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Is Toyota Still the Champ?

Toyota has unquestionably been instrumental in promoting Lean principles through its production system. The evolutionary, and sometimes revolutionary, path it has followed has been emulated by many, and is often held out as the beacon of Lean in the continuous improvement community.

In his 2004 book, The Toyota Way, Jeffrey Liker clearly established Toyota as the dominant player in the auto making world. He laid out a series of metrics that were hard to argue with.

But the better part of a decade has passed since he started work on his book, and the world has gone through one of the most trying economic times in modern history. In this article, I will revisit some of the measures Liker used to establish Toyota as the torch bearer of Lean.

I want to make one thing clear up front. My belief is that Toyota continues to be a great company with many outstanding practices. They still have a lot to teach.

The point of this article, though, is to address the irony that surrounds Toyota’s mystique. I regularly wander around cyberspace to keep abreast of new ideas about Lean. I am troubled by the blind faith I see that people have that TPS is THE way that Lean should be done. The irony is that Lean teaches us to question beliefs, to gather facts and data, to avoid operating under assumptions, and to test our theories before acting on them.

So, let’s look at some of the metrics posted in Jeffrey Liker’s book.

In 2003, Toyota earned $8.13B, which was greater than Ford, GM, and Chrysler combined.

On the 2009 and 2010 Fortune Global 500 lists, earnings were significantly different. (Numbers are in billions.)




Ford $ (14.672) $ 2.717
Honda $ 1.364 $ 2.891
Toyota $ (4.349) $ 2.256
Nissan $ (2.326) $ 0.456
Daimler $ 1.973 $ (3.670)
Hyundai $ 0.780 $ 2.330


Note that in the 2010 list, Toyota was fourth in profit behind Ford, Honda, and Hyundai. Also of note, Ford had just over half of Toyota’s revenue (2.3% profit as a percent of revenue), Honda (3.1%) had less than half, and Hyundai (3.3%) beat Toyota’s earnings with only slightly more than a third of the revenue that Toyota took in. The profit margin lead, probably a better indicator of Lean success, would show Toyota far behind all three (1.1%).

Of course, quality is closely linked to that profit. In The Toyota Way, Liker discussed Toyota’s low recall rate and its place at the top of the J.D. Powers rankings.

In 2010, that same initial quality survey had Toyota listed well below the industry average in initial quality. This data shows the number of reported problems per hundred cars in the first 90 days of ownership.


JD Powers Initial Quality 2010

Porsche 83
Acura 86
Lexus 88
Ford 93
Honda 95
Lincoln 106
Infinity 107
Average 109
Chevrolet 111
Nissan 111
Mercury 113
Buick 114
Mazda 115
Toyota 117
Chrysler 122
GMC 126
Dodge 130
Land Rover 179


Interestingly, 2010 was the first year that US domestic cars had a higher initial quality than imports in the 24 year history of the study. It is also notable that the average in 2003 when Liker first referenced the data was 129 for cars imported to the US and 135 for cars made by US manufacturers. In the 2010 list, the industry average was 109. There has been a dramatic overall improvement in quality.

Liker also mentioned Toyota passing Chrysler in 2003 in total vehicles sold in North America. He was right in predicting that Toyota would continue to grow. It eventually did pass Ford in the US market, but relinquished its lead over the first 9 months of 2010. Despite its woes, GM still sells the most cars in the US.

A final comparison I will make is in stock price over the last 5 years. Using data from CNN/Money, while Ford has risen 47% and Honda has climbed 28%, Toyota is down nearly 23%. In fairness, with a longer window, Toyota trounces the competition, but recently, it has been lagging.

So what are the lessons I take from this information?

  • Toyota is no longer the clear Lean leader in the automotive industry. It is far behind some others in both quality and profit. This is likely due as much to others getting better as it is to Toyota’s recent recalls.
  • There is not much room for error in the modern world. Many of Toyota’s problems can be traced back to a few specific issues. There is a good chance that they will bounce back strongly when they get those issues resolved.
  • Many other companies have taken Toyota’s lessons, and combined them with their own styles to come up with alternatives to TPS. These versions are working quite well for many, even in non-automotive industries. In fact, Danaher, one of the companies where I cut my teeth in Lean, earned 10.3% profit on its revenues, according to Fortune’s 2010 list. That’s nearly ten times the profitability of Toyota. While it is not an apples-to-apples comparison, it is an example of a company that is using its own version of a Lean business system with great success.
  • Emulating Toyota is not an all-or-nothing situation. You can still be Lean and not be a carbon copy of Toyota.
  • Constantly challenge your assumptions. What was true yesterday may not still be true today.

My final thoughts on Toyota. I suspect that their size and growth rates will make it hard for them to replicate their early dominance in Lean. Smaller companies tend to have an easier time finding key leadership to fill all their critical jobs, and they can change course more quickly. Toyota also faces substantially better competition now than they did during their early meteoric rise.

So, it appears that the championship belt is up for grabs. It will be interesting to see if Toyota is able to beat back the competition and reclaim its title, or if another company will follow in its path and rise up to be the new model of operational excellence.


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