Don’t Let Business Decisions Undermine Trust and Mutual Respect

February 13, 2009 - Tags:

Toyota understands that maintaining the jobs of associates is part of its obligation to the community and society. A great example of this is the case of Toyota’s longest-running manufacturing operation in the United States—a truck bed plant called TABC.

In the 1960s the U.S. imposed a 30 percent surcharge on trucks that were imported, called the “chicken tax.” It was in retaliation for Europeans refusing to import poultry. To get around this duty tax, most foreign companies imported trucks without the truck beds and the truck was then considered a part rather than a truck. They imported the bed separately, which was also a part, and bolted the truck and bed together at the port. Toyota also wanted to avoid the duty, but decided to build the truck beds in the U.S., partly because it would also contribute to local employment. They chose Long Beach, California, because it was near the port where Toyota trucks entered the U.S.

TABC was actually the first U.S. company to seriously and successfully apply TPS and today it has 600 employees. In June 2002 TABC celebrated its 30th anniversary in Long Beach. But the celebration could have been a dismal affair, because in 2001 Toyota decided to move the truck bed business to a new factory in Mexico. This sounds like a familiar corporate scenario of chasing low-wage Mexican labor. However, this story ends differently, because Toyota was following the Toyota Way principles. Toyota had a variety of reasons for wanting a Mexican truck bed plant, including building vehicles where they were being sold and avoiding tougher environmental laws for paint in California that required major new investments to their U.S. facility. I’ll let Cuneo explain what Toyota did and why they didn’t lay anyone off.

That Long Beach plant’s 30 years old; it’s landlocked. Who’s keeping Califor-nia manufacturing facilities open, right? Many companies are looking for an excuse to shut down their California facilities. But we and our top management in Japan recognized that the TABC workforce has performed well. With limited resources, they’ve really implemented TPS. It would be unfair and send the wrong message to the team members at our other plants to penalize a workforce that has done everything we’ve asked of them. So we’re finding additional work for TABC. During my stay at NUMMI back in the late ’80s, GM closed its Norwood plant here in Cincinnati, which was a pretty productive plant. They were building Firebirds and Camaros and they shipped all that production to their Van Nuys plant because it made short-term economic sense. I remember some of the GM guys at NUMMI who later lamented, “Here we had this Norwood plant that had really improved productivity, etc., and what did we do? We shut them down.” And so, when you’re asking team members on the line to give you a hundred percent, to find ways to add more content to the job to improve productivity, what do they get in return? And if what they get in return is a weekly wage but a pink slip as soon as we have a downturn, it’s hard to engender that trust and mutual respect that you need. So you can’t just say human resources are our most important asset; you have to walk the talk every day. And people really watch what you do, rather than listen to what you say. That’s the Toyota System. It goes back to this whole concept of stakeholders. If the financial analysts on Wall Street were the primary stakeholders for Toyota, we couldn’t do something like that. It’s just a big difference in philosophy. It’s always been that way with Toyota.

My interview with Cuneo was in February 2002, when it was not clear how Toyota was going to keep the TABC plant open, though Toyota was committed to finding new work. By June the plant was celebrating its 30th anniversary and its new business venture with Hino Motors, an affiliated company partly owned by Toyota. Instead of closing it down, Toyota has helped TABC expand its operations to build new trucks, making it the first new vehicle assembly operation to build trucks in California since NUMMI opened in 1984. An article reporting on the celebration noted, “At today’s anniversary celebration, TABC also presented checks for $2,000 each to ten area organizations as a way to thank the community for its part in the company’s 30-year success. In addition, the company recognized ten TABC team members who have been with the company since its start-up in 1972.”

So instead of 600 laid-off workers collecting unemployment, the company was celebrating and giving money away to community organizations. Toyota has since given TABC additional responsibility for manufacturing 68,000 four-cylinder engines per year for the Tacoma truck—to a plant in California with its high cost of doing business. For most companies, this makes absolutely no sense, based on short-term economic logic. But Toyota was practicing Principle 1: Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals. Toyota wasn’t measuring this investment in terms of quarterly budgets; it was measuring it in the ongoing respect the customer and its employees have for their company and products. And, of course, through TPS Toyota knew this sophisticated and committed workforce could build in quality and continue to eliminate waste. Toyota believes this is what drives profits in the long run.

Here’s another example of Toyota’s deep sense of responsibility to the community, from a conversation I had with Cuneo:

Dennis: “I just got a note two days ago from one of our Senior Managing Directors in Japan about odor complaints from a couple of homeowners who lived close to our Georgetown [Kentucky] plant. These houses were close to the plant and should have been purchased when we originally built the plant. Recently we set aside some money to buy those houses. The homeowners were using the odor complaints as negotiating leverage. Once the news of odor complaints reached Japan, we received a note from a Senior Managing Director asking us what we planned to do about the complaints. Our policy is zero violations—this was simply a complaint to gain negotiating leverage. So I had to explain the difference between a complaint and a violation.”

Jeff: “That’s a couple of houses?”

Dennis: “Yeah, two houses.”

Jeff: “Two houses and the Managing Directors write a letter?”

Dennis: “Two guys are really complaining ’cause they want to get a higher price for their property. So I have a senior managing director writing us a note saying, ‘Here’s our policy: zero violations.’ I mean, what’s that tell you?”

Jeff: “I can throw out a number of hypotheses. One is that to some degree that is Japanese. The Japanese are very concerned about harmony, disharmony. To some degree there’s almost a paranoia about any problem in the United States because of potential tensions with the government. On the other hand, I could attribute it to more of a value system. Where do you think it falls out there?”

Dennis: “Value system. Of course, you want to avoid regulatory and legal issues, but this goes more to the value system. We, Toyota, have made this commitment to the environment. Our policy is zero violations. That’s one of our eight global performance indicators, along with quality, productivity, etc.”

You may question the purity of Toyota’s motives. Surely a Japanese company that has penetrated such a major part of the U.S. market had to be concerned about political repercussions of any negative publicity. But Toyota’s zero violations policy goes beyond purely political motives. Toyota executives really try to do the right thing.