Toyota works its suppliers to death. Grinds them to nothing. Toyota is famous in Japan for being the most evil corporation on earth. The most merciless company to work for. Japan is littered with small suppliers who have worked themselves to the bone for Toyota.
Seems like a good position to be in if you are a Machiavellian type. But not so fast. In Japan, when you ask for the moon, you also have responsibilities. And in Toyota’s case it means that you can’t fire them. The unwritten rule in Japan is that if you work your tail off. If you grind yourself and your employees to the bone, if you cut profit to razor thin margins, if you work part time workers like POWs working on the Burma Railroad for the Japanese Imperial Army, you get one thing as a prize. And that is loyalty.
Toyota, as tough as they are on suppliers, offer loyalty. They don’t wily nily fire suppliers who are able to fight the good fight and come up with the goods month after month, year after year, decade after decade. Sounds good right? What could go wrong?
World class suppliers from the highest quality manufacturing country in the world. A dream. What could go wrong? Seriously.
What could go wrong is innovation and disruption. In this case, electric cars. What’s wrong with electric cars you ask? They are more reliable. Faster. More efficient. And from Toyota or Japan’s perspective, they have one big flaw. They require less parts. And that means less suppliers.
Toyota should be leading the electric car revolution. They made the Prius. The first hybrid car. With a huge battery. Basically an electric car…but it had an ICE gas engine. Even though it’s more complicated to make than a Tesla, or better yet, BECAUSE its more complicated than a Tesla, it worked in Japan.
You needed more parts. More complications. And guess what else? More suppliers!
There are other reasons for Toyota and Japan’s love of hybrids. They are complex! Japanese engineers are the worlds best at overcoming these challenges. So Japan loved the hybrid. If you walk on the streets of Tokyo these days you’ll be shocked to hear, or not hear, the silent cars sliding by. But they aren’t electric. They are hybrids.
Yes, Japan loves hybrids. Japanese engineers love something even more complicated than an ICE engine. It plays to Japan’s strength. Engineering.
The problem is that sometimes better is not more complex. It’s less. Enter the Tesla. It’s simple. It has 20 moving parts. And an internal combustion engine has…. drum roll please….over 10,000 moving parts. (data from Tesla’s website)
So ok maybe every electric car isn’t 20 parts. Maybe it’s 25. Or 100. Whatever it is, it’s a hell of a lot less than 10,000.
I imagine a scene like this in the Toyota boardroom in 2011:
“Ahem. Ohayo gozaimasu. I have bad news. It seems that GM and Ford still exist. We had them on the run in the 80’s but they regrouped. And even worse new, a new car company from California called Tesla came out with an electric car that is a stunner. But it has one weakness. It’s simple to make. Anyone can make it. The Americans, Chinese even the Koreans. A gasp filled the silence as everyone took this information in.
The reason they can make it is that it’s simple. To make an electric car, take an ICE car, remove the engine and transmission/drive train and associated items like the gas tank and muffler. Now in place of all that, the only moving part is the electric motor. So moving parts go from 10,000 to 20.
The room filled with gloom. Many took the swords that Toyota has for emergency use out of the escape hatches and committed Hara Kiri. Others Banzaied out the window. A ceremony was arranged for the deceased and the meeting continued.
“If we make electric cars, we have to fire almost all our suppliers in Japan” the leader said in a hushed voice. Even in a muted tone, some suppliers quickly got word of the statement made and several suppliers around Japan took their shoes off and stood on the precipice of large cliffs. Ready to give their all.
But just before they jumped, Sato-san, an un-appreciated bespectacled engineer burst through the door. Sato-san’s father was one of those suppliers peering off into the darkness so he felt compelled to break Toyota’s 3 million years of tradition by interrupting the board meeting.
Sato tripped as he ran through the door and as he slid across the fine Hinoki wood floor, savoring the smell as he slid, “Guys guys, don’t worry. I have the answer! That will save my father. That will save Toyota. That will save Japan!!
in his nervousness, all he could say was “High high high” Which in Japanese is “hi” which means “yes”. The boardroom erupted with confusion. Who let Sato in? Why is he saying yes yes yes a million times. But finally, coming to his feet, and gaining his composure, he blurted out “HYDROGEN!”
Hydrogen solves all our problems. It’s a new source of energy. The Americans have electric, the Germans “clean diesel” and we have hydrogen! Hydrogen is clean. It has everything electric has except it has one thing you never thought about. It’s complicated!
The board members still didn’t see where Sato was going with this. Who cares? Complicated? Sato continued, “you see. We have a bazillion parts suppliers. We never consolidated like the Americans and Germans did. We have many family owned suppliers working round the clock to make our cars the best in the world. If we make electric cars, as you are well aware, we must fire them all. Well 99% of them.
But… but. he continued. “Hydrogen is difficult to work with. So complicated. The pressure is so difficult to work with on a large scale, that only Japanese engineers can handle it. Hydrogen is an explosive gas that requires specialized containment under high pressure!!!! The room erupted.
A lone hand raised in the room. An elderly frail man ventured, “So you mean we can create a ‘new energy brand’ that is Japan’s alone and it’s complicated enough to keep all the suppliers busy?” Yes! That’s exactly what I’m saying. You can have your cake and complicate it too!
Although this piece is satirical, the concepts are not. Toyota has a big problem with suppliers in Japan. They have a ton of loyal, world-class parts makers that have been good to them through thick and thin. And they have the capacity to make complex hydrogen cars. And there is no lack of willingness to work in Japan to get the job done.
The problem is two fold. One, hydrogen requires filling stations, worldwide. And that means convincing everyone from China to Cuba to install flammable hydrogen in their neighborhoods to make room for Japan’s hybrids. Compare this with electric. With electric, you need to convince people to run an extension cord out to their car. Which is easier?
So Toyota will have to, by definition, fire a large proportion of it’s suppliers if it goes electric. And in Japan, large companies are, much more than anywhere else, required to support employment. Japan is not like the US where you can fire someone wily nily. Firing people or forcing a small family owned parts maker who has been loyal to you through thick and thin, is not an easy task.
But there are signs of hope. Toyota has already shown signs of becoming “less Japanese” when, despite it being a major beneficiary of Abenomics, it betrayed Abe and announced plans in April to spend $1.4 billion to build new factories in Mexico and China instead of “reshoring to Japan” – a key part of Abenomics. Reshoring manufacturing.
Not only will Toyota be investing more abroad, it will have to cut good suppliers in Japan with no one to take up the slack. These world class workers will likely be jobless with few alternatives. This is the ugly side of disruption. I for, one, hope Toyota can 1. Move to electric and use their incredible position as the longest running manufacturer of cars with big batteries (hybrids) and 2. Find a way for those parts manufacturers to be retrained to make electric cars.
And there there is talk of an upcoming Toyota Aygo to become standalone electric car. Crossing my fingers that these rumors are true.
It’s a tall order and I don’t envy Toyota. Especially in Japan. This shift would be much easier in the US as the “it’s just business” mentality takes over. In Japan, it’s more than that. Toyota owes them. And everyone knows it. How they will manage this transition will be a harbinger for how they succeed. Or at least that’s my take.
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