TPS Benchmarking

Toyota Raises Prices, but Not for That Reason

By Jon Miller Published on July 10th, 2005

Toyota announced 1.6% price increases in several Lexus and Scion model vehicles on Friday July 8, 2005. Some months ago when Chairman Okuda said Toyota may raise prices to help out struggling Ford and GM, I was impressed again by Toyota. This time Toyota was quick to deny that this price increase had anything to do with that prior statement, however.
Even if it had been an effort to help out GM and Ford I’m concerned that it would have been a wasted effort. With the years of 0% financing and the recent “employee discounts for everyone” promotions, one wonders if customers will every pay anything close to sticker price for American cars again.
If it were a game between Toyota, GM, Ford and a few other higher-end players that is one thing. But the low-end competition is getting tougher with Hyundai making impressive gains in quality and performance at low prices. That is to say nothing what will happen once vehicles made in China by Chinese automobile companies start rolling into American ports.
Do GM and Ford have enough time to turn things around? If they took the best of what is available and rapidly deployed Lean thinking and kaizen to every corner of their operation would it be enough? It seems doubtful.
Economists have pointed out that compared to Japan, China or Korea the United States government does very little to guide industrial development. With the notable exception of the defense industry, there is relatively little policy or money directed at helping to keep industries such as automotive or steel from failing. Perhaps the U.S. government should do more.
With oil at $60 per barrel this week a good use of tax money may be to direct Detroit to design and build vehicles that meet a certain fuel efficiency criteria. The government could also add a hefty tax credit for the purchase of these vehicles. Would Americans buy smaller, lighter cars and trucks that did 36 miles to the gallon instead of 12?
The financial case could certainly be made, and perhaps even a patriotic one if dependency on petroleum imported from other countries is lessened. This is the sort of big picture thinking that some governments do.
The term ‘laissez-faire’ was coined by a French economist, Jacques Quesnay. Laissez-faire is used to justify market economies and argue against government intervention in the economy (the type of intervention I am pondering here). In theory unregulated markets function naturally to provide the greatest good. In practice, there are differences between theory and practice.
It is interesting to note that Mr. Quesnay is said to have chosen the term ‘laissez-faire’ from a translation of the Taoist texts which were popular in France at the time. The concept of ‘wu-wei’ from which ‘laissez-faire’ thinking derives is often translated as ‘no action’. In fact wu-wei is better understood as the role of a wise leader to cause things to happen through supporting a state of harmony so that the actions required can happen naturally.
Taoism is a much stronger feature of Chinese culture than Japanese culture so it’s too much to hope that Toyota executives are demonstrating enlightened leadership through their ‘inaction’. But perhaps some wu-wei on the part of the U.S. government would help create the harmony needed to pull GM and Ford out of the doldrums.

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