TOKYO - To see the roots of Toyota Motor Corp.'s excellence, go beneath its new assembly plant in Guangzhou, China. Toyota group suppliers zip parts through a series of underground tunnels to the line building Camrys.
Some parts never go outside before being installed on a car. They therefore require less packaging than similar parts delivered to assembly plants in Toyota City, reducing their cost.
As the Guangzhou plant shows, Toyota's strength does not lie in a single core competency. It rises from a complex, interlocking set of extraordinary skills. These include working closely with suppliers, continually finding ways to innovate and improve, and constantly challenging itself to cut costs.
The result is a carmaker that today dominates the industry in a way no single company has since the glory days of the Ford Model T or General Motors' global dominance in the 1950s.
This year could mark a milestone: Toyota appears on track to pass General Motors in global vehicle sales. In the first half, Toyota's sales rose 10.4 percent to 4.36 million, narrowing the gap as GM's fell 2.3 percent to 4.60 million.
That changing of the guard is not just the result of Toyota's strength in Asian markets such as Japan or Thailand. Much of Toyota's future growth will come in the United States, at the expense of its U.S. rivals (see story, Page 18). Indeed, Toyota's total sales in the United States topped Ford's during July.
Investors have shown their faith in Toyota's future by bidding up the share price. Toyota's stock market value is roughly 30 percent of the value of all global carmakers combined.
Irrational exuberance? Not at all. Toyota churns out about 30 percent of the global automotive industry's operating profit every year.
If you combined all carmakers' global profits, Toyota would account for about one-third. Other Japanese carmakers would combine for another third. All European, North American and other Asian carmakers together make up the final third.
Toyota's success allows it to invest heavily in the future.
Although the automaker is firmly committed to hybrid powertrains, it also is researching and developing diesel engines, engines that run on biofuels, fuel cells and all of the other potential power sources of future vehicles.
"We have to go ahead with the development of many and diverse types of powertrains," says Toyota CEO Katsuaki Watanabe. Other carmaker CEOs may feel that way, but few can afford to do it.
Consider the current talks between General Motors and the Nissan Motor Co.-Renault SA alliance. Carlos Ghosn, CEO of Nissan and Renault, would like to build light trucks at GM's underused plants. That would be cheaper than Nissan's building factories in North America.
But Toyota doesn't have to seek cheaper alternatives. With a war chest of $19.69 billion in cash, time deposits and marketable securities, it can afford to build any plants it wants.
And it has. Toyota has been opening new plants at a pace that would do Starbucks proud.
Over the past five years, Toyota has opened three assembly plants in China, one in Mexico and a joint-venture plant with PSA-Peugeot/Citroen in the Czech Republic. It also opened powertrain factories in China, India, Poland and Alabama. It currently is building assembly plants in San Antonio; Woodstock, Ontario; and St. Petersburg, Russia.
Toyota paid cash for all of them. It has not borrowed any money to pay for the new plants.