One bright, unseasonably warm October morning, the spacious lobby of Toyota Motors’ North American headquarters is bustling with visitors. Two small clusters of people huddle over laptops, waiting to be ushered to some corner of the seven-building, 2 million-square-foot, 100-acre campus. Groups of college-aged students are milling about as they wait to be led to the first-floor training center for one of the company’s community programs aimed at encouraging STEM education. Soon, a minibus pulls up in the drive just outside the main doors. A couple dozen Japanese men and women, in varying degrees of business casual wear, disembark. As they enter the building, cell phones emerge from pockets to take snapshots of the space—its stone floors and pillars, glass walls and doors, high ceilings and staircases still gleaming after a little more than a year of daily use. Several of the visitors wander over to look at the 1964 Land Cruiser Wagon that’s on display.
Next to the restored light-blue-and-white vehicle, a sign explains that the Land Cruiser is the only Toyota model sold continuously since the company began exporting to the United States in 1958. Peer inside the vehicle, and it’s hard not to take note of the quaintly analog gauges across the dashboard—a reminder of a time not long ago when any grease monkey skilled with a wrench could fix just about anything in a car. Automobiles back then weren’t exactly simple machines, but understanding their interlocking parts wasn’t much more difficult than grasping the concepts of levers, screws, wheels, and axles. Today’s vehicles feature so many electronically controlled innards, repair shops have to hook up a computer to decipher error codes diagnosing many problems. “Mechanics” have given way to “technicians.”
Likewise, the auto industry as a whole is exponentially more complex than when Toyota Motor—born in Japan in the 1930s—first brought two models, the Land Cruiser and the short-lived Toyopet Crown sedan, to the U.S. market. Toyota’s American customers can now choose from among a few dozen models bearing the flagship brand or its upscale sister, Lexus, along with a host of trim, engine, and powertrain options.
Add to that increased competition from tech companies like Google, Apple, and Uber trying to beat out traditional automakers in the development of autonomous vehicles; stricter government fuel-economy standards imposed to curb the emission of greenhouse gases; and the uncertainty that comes with having no control over the production of a resource vital to operating most cars (oil). Now, you’ve got a sense of the challenges facing Jim Lentz, CEO of Toyota Motor North America and a senior managing officer of Japan-based parent company TMC, as he contends with maintaining (or improving upon) the company’s place as the third-largest automaker by market share in the United States, trailing only General Motors and Ford.
Imagine navigating all of that while also successfully planning a massive restructuring, including a huge relocation and consolidation of business functions previously scattered across the U.S. into one North Texas hub, and you get an idea of why D CEO magazine selected Lentz as its 2018 CEO of the Year.
There’s a story that Lentz tells often when interviewers ask him to discuss a pivotal moment in his career. It took place early on during his time with Toyota, which the Chicago-area native joined in 1982, following graduation from the University of Denver with an MBA and four years at Ford. He was a merchandising manager in Toyota’s Portland, Ore., office when his boss thought Lentz went too easy on the people he supervised. The boss gave him an ultimatum: start managing with an iron fist or find someplace else to work. Lentz and his wife had two young boys at home, so being unemployed wasn’t an option. Yet he knew that what his boss was requiring wasn’t how he wanted to manage people. He accepted a demotion and a move to Toyota’s corporate offices in California rather than accede to his boss’ demands.
Randy Pflughaupt, now a group vice president for Toyota Motor North America, was working under Lentz in the Portland office when all that went down. He was among those subordinates whom Lentz’s boss wanted him to crack down on.
“One of my first experiences with Jim, and really seeing him in a leadership role, was that he really did use his own judgment and made his own decisions about right and wrong and how to work and deal with people,” Pflughaupt says. “He even took those blows himself and found ways to motivate the rest of us and frankly shield a lot of us.”
Lentz says his move to the company’s sales training program revitalized his career. He made his way up within the Toyota Motor Sales division before serving as a regional general manager, first in San Francisco, then Los Angeles. Once he reached the executive ranks, his work spanned across the company’s sales, logistics, and marketing departments to include helping to launch the Scion brand in the early 2000s. (The now discontinued vehicle was Toyota’s attempt to appeal to a younger demographic of car-buyer.)
Most people see Toyota as a car company, but they are a company that’s really looking to improve the world by mobility.Harry Larosiliere, Plano Mayor
But Lentz truly became the American face of Toyota during the company’s most trying stateside crisis. In August 2009, a horrific crash near San Diego left four occupants of a Lexus ES350 dead after the car’s accelerator pedal got trapped beneath a floor mat, causing it to speed out of control. The accident brought a host of media attention to the potential that other Toyota vehicles might be similarly susceptible to sudden unintended acceleration due to sticking pedals or throttles.
That October, the company issued a recall of nearly 4 million cars and trucks in the U.S. to replace their gas pedals with smaller versions less likely to get trapped under floor mats. A massive increase in reports of sudden acceleration incidents followed. The public wanted answers to the problem, and Lentz, then president of Toyota Motor Sales, was called to testify before Congress.
“I didn’t sleep for probably five days,” he says of the lead-up to the House subcommittee hearing in 2010. “We’ve never been through an experience like that. Personally I’ve never been through one. It’s just trying to understand what the unknown’s going to be, not knowing where questions were going to come from, and just making sure you kind of keep your cool and answer as many questions as you can.”
Ultimately, the crisis led to the recall of more than 10 million vehicles, the temporary suspension of sales on eight Toyota models, sharply tumbling sales, and a subsequent year-over-year stock price drop of 20 percent.
Department of Transportation investigators determined that the vast majority of unintended acceleration incidents were due to driver error (panicked drivers hitting the accelerator when they thought they were hitting the brake). Toyota was found by the Department of Justice to have withheld knowledge of safety defects and paid a $1.2 billion fine in 2014.
“The things that I really learned are, No. 1, we needed to make sure that we were transparent: transparent with customers and transparent with government officials,” Lentz says. “And the other real big part was, make sure you truly understand your customers, and not just listen to them but understand what they are communicating. And, No. 3, was to be quick about solving things.”
Lentz says many things that contributed to the sudden acceleration crisis have been solved. “Part of it is being here at One Toyota,” he says.
A Unified Front
“One Toyota” is the company’s term for its much-ballyhooed 2014 decision to unite the management of its executive, sales, marketing, financial services, logistics, quality control, and engineering functions on one sprawling campus in the northwest corner of Plano, near the Legacy West mixed-use development, where its corporate neighbors along Headquarters Drive include Frito-Lay, FedEx Office, and J.C. Penney.
Thousands of employees from Toyota offices in California, Kentucky, and New York were offered assistance in relocating to Texas. Company executives are quick to tout the fact that more than 70 percent of those workers opted to make the move. Today, about 4,000 people work in the Plano headquarters—1,000 of whom were hired in the Dallas-Fort Worth area.
After Lentz was named CEO of North American operations (notably the first American in the job) in 2013 by Toyota’s global leader, Akio Toyoda, the company determined that some of its failings to act quickly and transparently enough during the sudden-acceleration crisis were due to having operations scattered across the U.S. Despite modern technological tools like teleconferencing, that geographical spread naturally limited the frequency and depth of communication among divisions. About a year-and-a-half since the new headquarters officially opened its doors, Lentz believes the consolidation of operations is already yielding results.
“In the case of, most recently, the RX. We came up with a new model called the RXL–a long wheel-base RX. About 12 months prior to production, we’ve set what we think our volumes are going to be,” he says. “Early off, the car was not selling as robustly as we had hoped. So the supply and demand group, very quickly, was able to signal to manufacturing that we need to bring down the production of the long wheel base, bring up the production of the standard RX, and bring up the production of the NX, which is a smaller Lexus SUV, even quicker.” Conversations among groups that used to take many months to work out now play out much faster.
Back in the old days, you waited to make your decisions until you had 100 percent of the information because you could afford toJim Lentz
do that, Today you can’t. Today you’ve got to be ‘roughly right.’
Longtime Toyota executive Bob Carter gives Lentz all the credit for envisioning One Toyota. “We had to reinvent ourselves, and that was really the initiative,” Carter says. “From someone who was in that meeting when only four or five people knew what was going on, I can tell you it was all Jim.”
Toyota still has 15 manufacturing plants and tens of thousands of additional employees, throughout North America. That’s why Plano’s location in the center of the country near a major international airport likely gave it an edge over competitors to land the headquarters. Government incentives were also deployed to seal the deal: $40 million from the Texas Enterprise Fund and $6.75 million in grants, plus 20 years’ worth of tax abatements and rebates worth many millions more, from Plano.
A study commissioned by the city in 2014 determined that in its first 10 years, the Toyota headquarters would yield nearly $70 million in local property taxes and more than $70 million in sales taxes. Although it’s way too early to know whether those projections will be met, Plano Mayor Harry LaRosiliere is already declaring the company’s impact an incredible boon. He credits Toyota’s decision to come to town with influencing others to follow suit with new offices nearby.
“If there’s a McDonald’s on a corner, you’ll soon see a Wendy’s and Burger King there because now Wendy’s doesn’t have to do its own market research. Once Toyota showed up in Legacy Park, we got Liberty Mutual, JPMorgan [Chase], Fannie Mae,” he says. “But the true impact has been on two levels, not just on Plano but on all of North Texas: their ethos and the people they have brought. Most people see Toyota as a car company, but they are a company that’s really looking to improve the world by mobility.”
Meeting Society’s Needs
Lentz flies to Japan about once a month to visit Toyota’s global headquarters. The 20 hours of transit that is required affords him plenty of time to think and read about the future of transportation, especially how changes in consumers’ desired lifestyles and advances in technology will affect it.
“We’re thinking today not what customers want tomorrow, but what’s our customer going to want in 2025? What kind of engines do they want? Do they want electrification? What body styles do they need? Do they want all-wheel drive or not?” he says. “We’re thinking about that today.”
Seated in a conference room in One Toyota’s wood-paneled executive suite, Lentz describes a recent article he read about how live-work-play environments—with offices, housing, shops, and restaurants in close proximity—will only become more prevalent in the suburbs of major American cities.
“You’re going to see Legacy Wests on steroids,” he says. “Understanding that, if that’s your belief, how do we allow for mobility in that? How can we tie into transportation systems, public transit? I read about public transit. I read about hydrogen infrastructure—just about anything and everything so I have a sense of where we can go as a company to meet the needs of society.”
Toyota has regained its footing since the sudden acceleration crisis and maintained its spot in terms of North American market share (not to mention ranking No. 1 globally). “Like other automakers, Toyota is positioning itself for a world that is automated, electric, connected, shared,” says Michelle Krebs, a Detroit-based industry analyst for Autotrader. “It’s hard to know exactly who is winning that race.”
Complex problems confront the industry and are forcing players like Toyota to continuously adapt. Is the shift to 70 percent of buyers preferring trucks and SUVs over sedans (a split that was about 50/50 just a few years ago) a long-term trend? Is the future to be found in developing battery-powered vehicles or cars that use hydrogen as fuel? As self-driving cars become more prevalent, will the appeal of private car ownership continue to wane? More immediately, how will the Trump Administration’s tariffs and revisions to the North American Free Trade Agreement (requiring 75 percent of a vehicle’s components to originate in the U.S. in order for it not to be considered an import) affect Toyota’s manufacturing?
“Back in the old days, you waited to make your decisions until you had 100 percent of the information because you could afford to do that,” Lentz says. “Today you can’t. Today you’ve got to be ‘roughly right.’”
In decades past, auto industry executives could get away with acting like mechanics—addressing each necessary repair, each issue, as it arose. Now, more than ever, they’ve got to be like technicians, armed with the understanding and the tools that allow them to confront deeper issues beneath the surface. Toyota couldn’t just fix sticky pedals, change out floor mats, pay a big fine, and move on. It had to know how it had created the crisis for itself in the first place, and fundamentally alter the way it does business. It had to be more than a mechanic. Fortunately for Toyota, Jim Lentz is a master technician.