At Toyota, big changes in a hurry

DETROIT — As gas prices topped $4 a gallon this spring, American consumers' pullback on purchases of large SUVs and pickups hit Detroit's auto industry like a hurricane.

But what got less attention was the similar upheaval it inflicted on Toyota Motor Corp., the Japanese giant that made its name on small and midsize cars. Having expanded into big pickups, SUVs and luxury cars, Toyota found itself nearly as exposed to Americans' changing tastes as Detroit was. For the April to June quarter, Toyota's operating profits in North America fell by 98.9 percent.

But in Toyota's philosophy — the Toyota Way — challenges and crises are seen as opportunities in disguise.

Toyota's North American executive team traveled to Japan during the first week of June to present options to Toyota's board, according to Steve St. Angelo, Toyota's senior vice president of North American manufacturing operations and president of Toyota's operations in Kentucky.

Those present included Toyota Chairman Fujio Cho — a former Kentucky executive — President Katsuaki Watanabe, and Toyota Honorary Chairman Shoichiro Toyoda.

"We talked about the situation we were in, and we discussed some scenarios," St. Angelo said. "And then a group of people got together and studied all these different alternatives, gained consensus and then we made our moves."

St. Angelo said Toyota still does not know exactly how all of the production changes will be implemented or how much they will cost.

"We're not even sure yet how we're going to process a Sequoia and a Highlander at one plant," St. Angelo said.

Not only was Toyota forced to temporarily halt production of the Tundra, its flagship pickup, but it also decided to build its hybrid Prius in the United States for the first time at a plant that was originally intended for production of the Highlander SUV.

Changing plans in midstream like that is unusual for any automaker. For one that has seen more than a decade of consistent growth, it was seen as a rare miscalculation of the U.S. market. For the first seven months of the year, Toyota's overall sales fell 7.5 percent.

Global Insight automotive analyst Haig Stoddard said Toyota's decision to move production of the Highlander from Mississippi to Indiana this late into the construction of the new plant is an impressive, and potentially costly, move.

"For Toyota, that's a big adjustment," he said. "They've never done something like that before."

This year, Toyota says it will sell up to 2.45 million vehicles, a decrease of at least 5.7 percent from last year. The last time Toyota saw a year-over-year decline in the United States was in 1995, when sales dipped by 0.4 percent, or 4,731 vehicles, to 1.08 million, according to Autodata Corp.

Despite 2008's challenges, St. Angelo and other Toyota executives say they have no doubts about expanding into big trucks, SUVs or luxury vehicles. Toyota says it thinks the U.S. economy will eventually rebound, and it aims to be ready.

"Toyota has always grown in North America. This gives us a chance to re-evaluate ourselves," St. Angelo said. "So yes, these aren't the best of times for us in North America, but I feel confident that after this we are going to be a stronger and better and more capable company."