Akio Toyota, electric cars and more..

When Toyota founder's grandson inherited the throne, the company was in the red, for the first time in its history as a public company.  But I was a bit cynical, believing that they were playing dead, and thought that they would come out miraculously quickly.  My attitude came from the fact that I know through my friends at Toyota how carefully Akio was protected and nurtured.  I thought they would NEVER put Akio in the CEO position in such an environment, unless they knew for sure that they would turn around quickly, so Akio would become a super hero.

See my Jan 09 blog entry here:
Akio Toyota

Just about a year has passed since this announcement, and for sure the company's financial is expected to show a good recovery this fiscal year, but things do not seem too great in Toyota lately.

This morning, I heard a news on TV that Akio finally appeared in public, first time in 2 weeks since the recall problem started to go around.  No video image was shown on TV - the press conference was held in Nagoya, Japan, and looks like the image was not widely available for the U.S. press.

It looks strange to me.  I worked for Honda in the 80's, and even then, I learned that auto companies were VERY sensitive about such product quality issues, particularly for the U.S. market, where consumer rights are bigger than anywhere else and is the largest auto market in the world.  So I have to assume that peole in the quality assurance and P.R. in Toyota must know how IMPORTANT it is, to take a quick damage control in such circumstances.  And it is a common sense that the very top person should appear publicly as soon as the danger is found and show the public that he is taking care of it.

There is a conspiracy theory going around on the Japanese Net that the U.S. government (particularly LaHood) and the U.S. press are treating Toyota unfairly, compared to their U.S. counterparts on the similar situation.  U.S. auto companies are getting a huge financial help from the U.S. government, the theory goes, and the government/press want to beat up Toyota to help sales of GM and Ford.  OK, so what?  Japanese auto makers have been dealing with such a situation since 1970's.  That is the reality of this world, and they know how to deal with it.  Right?

But a doubt has started to creep in to my belief in Toyota's invincibility lately.  I wrote a small column on Nikkei Communication Feb.15 issue about IT and US auto makers.  I wrote it in early January, right after Ford announced its MyFord Touch.  In it, Ford CEO Alan Mulally calls himself "your fellow geek", and stressed that the new Ford IT system is based on Silicon Valley-style open architecture.  I was really impressed by that quote, and added a few facts about Tesla, a Silicon Valley-based electric car venture, to write a new trend in the U.S. auto industry.

I was shocked to watch the 2006 documentary movie "Who Killed the Electric Car?", and at that point in the Bush era, I had an impression that the auto companies in the U.S. (including Japanese cars) were getting lots of influence from the oil industry, and the oid-industry-supported government.  Now that the administration changed, maybe the whole power balance has shifted.  Obama is close to Eric Shmidt, CEO of Google, and the current government may be positioning Silicon Valley as their "strength", rather than "traitors" which destroys the current industry order and the job market in elsewhere in the U.S.  So that was my conclusion of my small column.

These days, when I watch Toyota's news, another concern creeps into my mind.  I read a 2006 Japanese book on the demise of the Japanese electronic industry, written by Fumiaki Sato, and there, he was comparing the auto industry and electronic industry.  Back then, GM was still bigger than toyota, and he says that it is important for Toyota to keep them alive and continue to be positioned as No. 2, rather than becoming the very top and destroying GM.  Because then-inefficient GM was putting high prices, backed by their price leadership position, and Toyota could enjoy a fat margin based on that high market price.  Sato says that in the electronic industry, such "wind shield" was lost by destroying the U.S. manufacturers altogether, and the unlimited cut-throat competition ultimately brought the success of Korea, Taiwan and China, rather than the high-cost Japan.  So, it is quite symbolic that Toyota surpassed GM in terms of the numbers of cars sold and GM went into bankruptcy, when Toyota started to send out yellow signals.

Prof. Satoshi Matsubara at Toyo University was very active on Twitter today, about his negative views of Toyota as well as his support of electric cars.  In fact, Toyota was not very enthusiastic about electric cars, and instead, they have built their leadership in hybrid cars.  Prof. Matsubara speculates that it is because electric vehicle destroys the whole ecosystem of auto industry, from the parts manufacturers to the gas stations.  It is a typical "disruptive technology" described in "Innovator's Dilemma".  Toyota has been treated as the "eco" champion with Prius, but it actually may be just an effort to keep the status quo alive.

I have been following Tesla closely for the past 2 years or so.  I am aware that there are too many problems with that company, but I have been feeling quite awkward that Japanese press has been totally ignoring it. It can become a part of this disruptive technology which may in the long run threaten the pillar of Japanese economy, Toyota and Japanese industry.  I imagine many people would be more interested in what is going on in that front, but looks like nobody has cared, at least so far.  I proposed a publisher that I write a book about Tesla early last year, and they were kinda half-hearted.  It was good that I didn't, because nobody would have bought my book.  Is it just me, or is it yet another example of "paradaisu sakoku (seclusion in paradise)" symptom?

I support the opinion of Prof. Matsubara, that they should consider electric cars more seriously and do away with all the negative myth about it.  I also sympathize him on his concerns about Toyota's recent direction.

What is going on in Toyota now?  Japan's economy depends on Toyota and auto industry so much.  And I have too many friends at Toyota.  I hope my concerns are just my imagination, and that they know what they are doing.


Toyota's crown prince enters - a super hero story

As was expected, Nikkei reports that Mr. Akio Toyoda, the crown prince of the founder's family, is to take the company's president position in June this year.

Here is the photo of Akio Toyoda:  New York Times
Here is the news report:  Market Wach

Even the invincible Toyota is hard hit by the global recession, and is expecting an operating loss at the end of this fiscal year (March 09), the first time in their corporate history.

Now, there have been much speculation in the Japanese blogosphere that they are just "playing dead", to avoid becoming a target of bashing while US car manufacturers are in deep trouble, and to make it easier to cut people.

Now that Akio is in position, I am feeling more and more that the speculation is not totally groundless. 

It is funny to see that the largest company in Japan is the "family business".  The founder's family is such a sacred thing for all Toyota people, especially the "direct family line" (founder Kiichiro, his first son Shoichiro, and his first son Akio).  Each time the direct line member takes the helm, the media refer to it as "taisei hokan" ("handing back the helm"), the historical termused when Tokugawa Shogunate returned the country's governance to the Emperor in 1864.   Akio has been carefully groomed just like the first son of an Emperor.  It is unthinkable to put the precious crown prince into a risk.  It is reasonable to assume that the company's executives somehow KNOW that they are OK.  Maybe they are scripting a super hero story, that Akio comes in during the worst of time, and will turn the company around.

So if you still have some money to invest, buy Toyota share.  I am pretty sure that they are TOTALLY OK.


Sony's biggest miscalculation about Blu-ray

Bad news about Sony keep on coming.

Sony to layoff 16,000 ZD Net

And bad publicity about Blue-ray keeps on on coming as well.

How can we expect Blue-ray to succeed - CNET

Inthe past, Sony was successful in transitioning users from VHS to DVD, by combining DVD player with PS2.  It was a great "killing two birds with one stone" strategy, as it also helped their game business as well.  But looks like that same strategy did not work for Blu-ray+PS3 combo after all.  Why was that?

The transition from analog to digital brings along a drastic cost reduction (=higher margin) for all the providing parties involved, and a drastic utility increase (=better quality) for users.  DVD is much cheaper to produce than VHS tapes, cheaper to transport, takes up much less space in the store, and harder to break.  It means both publishers and sales channel enjoy less direct and indirect cost and much higher margin.  At the same time, consumers enjoy better video/sound quality, and don't even mind to pay MORE money, even though the actual COST is cheaper.  That makes the margin even more attractive to the providing parties.  I am not sure if the rights holders (movie studios) enjoyed higher royalty or not, but anyway, pretty much everyone was happy.

This phenomenon is called "dominant choice" in microeconomic terms.  It was also applicable for "record to CD",  and "analog cellphone to digital" transition.  Those are the cases of gold mine to be exploited.

Now if you look at the transition from DVD to Blu-ray, you can see that the formula does not work.  Blue-ray probably is more costly to produce.  The transport and inventory cost would be the same for the sales channel.  And the benefit for the consumer is rather small, if not zero, hearing from all the opinions on the Net.  So basically, there is no added value to be distributed among all the parties involved.

As long as Sony was aware of it and was realistic that the transition would take much longer because of Blue-ray's "non-dominant" status, the current crisis would not have been this severe.  Sony's biggest miscalculation here, I believe, is that they were trapped in the past success and had an illusion that they could repeat it again.


Panasonic-Sanyo merger FINALLY goes through

As reported earlier, Panasonic's attempt to acquire Sanyo had been stalled due to the objection by Goldman Sachs, but it finally goes through today.  The total deal size will be at least 560 bil. yen, or up to 800 bil. yen, depending on the final result of the planned TOB.

Goldman changed their mind to accept the price of 131 yen per share.  According to Nikkei, in earlier stage of negotiations, major investors (Goldman, Mitsui Sumitomo Bank, Daiwa SMBC) were asking for more than 200yen, and Panasonic offered 120 yen.  When Pana raised the price to 131 yen, both Mitsui Sumitomo and Daiwa accepted, but not Goldman.

Newspapers report that given the overall financial crisis, Goldman decided that it is a better deal to accept it and cash Sanyo out, rather than sitting on it till it dies.  Strategically, merger with Pana makes a lot of sense - or at least MORE sense than being held by financial investors at the current structure.

I guess the yen-dollar exchange rate which reached to 87 yen per dollar migh have helped.  In dollar terms, capital gains for Goldman probably is not too bad at this moment.

Anyhow, Pana is scheduled to open TOB next February, and hope to complete the acquisition in spring 2009.

So after all, the famously savvy Osaka merchant wins in this battle.

Panasonic is not exactly a cool fashionable brand, but they have a steady strategy and will likely be one of the "remaining" brands at the other end of this consolidation stage in Japanese electronics industry.  I wish they started 10 years earlier - I wonder if it is the case of "better late than never", or "too little, too late".


Panasonic and Sanyo - separated at birth, but...

Panasonic's attempt to acquire Sanyo (minus mobile phone handset division, which was already sold to Kyocera) continues.

After Pana's intention was announced, Goldman Sachs, one of Sanyo's investors, declined their offer.  This week, Pana raised the offer price to 130 yen per share, but Goldman again declined it today, citing that Sanyo's current share price is 169 yen as of Wednesday.  Nikkei reports that Pana can gather more than 51% without Goldman's accord, so Pana is heading that direction.

Panasonic and Sanyo are not only neighbors - their headquarters in Osaka are less than 2km apart - but also Sanyo's founder used to work closely with Pana's founder Konosuke Matsushita.

Pana's main strategic motivation of this acquisition is reported as Sanyo's solar battery division, which has the top level market share in the world.  It is important in their energy and environment strategy.

So the combination is in many ways natural, so I believe that sooner or later, it will go through.

People in Osaka is historically known for the city of merchants, and Pana is known as a savvy merchant.  I imagine they know what they are doing.

Michi Kaifu

The Shosteck Group becomes a strategic partner

The Shosteck Group, a boutique consulting firm specialized in mobile telecommunication, has become ENOTECH's strategic partner.

Jane Zweig, Chair and CEO of The Shosteck Group, has been known as the top intelligence in the world's mobile industry.  She was recently featured in CBS Market Watch, as she has often predicted what would actually happen in the new technology or service, contrary to the hype of the time.   She has particularly deep understanding of the mobile handset behavior, thus she looks at the industry from the handset/user point-of-view, rather than the provider/infra perspetive.

We have worked together on project-by-project basis in the past, and are currently working to create more value in the industry, by matching her US/Europe industry knowledge/human network and mine in US/Japan.

Stay tuned!!