TOYOTA ROAD USA

By John Greenwald

George Taylor fought the Empire of Japan as a U.S. Marine in World War II, and he still has bitter memories. But now as mayor of Princeton, Indiana (pop. 8,100), he gladly put them aside last spring when Toyota unveiled plans to build a $700 million pickup- truck plant in his economically sagging town. "I've changed my mind a little bit," Taylor, 74, says. "The way I look at it, the Japanese are coming over here and giving American workers good jobs, while American companies are closing factories and taking work overseas for low wages." In a sign of appreciation, Taylor recently traded in his 1987 Chrysler Fifth Avenue for a new Camry sedan that Toyota built just down Highway I-64 at its plant in Georgetown, Kentucky.

Maybe I-64 should be renamed Toyota Road. Along the 500-mile stretch of interstate that winds past Georgetown and Princeton on its way from West Virginia to St. Louis, Missouri, the world's No. 3 automaker--after General Motors and Ford--has quietly become America's fastest growing automaker. Amid the rich corn, wheat and soybean fields, Toyota is building a vast industrial empire in the center of America's heartland, with I-64 as the hub for some $8 billion of North American investments. By 2000 Toyota hopes the public will view the company as the fourth member of the Big Three automotive family--though Detroit has no intention of extending a membership invitation. Vows Toyota president Hiroshi Okuda: "We will be the first [foreign manufacturer] to be recognized as a U.S. company."

This Americanization of Toyota aims to remove the last shreds of resistance that some consumers--particularly in the blue-collar Midwest--still have for foreign nameplates. A recent Toyota study found that 30% of the Americans surveyed said they would not buy a Japanese vehicle. Certainly, for this part of rural, small-town America, the high-paying manufacturing jobs that Toyota is creating will go a long way toward overcoming historic prejudices.

Toyota's new direction reflects political necessity following decades of U.S.-Japanese trade clashes and a yin-yanging yen. Going to America not only defeats barriers like the current 25% duty on imported pickup trucks but also lowers manufacturing and distribution costs. Toyota's nonunion U.S. workers shave some 10% from its wage bill vis-a-vis Japan, and a like amount from shipping costs. The savings can knock about $2,000 off the sticker price of a Camry that would cost $20,000 if imported from Japan.

By any measure, Toyota is well on its way to becoming a Yankee Doodle lookalike. Japan's largest industrial corporation (1995 sales: $101 billion) already has more than 19,000 U.S. employees and holds a 6.9% share of the U.S. car and truck market. That puts it in fourth, ahead of Honda (4.8%) though still well behind Chrysler (16.6%). But it's coming on. With the expansion along I-64, Toyota plans to boost U.S. output by a third, from 900,000 passenger vehicles in 1995 to 1.2 million in 1998. When it does, 75% of the cars the company sells in the U.S. will be assembled there.

For starters, Toyota is adding a new line of minivans to its $3.4 billion plant in Georgetown, where Camrys and Avalons are now produced, and tripling the output of its St. Louis-based Bodine Aluminum subsidiary, which makes engine components. Next will come a new $400 million engine plant in Buffalo, West Virginia, and the T100 pickup plant in Princeton. Toyota is expanding other facilities, like its Corolla factory in Cambridge, Ontario. There's a $310 million technical center abuilding in Ann Arbor, Michigan. Toyota recently opened the world's largest proving ground, a 12,000-acre property outside Phoenix, Arizona. "We can now do everything the Big Three do," says Yale Gieszl, Toyota's American-born executive vice president for U.S. sales and marketing. "The flag of the parent company is really irrelevant."

The swift U.S. buildup by Toyota and rivals like Honda has revitalized whole communities. A University of Kentucky study credits Toyota's Georgetown presence with creating 22,000 jobs in the state (the plant itself employs 6,500) and adding $1.5 billion to the state's economy during its eight years in operation. Soaring property-tax rolls have enabled Georgetown to build new police and fire stations and community-care facilities. In Princeton property values are taking off.

Hopes for similar surges, along with jobs and rising income, drew throngs of townspeople and the high school band in Buffalo two weeks ago to groundbreaking ceremonies for Toyota's West Virginia engine plant. Local schoolchildren sang a haiku ("Cherry Blossoms born of spring, let's go see, let's go see") as dignitaries planted 10 Japanese maples to symbolize Toyota's new U.S. roots. For Senator Jay Rockefeller, landing Toyota marked the capstone of a 20-year crusade to boost the economy of one of the country's poorest states. Thanks to Toyota, Rockefeller says, Buffalo (pop. 969) is "going to become a player in the global marketplace."

However long that takes, Toyota has already created a corn-fed hybrid of East and West along the I-64 corridor. About half of Toyota's top 100 executives in the U.S. are American. And there are about 50 Japanese in the 6,500 person work force at the Georgetown plant. At the Tachibana sushi bar in nearby Lexington, Kentucky, manager Takashi Iwata serves raw fish to Japanese diners as well as to locals raised on burgers and barbecued ribs. "I am happiest when I have customers in cowboy shirts using chopsticks," Iwata says. "But to tell you the truth, my ancestors would be shocked."

So would the forebears of Bob Lloyd, the Missourian who runs Bodine Aluminum in St. Louis and nearby Troy. Here Japanese workers hold Shinto ceremonies to celebrate milestones such as a new furnace or the casting of the 1 millionth engine part. "Our people think the plant ceremonies are a riot," says Lloyd.

Toyota has its own reason for smiling. All this is a long way from the company's modest U.S. debut in 1957, when the first Toyopet Crowns--woefully underpowered tadpole-shaped vehicles--were unloaded from the freighter Toyota Maru in Long Beach, California. Yet even as Toyota improved its cars and gained market share, the company remained reluctant to build them on American soil. Not until 1985, when Honda and Nissan were already producing cars in the U.S., did Toyota decide to build the Georgetown plant. The company has since been at pains to avoid such stereotypes as those spoofed in the 1986 Michael Keaton comedy, Gung Ho, which depicted Japanese managers holding fire drill-like pep rallies and speeding up assembly lines to a Chaplinesque frenzy. Toyota responded in methodical fashion: it bought copies of the film to show Japanese managers how not to behave in American factories.

Since then, Toyota has Americanized itself at a rapid pace, which accelerated last year after a nasty trade dispute in which the Clinton Administration threatened to slap a 100% tariff on luxury cars like Toyota's Lexus. Shortly afterward, Toyota executives swooped into Indiana to pick a site for the T100 truck plant and sped up the timetable for the new West Virginia factory. Says senior vice president Jim Olson, a 16-year Ford veteran who joined Toyota in 1985: "It will now be very difficult for the Big Three to attack us as the enemy at the border. We're across the border and we're here."

Yet in the beginning, some locals like Randy Sinkhorn, a fifth-generation Kentuckian who trains welders and other hands at the Georgetown plant, had to overcome deep-seated doubts about working for the Japanese. Even today, Sinkhorn says, laughing, people outside the area want to know, "'Do you work like a dog 15 and 20 hours a day?'" He says he doesn't.

But the company does put workers inside what Olson bluntly calls the "Toyota vise." He describes his Japanese employer as "an immensely stubborn, universally tenacious company. There's this hatred of waste, and [you're] continually driving to get more for less. You're never happy. You're never allowed to be satisfied. Attacks and setbacks are only used as learning exercises."

Toyota's relentless cost engineering creates efficiencies that Detroit can chase but not match. Its philosophy of continuous improvement--rethinking the thousands of steps that go into building each model-- allows Toyota to constantly trim material costs and production time. The company lowered the base price of its 1997 Camry by 4%, for example, after taking steps that included streamlining the front-bumper assembly from 20 parts to 13 and reducing the number of steel body fasteners from 53 to 15. Such improvements enable Toyota to assemble a car in 21 hours, vs. 25 for Ford, 27 for Chrysler and 29 for GM.

At Bodine Aluminum, Lloyd still ruefully recalls the day the new Troy plant produced the first intake manifold to be rejected--after three months and 60,000 defect-free parts. The lapse "was immediately followed by an eight-hour meeting the next day," says Lloyd, who has had to adjust to the Japanese penchant for such talkathons. "Before, if I wanted to do X, I could do X," Lloyd says, "but now we have to meet for three days. They want everyone to be on board." Bodine has cut its initial reject rate from 20% to less than 2%. Even better, Lloyd says, Bodine hasn't had to call a single meeting this year.

Toyota remains un-American, at least as far as the auto industry is concerned, in one key aspect: it is a nonunion shop, a status that is also subject to intense discussion in local communities. Roger Myers, a county commissioner in Indiana who helped bring Toyota to Princeton, was a longtime executive of the United Mine Workers union and sees the new truck plant as a fertile ground for labor organizers. "I know the jobs have to be there before the union is there," Myers says, "but this is still a union community. I think there will be an attempt to organize the plant. Without a doubt, there will be."

Yet within Toyota, executives have been hotly debating whether to bring even more manufacturing to the U.S. from Japan. The most ambitious planners foresee spinning off Toyota's U.S. operations into a new American company, with its headquarters in a city like Chicago and its own listing on the New York Stock Exchange. Says Gieszl: "We're not content with current levels. It's conceivable that we could become the third largest automaker in the U.S."

That will take some doing: Chrysler builds roughly twice as many vehicles in the U.S. as Toyota does. But such talk-- as well as the prospect of precious, high-paying jobs--is music to the ears of town fathers and mothers in the hamlets along I-64. They'd surely welcome the opportunity to be the next stop on Toyota Road.

--Reported by William A. McWhirter and Joseph R. Szczesny/Detroit

With reporting by WILLIAM A. MCWHIRTER AND JOSEPH R. SZCZESNY /DETROIT