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Toyota's First Metre advantage as GM faces Last Mile to Chapter 11 (21 May 2006)

On May 10 Toyota announced record results for the past year just as GM was announcing further layoffs and plant closures. The Toyota/GM comparison  is perhaps the clearest example of  the natural advantage of management tuned to business processes as opposed to that driven by financial results.  The management philosophy at Toyota has been consistently based on continuous improvement and economic-quality since the 1950s while GM and Ford have over the same period followed varying financially driven philosophies sponsored by the latest CEO. While customer-aligned constancy of purpose has been dominant over the long term in Toyota , Ford and GM have only been guided by shareholders’ short term interests.

 
 
The numbers are simple. Look at the big three auto companies : Toyota, Ford and General Motors. Their market capitalisations are $178B, $13B and $14B respectively.  Their gross margins on a trailing twelve month basis stand at 19.5% for Toyota; 6.2% for Ford and 1.6% for GM. That other significant Japenese giant (with one third the market cap of Toyota) in this arena – Honda – actually beats Toyota with 29.2%.
 
If the summary earnings measure of EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) is used as the reference Toyota stands ahead of the crowd at  $29.1B, with Ford at $12.2B, GM at $6.8B and Honda at $9.8B.
 
Toyota does not use Six Sigma – its uniquely successful Toyota Production System (TPS) was devised decades before the arrival of the coloured belts of the Six Sigma work groups that are still a popular method for companies searching for a way to catch-up with the quality standards of the Japanese. After initial successes at Motorola and Allied Signal and then the high profile adoption of the pro-forma methodology by Jack Welch at GE in the early 1990s, stretch-target American executives lacking an understanding of theory, turned to Six Sigma as the magic potion that would help them regain global dominance and master world class quality. In the car industry at least it was not to be. Not that Six Sigma did not produce significant early gains – little more than reaching the low-hanging fruit – but it could and would never help regain the cumulative advantages of implementing the principles of economic-quality at each and every stage of the journey to market. The First Metre to the Last Mile.