Japan's Toyota Hot on Heels of General Motors As World's No. 1

TOKYO Dwecember 11, 2006; Yuri Kageyama writing for the AP reported that looking at the year ahead, there's no stopping Toyota.

Analysts say 2007 could be the year the Japanese manufacturer surpasses General Motors Corp. as the world's No. 1 automaker in vehicle sales.

Soaring oil prices have drivers around the world snatching up gas-saving Toyotas with a reputation for reliability, like the Camry -- the best-selling car in the U.S. nearly every year since 1997 -- and the Corolla, the world's best-selling car.

Toyota Motor Corp., which passed up Ford Motor Co. as the world's No. 2 automaker in annual sales in 2003, is opening new plants in Russia, Thailand and China next year to keep up with demand.

"Everything is going right for Toyota in every way possible," said Yasuaki Iwamoto, auto analyst for Okasan Securities in Tokyo. "Toyota has carved out a reputation for reliability and quality."

The numbers tell the story.

Toyota expects to sell 8.85 million vehicles worldwide this year. It won't announce vehicle sales targets for 2007 until Dec. 22, but earlier said it aims to sell 9.8 million vehicles globally in 2008.

General Motors Corp. doesn't give vehicle sales targets but sold 9.17 million vehicles globally last year, the second-largest volume in company history.

Toyota is expecting a $13.4 billion profit for the fiscal year ending March 2007. It posted a $11.8 billion profit last fiscal year, marking the fourth straight record income for Toyota.

GM's situation couldn't be more different. The U.S. automaker is undergoing massive restructuring after racking up more than $10.6 billion in red ink last year and losing $3 billion more the first nine months of this year.

GM says the perception that its cars are gas-guzzlers is unfair and inaccurate. The Detroit-based automaker, which has begun an ad campaign to fight that perception, has its own share of fuel-efficient models, such as the Saturn Vue Green Line hybrid.

The company said it is focused on its turnaround plan and won't make decisions for the sake of keeping its global sales leadership.

"We're focused on remaking GM into a more competitive, leaner company that can generate profits on a sustained basis," said spokesman Brian Akre. "We won't alter our North America turnaround plan or sacrifice our profitability for the sake of one superlative."

General Motors is also far ahead of Toyota in China, the world's third-largest auto market behind Japan and the U.S. Last year, GM had 11 percent of the Chinese market while Toyota had just 3.5 percent.

GM already has five joint venture assembly plants that make nearly all GM vehicles sold in China and plans to spend $3 billion in 2004-2007 to expand operations.

But Toyota is expanding in China and aims to roll out the remodeled Corolla next year there -- and around the world.

In the U.S., Toyota is encroaching on GM's turf. A decade ago, GM controlled about a third of the U.S. market while Toyota had barely 8 percent. Today, GM's share has dwindled to 24 percent. Toyota's zoomed to more than 15 percent.

This year, Toyota won top honors in eight of 19 categories in a J.D. Power and Associates vehicle dependability study -- more than any other company. Toyota's Lexus luxury brand was the top-ranked nameplate for the 12th consecutive year.

And with the renewed consumer interest in environmentally-friendly cars, Toyota has done well with its Prius hybrid, which went on sale in 1997 and delivers about 51 miles per gallon.

Toyota officials say beating GM isn't on their minds.

"Our goal is to become No. 1 with the customer," said Toyota spokesman Paul Nolasco. "The increases we are experiencing in production and sales is simply a reflection of consumer demand."

But Toyota has seen its reputation take a hit recently in a rise in recalls, partly as a result of successful cost-cutting that involves many models using the same parts.

Although Toyota's production methods are emulated by other companies and studied at universities, it has been struggling lately to maintain quality as it expands production -- a signal of possible danger ahead. President Katsuaki Watanabe has repeatedly promised to beef up quality controls.

To keep up with the burst in demand, Toyota will be opening new plants next year.

Its first auto plant in Russia will start producing the Camry. Toyota in Thailand will add another plant, its third there, to produce a pickup truck. A new plant in China will produce a compact that Toyota has yet to disclose.

In the U.S., the first Tundra pickup trucks rolling off of Toyota's Texas plant will arrive in showrooms in 2007, a sign of Toyota's ambitions in a lucrative sector dominated by American automakers.

Toyota has used its ample coffers to purchase significant stakes in two of GM's former Japanese alliance partners -- Fuji Heavy Industries, the maker of Subaru cars, and truckmaker Isuzu. Toyota will be even using Fuji's Indiana plant to make Camries starting in spring 2007.

GM used to be the top shareholder in Fuji, but sold its entire 20 percent stake last year as part of its efforts to raise cash for restructuring. Toyota bought an 8.7 percent stake in Fuji for about $315 million to become the top shareholder.

Last month, Toyota bought a 5.9 percent stake in Isuzu Motors Ltd., well-known for its diesel technology that Toyota is eager to gain -- half a year after GM sold its entire 7.9 percent stake in Isuzu.

Another symbolic contrast can be seen in the companies' relations with workers.

Over the years of growth, Toyota has never resorted to layoffs, vowing never to repeat the massive voluntary retirements that came during troubled times in 1950, and the company has won worker loyalty in return.

Toyota is among the exceptions among major Japanese companies that have stuck to that policy, although the once standard lifetime employment practice has unraveled in recent decades.

GM, meanwhile, has been negotiating severance packages, including early retirements and buyouts, with thousands of workers during this past year in an effort to turn around its North American operations.

Bill Schwartz of TBM Consulting, a Durham, N.C.-based company that teaches Toyota production methods to corporate clients, says Toyota has been building its business for decades and is now almost certain to beat GM in attracting more buyers to its cars and trucks.

"It's unavoidable it will happen soon, and it will very likely happen next year," he said. "Toyota's curves are all going in the right direction. And General Motors' are all going in the wrong direction."

Associated Press writers Tom Krisher in Detroit and Elaine Kurtenbach in Shanghai contributed to this report.