U.S. manufacturing began with an effort to duck chicken tax
Tiny truck operation was start of vast network
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It all started because of chickens.
Granted, that's a simplistic explanation for Toyota's manufacturing might in North America. But the truth is that it traces back to the "chicken tax" proclamation signed by President Lyndon Johnson in December 1963. The tax was aimed at Volkswagen, at the time the only automaker importing pickups into the United States. The tax, a 25 percent tariff on imported pickups, was a response to the tripling of taxes in Europe on chickens exported by U.S. farmers.
Richard Gallio, 64, who retired in 2001 after 30 years at Toyota, joined the company in the early 1970s, just as it was about to bring its compact Hilux pickup to the United States. To avoid the chicken tax, it needed to source part of those trucks on this side of the Pacific. That decision would mark Toyota's entry into manufacturing vehicles in North America.
The solution was to import the cabs and their powertrains but to produce the truck beds domestically, with installation taking place at the ports where the trucks entered the country.
SOURCE GOES OFF-COURSE
Because Long Beach, Calif., was Toyota's primary port of entry and because Toyota's U.S. headquarters were in nearby Torrance, the company sought a local source for the truck beds. That source was Atlas Fabricators, conveniently located on the north side of Long Beach and next to a rail spur. Production began in 1972.
Gallio was one of three managers sent to Atlas to manage the Toyota side of the contract. He soon discovered that Atlas, which also was producing helicopter landing mats and napalm canisters for the war in Vietnam, was in serious financial trouble.
"We had made this major commitment to the truck market in the United States and had spent huge amounts of money getting the dealers up and running for the trucks, which were a new product for them to sell, and we increased production in Japan and had advertising in place," says Gallio. "It was not possible to walk away from that, nor could Japan gear up quickly enough to make the beds."
So in 1974, Toyota bought the Atlas assets — land, tools and dies and other equipment — for $2.47 million.
"The facility was not up to Toyota standards," Gallio says. "The quality of the product was subpar. It was very risky, and Toyota Motor Sales had no manufacturing experience."
The genteel Isao Makino, who is now 85, was president of Toyota Motor Sales U.S.A. from 1975 to 1983. He recalls: "When I got here, our manufacturing facilities were very poorly equipped — no dining hall, no place to wash hands. We had dining and washing facilities installed, which were much appreciated by the Teamsters union. The Teamsters were very happy. Having them on our side was a big help in logistics."
In addition to installing new facilities, Toyota soon changed the plant's name to Long Beach Fabricators Inc. and later to Toyota Auto Body Co., or TABC, just like Toyota's auto body-building division in Japan. Quality improved, and Toyota expanded the plant.
MAKE WAY FOR TOYOTA WAY
Today, TABC produces catalytic converters and their components for the Corolla and Tacoma; steering columns and front suspension arms for the Corolla, Matrix and Lexus RX 350; and aftermarket truck bed components. Some of TABC's output is exported to Japan and Canada. It also assembles Hino commercial vehicles.
Most significantly, the plant was the first site in North America where the Toyota Production System was put into place.
"To put it as succinctly as possible, the Toyota Production System empowers employees to continuously improve their processes and eliminate waste," says Jeffrey Liker, a professor of engineering at the University of Michigan and author of The Toyota Way: 14 Management Principles from the World's Greatest Manufacturer,
Liker says Toyota's system educates and equips employees so they are "engaged and motivated." He adds: "It takes a lot of discipline and well-trained and highly committed employees who think about processes and how to do them better."
In The Toyota Way, he notes that when Toyota decided to shift truck bed production to a plant in Mexico in 2001, instead of laying off workers at TABC, Toyota rewarded their high quality of work by bringing in the Hino truck. "So instead of 600 laid-off workers collecting unemployment," he writes, there was celebration.
Says Gallio: "The concept of the Toyota Production System is not brain surgery." But he adds that it is "just almost impossible for most cultures to implement it, how it's organized and how you have relationships with supply partners ... tightly integrated, very focused, shared objectives and great communications."
The contrast, he said, is the typical business practice of adversarial relationships with suppliers, even with a company's own distribution and dealer network.
"In the Toyota system, you treat everyone like you would treat your wife," he says. "You respect each other."
You can reach Larry Edsall at autonews@crain.com.
