Financial Crisis and Toyota Motor Sales Co., Ltd.'s Foundation

released on December 2009

In 1949, the Japanese auto industry was hit hard by a cutoff in Reconstruction Finance Bank loans and the sudden drop in demand caused by the recession at the time. While other automakers in the same predicament laid off workers, Toyota Motor Co., Ltd. (TMC) held to its policy of no dismissals, instead negotiating ed a 10% cut in employee wages — but even this was not enough to reduce the huge deficit.

Following a reconstruction plan in December 1949, financing to TMC was offered under strict conditions by a group of local banks, led by the Nagoya Branch of the Bank of Japan, including the creation of an independent sales company and the dismissal of surplus labor. TMC thus created Toyota Motor Sales Co., Ltd. (TMS) in April 1950. Unfortunately, the crisis continued to worsen, and reductions in TMC's work force became unavoidable. The same month, TMC's request for 1,600 voluntary retirements would spark a heated labor dispute — with TMC Founder and then-President Kiichiro Toyoda expressing regret for the situation to the TMC labor union and asking for their understanding.

With monthly output falling and huge losses accumulating daily for TMC, Toyoda regrettably announced his resignation as President of TMC and apologized to the TMC labor union when the dispute came to a head. Around this time, a greater number of employees than requested by TMC began leaving the company voluntarily, and the collective bargaining shifted focus to dealing with the dispute's aftermath. The dispute would finally end with 2,146 voluntary retirees and with both TMC labor and management feeling that the experience of seeing colleagues leave the company once was more than enough. This difficult experience became the starting point of the labor and management relationship that supports Toyota today. Two months later, TMS assumed all domestic marketing functions for Toyota and soon began handling overseas marketing as well, serving as a constructive counterpoint to TMC's concentration on technology and production.

In January 1982, TMC and TMS decided to merge as a means to cope with the turbulent 1980s and changed their name to Toyota Motor Corporation. At the time, Toyota Motor Corporation's then-Chairman Eiji Toyoda recalled to all associates how — at the brink of bankruptcy in 1950 — TMC was forced to split its production and sales departments into separate companies. He urged everyone to "return to our original organization, let us grasp our capabilities to their fullest and let us make the effort needed to carve ourselves a new future."

For 32 years, TMC and TMS had concentrated their managerial resources in their respective areas of responsibility to become leaders in the Japanese automobile industry. However, to develop their international operations and to make decisions more quickly, a need emerged to integrate the functions of both companies and restructure into a new organization.

In his June 25, 2009 speech, Toyota Motor Corporation President Akio Toyoda specifically referenced TMC's handling of the 1949 labor crisis, emphasizing every challenge in Toyota's path would result in the creation of a valuable asset: a corporate culture focused on the customer and the genba. "Toyota has been hit by a crisis about once every ten years," Toyoda said, "but Toyota has made it through every crisis with the constant support of all Toyota team members."

  • Contract signing for the merger of TMC and TMS in 1982

  • A copy of the signed 1950 accord with photos of labor negotiations and the signing

— End —