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In Toyota City, Japan, the good times rolled . . . away

The ultimate company town thought it was immune from economic downturns. But that was before the global recession hit and the automaker started slashing jobs.

March 22, 2009|John M. Glionna

TOYOTA CITY, JAPAN — When times were good and the auto business hummed along like a finely tuned engine here in the Detroit of Japan, this tightknit company town was considered a workers' utopia.

City officials were the envy of the nation, nursed by a paternal multinational firm that paid generous wages and showered the community with perks such as a top-notch sports stadium, concert hall and art museum -- all carrying the Toyota brand name.

That was before the worldwide economic pileup that brought widespread personal wreckage to the hometown of the world's mightiest automaker.

Unlike in Detroit, where years of steady decline preceded the current financial crisis, Toyota City's fortunes went from cruise speed to brick wall. Regarded a model of economic prosperity, it endured an unthinkable drop from first in the country to worst in less than nine months.

In this community three hours southwest of Tokyo, it's a phenomenon known as Toyota Shock.

"Toyota City is hurting," said Norio Seki, general director of the city's industrial labor division. "We're in trouble."

Last summer, Toyota was just months away from overtaking General Motors as the world's biggest car company. Jobs were plentiful here in Toyota City, where 80% of workers are employed in the auto industry.

Then Japan slumped into recession. Exports in the world's second-largest economy plummeted at a record pace, and domestic demand dropped alarmingly.

Mammoth blue-chip firms such as Toyota and Sony weren't exempt from the financial carnage. Even before announcing last month that it was facing its first annual net loss in 59 years, Toyota had begun an unprecedented production slowdown that called for reduced shifts and 10-day closures at its 12 domestic plants.

It also fired 9,000 contract workers -- more than 10% of its 85,000 employees -- and warned that more firings could follow, even among once-protected full-time workers.

As a result, Toyota City saw its number of available jobs fall more than 50% between October and December compared with the same period of 2007, officials say.

January brought more bad news: The number of job seekers soared 130% from the same month in 2008, from 1,489 to 2,627. That brought Toyota City unwanted attention as Japan's most out-of-work town.

"There used to be so many jobs we couldn't fill them all, but that all dried up overnight," said Masami Kawajiri, director of a federal job center in Toyota City. "Now our only choice is to do our best for job seekers, one by one. To think about them all at once would be too overwhelming."

City hall has fared no better: Officials predict a 96.3% drop in the corporate taxes they'll collect this year, a loss that jeopardizes city services. The Aichi prefecture government, which relies on Toyota for one-fourth of its corporate tax revenue, is projecting a $1-billion shortfall in 2009.

For its part, the automaker can only watch the decline of its home city as its scrambles to climb out of its own financial hole.

From an operating profit of $37 billion last year, Toyota expects a $5-billion loss for the fiscal year ending March 31. The company is also seeking government loans to hold off private investors demanding as much as 50% in interest on the company's debt.

"We know Toyota City has been hit on the chin, and we feel a responsibility to the community," said Paul Nolasco, a Toyota spokesman in Tokyo. "But here's an indication of how cloudy our situation is: We haven't even come up with a global production and sales plan for this year.

"We usually release that in December, but here it is March and we haven't done it yet. That's the biggest indication that we're still looking for direction."

Hurting just as much are hundreds of smaller companies here that supply the Toyota colossus with the parts to construct its cars, including mufflers, door parts, windshield wipers and headlights.

In a city where one-third of the 1,400 employers are auto-related, many of the firms say Toyota's production cuts will cause bankruptcies unless they too can qualify for government loans.

"We have no way to make the situation better -- we just have to wait and see what happens with Toyota," said a manager in a car window parts company who asked not to be named. "People are afraid to talk because they are afraid of Toyota, but we're all very nervous."

Toyota City's downturn baffles residents. After all, this was the home of Japan's largest company. Financial woes might be a reality in other parts of Japan, but not here.

"This thing took us by surprise," said one former Toyota employee who declined to give her name. "Who would have ever guessed that recession would come home to roost here? This is a car town and the world needs cars, right?"

Toyota City is a somewhat isolated community on the last stop of a subway line based in the nearby bigger city of Nagoya. Most people here support the hometown company and drive Toyotas.

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