The Toyoda family: Japan’s answer to Henry Ford

Four generations and two wars later, the Toyoda family still presides over the largest carmaker in the world. But there is much pressure on the current heir to steer Toyota through difficult times.

Graph for The Toyoda family: Japan’s answer to Henry Ford

Toyota president Akio Toyoda has inherited the tough job of steering a family dynasty through difficult times.

Japanese carmaker Toyota overtook the mighty General Motors as the largest carmaker in the world in 2008, ending the American giant’s 77-year reign at the top. But it was something hardly imaginable when the Japanese company rolled out its first Model A1 passenger car in 1935 -- a copycat of a Chevrolet.

Toyota started off as a humble textile company at the beginning of the 20th century. The founder was Sakichi Toyoda, who from an early age was fascinated by the working of looms used in textile-making. He worked tirelessly to design and make a loom that was as good as the best foreign imports.

In 1924, Sakichi invented the Type-G Toyoda automatic loom, which was a groundbreaking invention at the time. Though he could find a ready market abroad for his new mechanical looms, Sakichi made a radical decision that would change the fortune of the Toyoda family forever. He sold his patents to his competitor, Britain’s Platt Brothers and Company, for ¥1 million ($10,497), which he used to start the Toyota Motor Company.

Sakichi was too fragile to lead the new company but he challenged his son Kiichiro to “build a Japanese car with Japanese hands”, according to Edwin Reingold, a chronicler of the company’s history. Sakichi was convinced of the future of cars after a visit to the US.

Unlike his father, Kiichiro was a properly trained mechanical engineer from the prestigious Tokyo Imperial University. He took his father’s challenge seriously and kicked off the process to build a car. At the time, there were only 436 licensed cars in all of Japan.

From the beginning, Kiichiro understood he was not only making a car but creating an industry from scratch and a new system of production. “This understanding of the importance of developing a successful process lay, and still lies, at the centre of Toyota’s success,” wrote the late David Landes, a noted economic historian from Harvard.

When Toyota built its first passenger car in 1935, it was ill-timed. Back then, Japan was a bellicose country hell-bent on conquering Asia, and what it needed was trucks -- not passenger cars. So the company shelved the plan to build passenger cars in favour of trucks for the military.

Under the war-time conditions, Kiichiro started to experiment with new systems of supplying materials that deliberately cut back on warehouse capacity. The idea was to make and sell cars to order and to use capital to pay for raw materials and parts only as needed. This experiment eventually evolved into the world famous ‘lean production’ method.

However, Japan’s early military victories turned into disasters as the tide turned against the country in the 1940s when the US joined the war. When the Japanese surrendered in 1945, the country -- as well as Toyota -- was on its knees.

Want more Family Business stories like this? Sign up for our free weekly newsletter

Ironically, it was another war that saved the company from bankruptcy: the Korean War. Between 1950 and 1954, the Americans ordered $US3 billion ($3.2bn) worth of industrial goods -- including trucks -- from Japan. The Japanese prime minister at the time, Shigeru Yoshida, described the war contracts as a gift from the gods.

After the military contracts dried up, Toyota started making passenger cars again and Kiichiro, who had successfully steered the company though turbulent war times, retired and passed on the baton to outside professional managers. But the Toyota family remained an important part of the company and Kiichiro’s cousin, Eiji, was sent to the US automobile industry.

It was an outsider, Taiichi Ohno, who developed and perfected Kiichiro’s vision of lean manufacturing and turned it into the ‘Toyota Production System’, which could be used in all manner of complex industrial production. Landes described the production system as “the most important technical innovation since Ford’s successful implementation of the moving assembly line, and it has transformed manufacturing throughout the world”.

Toyota prospered after the Korean War: its production increased ten-fold and the company produced its first entirely Toyota-developed car, the Crown. The company then launched its immensely popular Corolla Model in 1966. A year later, a member of the Toyoda family -- Eiji Toyoda, the favourite nephew of founding father Sakichi -- returned to the helm of the company as president and chairman.

Throughout the 1970s and '80s, Toyota expanded aggressively into overseas markets, including the US. It is quite ironic that a joint venture between Toyota and GM became a model of efficiency and industrial relations harmony for the rest of the automobile sector in the US. How times have changed since the Toyoda family went to the US for inspiration and technical know-how.

The Toyoda family ethos has become part of Toyota's corporate culture: good was never good enough. Like Sakichi Toyoda’s obsessive drive to make the best loom in the world, the company developed and perfected the art of manufacturing in the most efficient manner possible. Toyota reduced the number of braces needed to hold car frames together from 50 to one; reduced the parts in door handles from 34 to five; and slashed installation time to just three seconds.

Since Eiji Toyoda took over in 1967, the founding family has returned to run the company that Sakichi started almost a century ago. The newest scion in charge of the mighty Toyota Empire is none less than Sakichi’s great grandson, Akio Toyoda. His climb to the top has been described as a “restoration of the bluest of blue blood”.

The Toyoda prince arrived at a time of difficulty not only for Toyota but for the broader global automotive industry. Toyota registered its first loss since 1938 shortly before Akio ascended to his presidency, and he was hauled in front of the US Congress to apologise for deadly defects in popular models sold to millions of Americans.

Toyota was forced to recall 8.5 million vehicles -- a huge embarrassment for a company that was once so proud of its almost Samurai-like devotion to quality. And so there is much pressure for the fourth-generation Toyoda scion to take the family dynasty to new heights -- a daunting challenge indeed. 

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles