Battered by crises, Toyota declares a rebirth

The pink Toyota Crown sedan that took centre-stage at a holiday event in Tokyo recently was meant to shock, and it did. The Crown, the preferred ride of staid Japanese executives, had gotten an edgy makeover.

With a new oversize grille, vamped-up hybrid engine and an unveiling at a fashion mall, there was nothing stodgy about this car. “Reborn,” read a logo beamed onto a large screen.

“My initial reaction was: ‘You’re kidding! Please, not pink,” Akio Toyoda, the Toyota chief executive and a scion of the Japanese automaker’s founding family, told reporters at the event. “But being reborn does mean taking on new challenges.”

Toyota has spent much of the last year trying to leave behind what has been a tumultuous four years in which the automaker booked its largest loss ever, became embroiled in a recall scandal, struggled with a decimated supply chain after the 2011 tsunami and weathered the punishing effects of a strong yen.

One by one, the pieces have been falling into place. In 2012, Toyota leapfrogged General Motors and Volkswagen to regain its title as the world’s largest automaker, selling 9.7 million vehicles, a record for the company. Now the company is on the cusp of a recovery, analysts say, that could put it on track to post the kind of growth promised before the crises.

Recently, Toyota agreed to pay more than $1 billion to settle a class-action suit over claims that its electronic malfunctions caused its cars to accelerate without warning, one of the largest payouts ever for an automotive lawsuit. Toyota still faces personal injury and wrongful death lawsuits, as well as an unfair business practices case brought by 28 attorneys general in the United States. But the company’s $1.1 billion charge against earnings for the class action was seen as a significant step toward closing the chapter on its recall problems.

There have been other signs of change. The company supply chain bounced back more quickly than predicted, profits are on the rise and the yen has started to weaken after the newly installed Prime Minister, Shinzo Abe, promised to drive down that currency.

And there is a loud message of change being sounded through the stepped-up emphasis on design – with both Toyota and Lexus models getting new looks, including the pink Crown. “It’s actually a beautiful colour,” Toyoda said.

Toyota’s rebound has been centered in the United States, where its sales increased 28.8 per cent last year to 1.88 million vehicles through November. That is more than double the industrywide increase of 13.9 per cent over the same period.

The biggest contributors have been stalwart products such as the Camry, and the expanded line of Prius hybrid models. Through November, combined sales of Prius cars had risen 81.3 per cent in 2012, as the company continued to dominate the hybrid segment.

The company is also betting on a revamped version of a perennial also-ran, the Avalon sedan. Sales of the current version of the car were down 5 percent last year. The new model, with its wide-mouth grille and sculptured headlamps, reflects the company’s efforts to appeal to younger buyers. Toyota is trying to shave 10 years off the average age of buyers, now in the mid-60s. By shifting more production overseas from Japan, Toyota is also addressing a critical weakness in its production setup: that it still makes the bulk of its cars in high-cost Japan, where the strong yen of recent years has weighed on the automaker’s bottom-line.

Through line closures and reorganisation, Toyota is in the process of slashing its production capacity in Japan from nearly 4 million to around 3 million by 2014. It has increased overseas production capacity by 1 million, opening new factories or expanding existing ones in the United States, China, Thailand, Indonesia, India and Brazil.

For every one-yen drop in the value of the dollar, Toyota loses 35 billion yen (roughly $400 million) in operating profit.

Delegating responsibilities more globally has also been a pressing task as Toyota digs out of its recall crisis. At the time, Toyota was criticised over its seeming need to coordinate every decision from its Toyota City headquarters, thousands of miles away, which US regulators said contributed to large delays in issuing global recalls for known problems.

Toyota says it has overhauled its quality control setup and given broad powers to regional executives in charge of safety in North America, Europe and Asia. Company executives at the time said that customer complaints would be tracked more closely and necessary recalls issued more quickly. Those changes appear to be a work in progress. Last month, Toyota agreed to pay a $17.35 million fine – Toyota’s fourth since 2010 and the maximum amount allowable – to settle allegations by the National Highway Traffic Safety Administration that the automaker delayed a safety recall.

The safety agency contended that over 150,000 2010 Lexus and RX sports utility vehicles recalled in June should have been included in a 2009 recall of 3.8 million vehicles for the same issue.

Toyota did not admit any wrongdoing and said it was paying the fine to avoid a continued dispute with the safety agency. Nevertheless, it is clear that Toyota needs to rebuild confidence.