Cho had been at the auto company for 14 years when he was assigned in 1974 to work with Dr. Ohno on improving the efficiency of Toyota’s administrative operations. Previously, TPS had been applied only within its factories. Cho had paid deep attention during all the lectures, workshops and plant visits that had been part of his education and training process at the company. And when it came time to attack his assignment, he did so with zeal. Like many world economies that had suffered setbacks during the early 1970s, Japan’s economy was in a recession as Cho took on his assignment. Keeping in mind TPS’s emphasis on streamlined supplies, he decided that the company needed to reduce its inventories of all types of goods and services, from office furniture to typing staff, to the minimum amounts that would allow it to function properly.
And so he squeezed the excess out of Toyota’s operations all across Japan, saving millions of yen. He expected that the activity would earn Dr. Ohno’s praise. Instead, he received his master’s scorn. “Are you stupid?” Ohno thundered. Cho, in slimming down the inventory levels, had paid no attention to company forecasts that showed that Japan was about to emerge from its economic doldrums. “We are going to be in a boom. We will need more inventories, not less!” Ohno said. He told Cho that he had to learn to look forward, not backward. It was a lesson that Cho learned well and applied many times in the future. It paid off for him not long after, when he convinced Ohno to publish TPS in English. Though noticed by only a few academics at the outset, the decision to make TPS available in another language raised Toyota’s profile in the global auto industry—and raised Cho’s standing in Toyota as well.
But before Toyota could run, it had to learn to walk. And as with all toddlers, its first steps were stumbles. Its first attempt to sell a car in the United States, the Toyopet, was a disaster. The Toyopet was a linchpin of Toyota’s lineup in Japan, a small, inexpensive car meant to coax cash-strapped customers back into the market. It arrived in the middle of the most ostentatious era in American automobile history, when cars were draped with chrome, interiors resembled living rooms, with plush, sofalike seats, and rear ends were shaped like fins. In short, the Toyopet was nothing like what American buyers were used to, and Toyota was forced to retreat from the market and rethink what it would take to compete. It was a slow process. Returning in 1959, it took Toyota 10 years to sell 100,000 cars a year in the United States, a mark that it achieved in 1970. During that time, the company began setting up its dealer organization, which would eventually prove to be one of its most valuable tools. Unlike Detroit companies, which seemed to have a showroom in every sizable town across the United States, Toyota decided to be selective and choose areas where population growth was taking place. For one thing, it did not have the money to seed the kind of vast dealer network that the Big Three had established. Even today, GM has more than 7,400 dealerships, and more than 5,000 at Chevrolet alone. The total number of Toyota dealerships is 1,287.
But Detroit barely took notice as Toyota was putting together its dealer network, because Toyota’s sales were dwarfed by a far bigger foreign competitor: Volkswagen. Through the 1960s and into the 1970s, VW was at the height of its postwar popularity, thanks to the perennial Beetle, the Volkswagen Bus and specialty cars like the Karmann Ghia, all of which appealed to young, hip customers (a good portion of them hippies). Even so, Detroit companies considered VW to be an irritation at best, and hardly a real threat. Toyota was barely on their radar screen. And if VW and Toyota sparked little concern, executives in Detroit were even less cognizant of another Japanese competitor that was about to arrive in the United States: Honda.
His employees called him “the old man” with both affection and sarcasm. In fact, Soichiro Honda was close to retirement age when he finally got into the car business. Born on a Japanese farm in 1906, Honda was 60 years old as Honda’s first car, the N360, went on sale in Japan in 1966, and it wasn’t until 1972 that Honda cars debuted in the United States. By then, Honda had achieved acclaim as a motorcycle company and had won respect for its recent and audacious success in Formula One racing, but it was extraordinarily late among Japanese companies in getting into the automobile business. It nearly missed its chance altogether.
Honda had founded an auto parts company before World War II but sold it to Toyota as the war ended, choosing to start over from scratch. He began with a small bicycle engine, which became the power source for the small motorcycle, called the Dream, which Honda put on sale in 1947. Even as he was getting on his feet, Honda was brazen enough to issue a challenge to his troops: He wanted to win the famous Isle of Mann Tourist Trophy motorcycle race. (Known as the TT, its name would later be borrowed by Audi for a two-seater sports car.) Honda entered the TT in 1954 and won in its category in 1959. By then, the company had sold more than a million Dreams, had introduced its next best-seller, the Super Cub, and was well into its next research venture, automobiles. Honda had been in a rush to get into the motorcycle business, but with cars he deliberately took his time. He’d actually passed on an early opportunity to enter a minicar contest put on by the Japanese government in 1955, surprising his potential automotive competitors, who were sure that Honda’s competitive nature would spur him into the field.
There is an automobile industry legend that the Japanese government barred Honda from entering the auto industry, only to have the company disobey its orders. That was not the case. But in 1961, the Japanese government proposed legislation regulating the auto industry, and said it would apply only to companies that could prove they were building cars before the law took effect. The legislation seemed squarely aimed at Honda, almost an effort to get it to make up its mind, since Honda had been toying with the idea of automobiles as far back as 1957, when it set up a separate research division to look into the possibility. The threat of the law lit a fire under Honda, and in early 1962 the company immediately began producing prototype versions of mini sports cars and trucks.
In June of that year, Honda himself sped around the unfinished racetrack at Suzuka, Japan, in a Honda prototype, a display meant to prove to the Japanese government—and potential customers—that Honda was serious about getting into the car business. That was enough to satisfy the government, but it took four more years for Honda to begin selling its first car. The sterling reputation of its motorcycles was enough to convince Japanese customers to try the new Honda, and within three months its small car was the most popular minicar sold in Japan. Though few realized it then, Soichiro Honda was thinking about international sales from the very beginning. For he had already made Honda motorcycles a household name around the world, thanks to Honda’s presence in motorcycle racing and its peppy approach to making motorcycles fun to ride, as opposed to the big, intimidating vehicles ridden by leather-jacket-clad bikers in movies like The Wild One. Honda’s ads, in Japan and elsewhere, featured laughing young people on the backs of its bikes. Even its slogan was meant to evoke a smile: “You meet the nicest people on a Honda,” its commercials declared.
That pleasant public face wasn’t always in sync with the way Soichiro Honda ran his business or interacted with other people. From the start, when he first got his engine company up and running in 1948, Honda could be a driven employer, so intent on his tasks that he could enter a zone of deep concentration in which all other concerns fell away. His wife, Sachi, once was forced to trek down to Honda’s workshop to ask for money because her husband had forgotten to give her the weekly allowance she was supposed to receive to pay the household accounts. He demanded superior performance out of both his employees and his factories. On a tour of a foundry in Japan, Soichiro Honda was outraged to watch molten metal splashing onto the floor as it was poured into molds for engine blocks. According to one witness, he walked up to the worker in charge and slapped him across the face, berating him for the dangerous conditions. And yet Honda loved being with his employees, to an almost fatherly extent.
Though he had his own children, three boys and a girl, Honda had barred them from entering the aut
omobile business, for fear that the company would be perceived as nepotistic. His engineers in a sense became their substitutes, and Honda made a habit of going out drinking with them at the end of each week. Corporate imbibing is a common practice in Japan, where office relations between employees and supervisors are rigid and formality reigns. The conventional wisdom is that drinking together after work allows colleagues to loosen up and share thoughts and opinions that they never would express in the workplace. If an employee misbehaves or says a little too much, it’s chalked up to drunkenness, although smart managers mentally make note of everything they hear. The gatherings are generally safety zones, since groups are composed of people who have worked together for years.
But Honda’s soirees were different. Soichiro Honda insisted that each week the newly hired and the youngest among the engineers be included in the drinking parties, which could last until the wee hours. Honda, as always, had a strategy. The parties relaxed the young engineers so that they came to regard the company founder as someone they could talk to, not a figurehead. They kept Honda in touch with the thinking of his newest generation of employees. And they gave him yet another opportunity to instill in them the Honda approach to doing business, the Honda Philosophy, which some people in the company refer to as the Honda DNA. It is an approach that has its roots in the earliest days of Honda as an engine company. Above all, Honda wanted his products to have character. “Engineering without personality doesn’t have much value,” he said. But just as important, Honda wanted his employees to be fully involved in making his company a success.
Although the company’s philosophy is rarely discussed in detail outside the company, everyone at Honda around the world, whether it’s an autoworker at its plant in Lincoln, Alabama, an engineer in California, or a finance staff member in Tokyo, is schooled in it. At the Lincoln plant, the Honda philosophy is taught in night classes before employees begin their jobs, and family members are encouraged to come along so they will understand Honda’s expectations. Many employees carry a laminated flip-open brochure, the size of a credit card, that distills the Honda philosophy into easy-to-remember tenets.
What is the Honda philosophy that has been distilled from the principles that Soichiro Honda set in place for his employees more than 50 years ago? Perhaps there is no more important tenet than the most basic: respect for the individual, which comes from “a fundamental belief in the human being,” according to the Honda brochure. It is similar to the precept at Toyota that respect is expressed in three ways. The first is initiative. Employees shouldn’t be bound by preconceived ideas, but should think creatively, acting on their own initiative and taking responsibility for the results of their actions. The second is equality, meaning to “recognize, respect and benefit from individual differences.” The third tenet is trust, which Honda believes is created by teamwork and sharing knowledge.
In keeping with Soichiro Honda’s personal enthusiasm for his craft, his workers and the automobile industry, Honda’s philosophy also includes the Three Joys. These are the joy of buying, meaning the pride of ownership in a quality product that exceeds customers’ expectations; the joy of selling, in which Honda strives to have good relationships with its customers, and exceed their needs and desires (“It isn’t just selling cars to them. We have to take care of them,” says Honda’s president, Koichi Amemiya); and the joy of creating, which applies to everyone from engineering to design to manufacturing (“By creating quality products, we experience pride in a job well done,” according to Honda’s written brochures). Once those Three Joys are realized, the company strives for an overarching joy, “the joy of society,” in which Honda makes a contribution to the world at large. But Honda’s philosophy also places special requirements on management. The first is to proceed with ambition and youthfulness, seeking out challenges with a “fresh, open-minded passion for learning,” according to company literature. Managers should respect sound theories but not be afraid to challenge old habits with new ideas. They should enjoy their work, encourage open communications, consider employees as customers and try to encourage teamwork. Finally, managers must value research. “We should always seek improvements, and never be satisfied with what is,” the Honda philosophy concludes.
The Honda philosophy results in an automobile company that is different from any of its competitors. Where other companies hype their advances, Honda simply presents them. “We’re a company that avoids the limelight,” said Tom Elliott, Honda’s senior vice president in charge of U.S. sales. “We don’t go out and seek the spotlight.” Whereas virtually every other manufacturer in the United States is part of a lobbying group called Alliance of Automobile Manufacturers, Honda is not a member. When other companies battle the government over tighter fuel economy and emissions standards, Honda generally is willing to meet whatever requirements it faces. Company executives know that this unusual focus feeds the impression that Honda is full of hubris, or even arrogance, and that even though it encourages its managers and employees to foster teamwork (the cafeteria at Honda’s Research and Development Center in Marysville, Ohio, next to its big factory complex, stays open from 6 A.M. to 11 P.M. so that the 1,000 engineers there can obtain food and refreshment at any time during their long days on the job), it has little interest in being a team player where the rest of the industry is concerned. “Sometimes in Detroit, they say, ‘Honda, you are being a good boy to the government,’” said Amemiya, who is in charge of its North American operations as well as serving as company president. But Honda officials simply don’t seem to care that much, a trait of which Honda himself would be proud.
Independence is this company’s watchword. And even though Honda would be a valuable merger partner, has been approached numerous times by potential suitors and could reap billions of dollars if it wanted to sell even a small stake, it steadfastly remains on its own. It had one disastrous venture, buying a share of the English carmaker Rover in the 1980s. The move ended in acrimony during the 1990s when BMW bought out Honda’s stake. (Rover subsequently turned into a financial drain for the German carmaker.) “I suppose if we got together with another company, [then] it would be a mess by now,” Hiroyuki Yoshino, Honda’s chief executive until his retirement in mid-2003, said during an interview in Tokyo. He saw a drawback to a merger. It was that uniting corporate cultures was extremely difficult, “unless one company totally controls the other. But if it is that case,” said Yoshino, “the company being controlled would be completely demoralized. One plus one does not even equal two.”
Whereas at most automobile companies mission statements are crafted by consultants, and the founder’s identity is relegated to museum exhibits and history books, Honda’s own personality and priorities remain alive at Honda today. Because he died relatively recently, in 1992, there remain a great many people at the company who have vivid memories of him, and Honda’s operations bear strong reminders of his presence. Both the Marysville and East Liberty plants in Ohio have plaster casts of his handprints on display—molded on his visits to the factories—that allow a visitor to fit their own hand into them. (He would wear a size small men’s glove.) Dan Smith, the East Liberty plant manager, remembers Honda’s last visit to Ohio in 1991, shortly before his death. By then, Honda’s operations had expanded to include the Marysville assembly plant, a second assembly plant in East Liberty, an engine plant in Anna, and the gleaming white building that housed its research and development operations. Honda could see it all at his feet as he flew from the Columbus airport to a landing pad near the East Liberty plant. A group of about 20 workers and managers from the factory were on hand to welcome him. They expected that Honda would simply wave to them before hopping into a waiting car. Instead, the diminutive company founder reacted with delighted surprise at the sight of the welcoming party. He bounded from the helicopter, and despite his age and his busy schedule, insisted on shaking hands and speaking with everyone there. (Amemiya remembers another occasion, a meeting of company managers, at which Honda borro
wed a towel from a waiter, draped it over his arm and went around the room, taking drink orders.)
The vast Ohio operations, on top of the manufacturing plants and research centers that Honda built in Japan and Europe, are testimony to Honda’s love for automobiles that began almost at birth. “Once when I was a kid, I ran after a Ford Model T and held up my nose to the oil that sputtered out onto the ground. I took a whiff and was thrilled by the smell,” he recalled. Even so, Honda waited to begin building automobiles until he felt the time was right, pushed only by pending legislation. And at the moment he was ready to enter the United States market in 1972, events had conspired to prove his deliberateness correct.
Both Toyota and Honda were boosted in the 1970s by three things: oil shocks, the institution of fuel economy standards and the tastes of baby boomers. In 1973, Arab nations launched the first of two oil embargoes that sparked soaring gasoline prices and fuel shortages across the country. Lines snaked around gasoline stations, and police caught numerous petty thieves siphoning gasoline from parked cars (the practice soon triggered a run on locking gasoline caps). The following year, the Environmental Protection Agency issued its first Corporate Average Fuel Economy standards governing automobiles, which at the time averaged 14.7 miles per gallon. The EPA directed that automakers had to achieve 20 mpg within a few years, a figure that eventually jumped to 27.5 mpg by 1987. Simultaneously, the agency imposed new regulations on the auto companies for exhaust emissions, demanding that they clean up their cars and reduce the amount of pollutants coming from their tailpipes. Detroit auto companies were paralyzed. Their lineups were chock-a-block with gas guzzlers, long-hooded, large-trunk cars laden with angles, shiny trim and fat tires that promised comfort but could by no stretch of the imagination be called economical. They were dirty, too, spewing carbon monoxide and other dirt into the air with each cough of their tailpipes. Although small cars like the Mustang, the Falcon and the Pontiac GTO had been enormously popular during the 1960s, by the 1970s Detroit’s offerings had swelled in size. The Mustang was but one example, going from a nimble, affordable and sporty car at its birth to a heavy, fast and powerful automobile a decade later. Detroit’s lineups had almost nothing to offer in the way of smaller cars, and the few they had were afterthoughts.
The End of Detroit Page 8
