Special Report: Daihatsu dismantling 'Toyota Way' as market changes

Tue Jan 13, 2015 9:45pm EST
 
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By Norihiko Shirouzu

IKEDA, Japan (Reuters) - When Daihatsu Motor Co launched the Mira e:S minicar in 2011, the Toyota affiliate thought it had found a model for emerging markets. The Mira e:S - e for eco, S for smart - was capable of going 30 kilometers on a liter of gasoline (72 mpg) for a sticker price of just 795,000 yen, or $6,637. And indeed, the car was a hit, super-charging Daihatsu’s earnings.

A number of improvements – in manufacturing, engineering, procurement – went into the car. But the real secret to success, says Kosuke Shiramizu, Daihatsu’s chairman at the time, lay in taking something out of the company’s business model: the vaunted Japanese “keiretsu” system.

Shiramizu, now a Daihatsu advisor, says Daihatsu shaved off roughly $1,000 in the manufacturing costs of the car by dismantling its keiretsu - an informal but close interlocking business relationship between a manufacturer and its suppliers, cemented by cross-shareholdings and personnel exchanges.

The automotive keiretsu system, pioneered by parent Toyota Motor Corp. and widely adopted by rivals, was acclaimed across the world in the 1980s and 1990s as an ingredient in Japan Inc’s success. Keiretsu, pundits preached, defused adversarial relationships between assembler and supplier, allowing them to share information and create better product quality. Hence Japanese automakers were able to leap ahead with vehicles such as the Toyota Corolla, the legendarily sturdy and reliable family car.

Today, after two decades of stagnation in Japan, the dramatic shift in growth to emerging markets and revolutions in automotive technology, Shiramizu says the days of the keiretsu are numbered. Companies, he says, are competing for price and value by using market mechanisms instead of relationship-based arrangements. While analysts have been predicting the system’s demise for years, Daihatsu, along with Nissan Motor Co have gone further than any Japanese automaker in scrapping it.

"The Toyota way is the high-cost way,” says Shiramizu, 74, in an interview at Daihatsu headquarters in the Osaka suburb of Ikeda. “Keiretsu doesn’t work anymore. If we stick with it, Daihatsu won't survive. Toyota might face a similar fate, too."

TOYOTA WATCHING   Continued...

 
Daihatsu Motor Co.'s Mira e:S (front) and other Daihatsu cars are displayed at the company's dealership in Tokyo November 11, 2014.     REUTERS/Yuya Shino