The other 'Big 3': Japanese car giants caught in sales skid, too

TORRANCE, Calif. -- Though he's 5,400 miles from Tokyo, the chef at the Depot restaurant follows automotive economics in Asia as closely as he monitors the crispness of the Thai shrimp.

That's because his lunch hangout is down the street from the U.S. headquarters of both Honda hmc and Toyota tm in this Los Angeles suburb. That puts the restaurant directly in the path of the tsunami-like effect of the recession on Asian automakers.

The eatery still attracts a respectable lunch crowd, but the heady days of parties are over for now.

"There's a tightening of the belts, but we're not losing our shirt," says owner and chef Michael Shafer. "It's a very cautious market right now."

Much the same can be said for Toyota and Honda, as well as Nissan, nsanywhich moved from this area to Franklin, Tenn., in 2006.

Japan's Big 3 aren't as bad off as some of their Detroit brethren. No talk of bankruptcy contingencies like General Motors gm or Chrysler or mass layoffs. But their fiscal years drew to a sorry close Tuesday. Toyota predicts it will post a net loss of $3.8 billion, its first net loss for a year since it started reporting the result in 1963. Nissan has been on track for a $2.8 billion loss. Honda expects to be in the black, but with operating profit down 81.1%.

The recession is battering Nippon's automakers by:

•Socking their sales nearly as hard as U.S. automakers' sales. They've been unable to float above the trouble with more sales of low-cost, high-mileage small cars as in some past economic turndowns.

•Depressing the dollar's value against the yen. That squeezes profits on sales transacted in U.S. dollars and makes their Japanese-built models less price competitive. The dollar is down 5.8% from a year ago vs. the yen; 15.9% in the past two years.

•Threatening the labor-cost advantage of their non-union U.S. factories. Ford Motor has won concessions from the United Auto Workers it says will put its costs on par with Toyota's U.S. workers. GM and Chrysler are negotiating similar deals mandated by their federal loans.

•Straining Toyota's and Honda's traditional policies against laying off permanent workers. That puts them at a disadvantage to U.S. companies that have jettisoned tens of thousands. Nissan doesn't stand by a no-layoff pledge, but it hasn't laid off any of its permanent factory force.

Toyota even discussed loan aid with the Japanese government, though the company is quick to draw a distinction with the U.S. government loans to GM and Chrysler. The Japanese discussion, it says, focuses on financing loans for potential car buyers, not for company operating funds.

Japan 3: Save, save, save

Meanwhile, the Japanese Big 3 are scouring for ways to save.

"Everything is up for grabs at this point. There is nothing we aren't looking at," says Irv Miller, a Toyota vice president. Already, Toyota has suspended costly dealer events.

Honda is pulling back from sponsorships, events and advertising. Honda's criterion for cuts? "We have a saying: D.I.S.C. — Does It Sell Cars?" Executive President Dick Colliver says.

Trying to find ways to cut payroll costs without breaking their no-layoff pledges, Toyota and Honda have created voluntary buyout programs. Both are cutting salaried worker pay and bonuses and shortening factory workweeks. Honda, for instance, announced 13 more non-production days through July to trim production by 62,000 vehicles.

And although there are no involuntary layoffs among permanent staff, neither company has had any qualms about letting go "temporary" workers, who may work the lines full time but have not achieved full-time status.

Nissan has been particularly aggressive — and transparent — in its retrenchment. The smallest of Japan's Big 3 is cutting 20,000 jobs worldwide, including 1,200 U.S. workers who have taken buyouts. Nissan will introduce 48 models through 2012, not the 60 originally planned. Travel expenses were slashed 75%.

"Nissan is operating in an environment in which we are hit with three challenges at one time: the credit crisis, the economic recession and the strengthening yen," said Nissan CEO Carlos Ghosn in announcing the cuts after posting an $820 million quarterly loss Dec. 31. "The global auto industry is in turmoil, and Nissan is not an exception."

These automakers have no better answer than any other how to sell more cars to people who, even if they have the money, have glued their wallets shut out of fear of losing their jobs or who'd buy but can't get loans.

In the quarter just ended, the combined U.S. sales of Japan's Big 3 fell 36% from the quarter a year ago, Autodata reports, while sales of Detroit's Big 3 tumbled 46.2%. Showing the breadth of the U.S. market collapse, those six companies account for eight out of 10 cars sold here.

Although the Japanese makers picked up a little market share at the expense of Detroit, it is little consolation. Their buyers evaporated so fast that late last year they had to scramble for more space around West Coast ports to park excess inventory.

"We started back in October telling our dealers that 'you better batten down the hatches.' They were a little slow to react," Honda's Colliver says. Honda hadn't seen annual sales fall since 1992. "I educated the Japanese on what was going to happen and what we needed to do."

The bright side of a recession

As dark as it looks, the Japan 3 have been spurred to make the recession a tool for improvement.

For Toyota, the alarm went off when it missed several of its goals for this fiscal year.

"They are not happy about being so far off their commitments," says Jeffrey Liker, a University of Michigan professor who co-authored The Toyota Way and spinoff books on Toyota's management and production methods. In its culture, "When you set a goal, you are expected to make the goal. If you don't make the goal, you are a failure, and you have to reflect on what you're going to do differently."

Heads are already rolling.

Both Toyota and Honda are getting new CEOs. At Honda, Takanobu Ito, 55, will replace Takeo Fukui, 64, and is expected to press the automaker's strong engineering tradition.

Toyota has picked Akio Toyoda, 52, as its new president, marking the return of a member of the founding family to the helm.

Toyoda "wants to bring the company back to its core discipline," says Efraim Levy, an auto equity analyst for Standard and Poor's. "One of the issues, he believes, is that some of the vehicles" — namely the Lexus line — "are getting too expensive."

Sales troubles and cutbacks are bringing no letup in the Japanese fixation on continuous self-improvement, kaizen, and elimination of waste, muda.

At Toyota's Torrance headquarters, the computer room was too warm. The easy answer would be to dial down the air conditioning. But following the company's principles, workers tracked down the root cause, a blocked duct. By following kaizen, a problem was fixed without extra cost, spokeswoman Sona Iliffe-Moon says.

Workers also found they had excess office supplies languishing on shelves — a clear call for muda. So they created an intranet trading post: Workers with too much of something — file folders, binders, Sharpies, copier toner, whatever — list it, and employees in other departments can come by to trade or plunder.

"It might seem small, but if one department uses the excess of another department, there's some significant cost savings," Iliffe-Moon says. "All these cost savings add up."

Detroit stays in the running

They better, or Japan's problems could give American rivals an opening. Their current financial issues aside, Ford, GM and Chrysler are touting a raft of fuel-thrifty, stylish cars on the way.

And Ford, which is not on government life support, was cited by Consumer Reports magazine in its closely watched consumer survey on auto reliability for top quality across its product line.

The domestics also are serious about developing electric drivetrains. Ford's just-out 2010 Fusion gas-electric hybrid sedan is rated at 41 miles per gallon in the city, 8 mpg more than Toyota's rival Camry hybrid, and 36 on the highway, 2 mpg more than Camry. Fusion also will compete for attention and sales against the redesigned Toyota Prius, due in the U.S. in May, and Honda's Insight hybrid, which went on sale March 24.

GM expects its Volt electric car, slated for production next year, will travel its first 40 miles per charge without using a drop of gasoline. Only then will gas-powered recharging kick in.

But the Japanese 3 have some cutting-edge technology projects in the wings as well. Their battery research, which made them so strong in hybrids, has them well-positioned for the next generation of electrics. The same is true for electronics that are the heart of all today's vehicles.

"If you think that cars are mostly electronic, that's mostly to their advantage," says James Womack of the Lean Enterprise Institute, which studies efficient production.

Just like Japan's Big 3, Depot owner and chef Shafer is looking for opportunities in the downturn. He, too, increased his market share. He took over a rival high-end restaurant across the street and made it a more modest burger joint for "middle management at Honda and Toyota who also need a place for lunch."

He sees his auto clientele as savvy business people taking the correct "evasive action" to avoid being burned by the recession, even if they get singed.

"GM never had their eyes open. Now they have their eyes open, and they are getting smacked in the head," the restaurateur says.

Whether it's about the next order of Chinese-style potstickers or the new Insight hybrid that he hears Honda executives chattering about, Shafer gushes optimism about his bread-and-butter customers: "Many bright things are coming."