyopet in 1958. At this point, Toyota was twice as productive as Ford and GM. Toyota surpassed Volkswagen in 1975 as the leading import brand in the United States. At this point, they are producing 50 cars per employee. Meanwhile, Ford and GM continue to produce an average of 10 vehicles per worker. By the time Lexus is launched as Toyota’s first luxury line in 1989, Toyota is makings more than 60 vehicles per employee. Ford and GM are still manufacturing automobiles at a nearly identical rate to 1955.

Toyota is making fuel-efficient cars incredibly more reliable at a much lower cost during the same period. Toyota can also produce new models in half the time of American car manufacturers. Overall, Toyota was making cheaper, better, and more efficient cars in half the time.

During the 1980s, Toyota decided it needed to build cars locally rather than export them. With the same success they had in Japan, Toyota proved they could set up new factories with trained personnel. Toyota was able to confirm that superior performance in manufacturing was not due to the unique characteristics of Japanese workers. Toyota's GM-Toyota joint venture NUMMI demonstrated superior productivity and quality compared with U.S. factories and equal process flexibility with Japanese plants. Essentially, they developed plants in the United States with American workers and yet achieved the same level of output and quality as Japanese employees. At the end of the nineties, Toyota had products in practically every essential category and an impressive domestic market.

End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust. - Dr. Deming's Point 4

According to a 1992 study, a typical Toyota plant had only 125 suppliers compared to 800 for a standard General Motors plant. Another study shows that the Toyota supply chain did 50% less in-house work than their North American counterparts. This runs counterintuitive to the notion of using suppliers to reduce labor and save money. In alignment with Dr. Deming's point number 4, Toyota's supply chain used fewer suppliers and produced less waste.

The North American Automotive OEM-Supplier Working Relations Index® (WRI®) provides a supplier's perspective on OEM relationships. From 2002 to 2006, Toyota's average rating was 350, with a 30% positive change over the five years. From 0 to 249 is considered "poor," 250 to 349 is considered "adequate," and 350 to 500 is considered "good to very good." In the same period, GM's average rating was 125, while its WRI decreased by 20%. Toyota produced more products, had fewer suppliers, and overall had better relationships with their suppliers than their North American competitors.

In the 1990s, auto firms began considering combining an electric motor with an internal combustion engine to improve fuel efficiency. When GM debuted its first hybrid automobile, the Chevrolet Volt, in 2007, Toyota already had a ten-year lead with the Prius. Five or six cycles of modifications and improvements have already taken place for the Prius. Next, Toyota diversifies its market with the hybrid Camry. With the hybrid Camry, taxi fleets could fill up their tanks once a day instead of twice a day. In the first year, the hybrid Camry can pay for itself through fuel savings. Eventually, hybrid models were developed for Lexus cars so that owners could focus on performance rather than saving money or gas. Toyota not only had a ten-year head start but its hybrid cars became available on 24 different platforms. About 100,000 Chevy Volts were sold by the end of the 2010 decade, while Toyota's hybrid vehicle had 9 million sales.

Both American lapses and Japanese innovations can best explain Toyota's history. Toyota challenged the assumptions about mass production. Toyota proved that innovation in manufacturing could lead to a competitive advantage. In addition, they defined the concept of continuous, incremental, and integrated improvement.

Toyota made huge inroads into the international automobile market during these 30 years.