Didier Leroy reshapes Toyota for an era of new rivals, new risks

TOKYO -- The top Toyota executive tasked with reinvigorating the company's celebrated Toyota Way for the future mastered its core principles not in the factories of Toyota City but on Renault's shop floors, one of the industry's ailing automakers at the time.

Didier Leroy, Toyota's first non-Japanese executive vice president, insisted on rotating through the factories of Renault, passing up promotions along the way, to learn the basics of car-building. At the time, the French carmaker, his first employer, was fighting for survival.

Little did he know in the 1980s, but Leroy's passion for being hands-on exemplified a root philosophy cherished at Toyota: genchi genbutsu, going to the source to see for yourself.

It was that passion that got him noticed and on the fast track at Japan's No. 1 automaker.

"I don't want to start from the top. I want to learn from the floor, by doing myself," Leroy says of jumping ship to Toyota in 1998. "I didn't have any problem accepting a position within Toyota that was three, four, five levels lower than I was. I don't care what it says on my business card."

Fast forward to today, and his significantly more illustrious business card says quite a bit.

Leroy, 58, is one of four executive vice presidents on the board. He is also the president of Toyota's operations in the key markets of North America, Europe, Japan and Africa. That makes him responsible for two-thirds of Toyota's global sales.

In April, he added another title, one completely new to Toyota: chief competitive officer.

CEO Akio Toyoda gave him that role as part of a companywide overhaul to keep the carmaker sharp in an era of tumultuous change triggered by electrified vehicles, autonomous driving, connected cars and the challenge of selling 10 million vehicles a year.

"In this kind of fast-moving world, nobody can say we are protected," Leroy says. "We have to find another way to make sure we are not just one, but two, steps ahead of the competition."

Leroy and Toyoda have laid out the following priorities:

• Toyota needs to lead in next-generation electrified powertrains.
• Toyota should shift to selling data and services from simply selling vehicles.
• Toyota must adopt a leaner, more agile corporate culture with a startup mentality.

"Toyota has become too big to respond speedily to severe changes," CEO Toyoda said in May while outlining the overhaul. "From a financial standpoint, we believe that we have built up the strength to take on these challenges. However, our initiatives are still in the implementation phase. This year will be a test of whether we can transform our intentions into reality."

New threats

At first glance, Toyota would seem to have little to fear.

The world's biggest automaker is coming off three straight years of record profits. Its Toyota Production System, the gold standard of manufacturing, has been applied beyond the factory floor and emulated by business gurus worldwide.

Toyota is sitting on a war chest of cash. Its cash and marketable securities stood at a whopping 2.77 trillion yen ($27.35 billion) as of Sept. 30. Its annual r&d budget of $10.32 billion surpasses General Motors' total 2015 net income of $9.7 billion.

But internally, executives worry that its successes and huge size breed complacency.

Analysts say the Japanese giant is right to be on guard. Two emerging industry trends lower the bar to entrants, opening the floodgates to a host of new rivals.

The first is electric vehicles. EVs do away with the hassle, expense and complexity of designing and manufacturing internal combustion engines and thus lessen the advantage that decades of experience gives to traditional automakers. The ascent of Tesla and a slew of wannabes from China underscore the threat.

The other shift is the transformation of cars into software-packed rolling computers. This creates a new front of competition with Silicon Valley rivals such as Google and Apple.

"Those are big challenges," says Chris Richter, senior auto analyst at CLSA Asia-Pacific Markets. "It used to be the Japanese had a big lead. But the competition has caught up quite a bit."

Leroy's mission is to stoke Toyota's always-smoldering crisis mentality into a raging inferno.

"We should never be satisfied. We are always able to do something better," he says.

Frenetic Frenchman

Leroy is well-suited to shake things up. At headquarters in Toyota City, where Leroy spends half his time, he stands out for far more than his piercing blue eyes and sandy blond hair.

The frenetic Frenchman operates at a speed that is fast even by Toyota standards. In that way, Leroy is more "Toyota" than many of his Japanese co-workers, his working style a kind of living example of the Toyota Way's obsession for personal responsibility and improvement.

"I don't have any specific problem with that," says Leroy. "It was already part of my DNA."

Leroy is known to book his own hotel reservations through Hotels.com, eschewing five-star accommodations more befitting a board member for the cheapest, closest room with a bed. He prides himself on personally answering his own email through the two iPhones always at his side -- one for Japan, the other for Europe. He drives his own car to work, leaving at 5:30 a.m.

"I'm driving a lot of different kinds of cars because I really want to grasp our relative competitiveness versus what the others are doing," says Leroy, flipping through snapshots of some of his favorite trial rides, including a BMW i8 and a sporty McLaren.

Leroy also has a nose for cost control, a sixth sense honed under his former Renault mentor, Carlos Ghosn, who now runs rival Nissan Motor Co.

"He's famous for rejecting stuff," says one Toyota manager of Leroy, who called the manager on the carpet to explain an obscure rollover line item in a budget he had submitted.

Leroy even has a personal list of 10 key business principles, which he enjoys reciting publicly as a kind of Ten Commandments for competitiveness. Rule 1: "Don't work to please your boss."

'Mindset change'

Yet Leroy is quick to stress his competitive officer role is not just about cutting costs or boosting productivity. "Competitiveness is much more than that," he says.

His mandate is multifold: Grasp current and future needs of customers faster than rivals. Reduce lead times to develop products to be faster to market. Improve purchasing as a way of boosting manufacturing efficiency. Improve customer satisfaction on a global scale.

"It's a huge task at the companywide level, and it's a mindset change," Leroy says. "Everywhere in the world, in every function, it's to bring energy, passion, fighting spirit."

Toyoda, he says, has given him and the other executive vice presidents streamlined authority to make decisions as if they were the sole president of the company.

That startup mentality aims to counter the threat of high-tech interlopers.

"The traditional automotive business is not fast enough to react to these kinds of new competitors," says Leroy. He noted that Toyota invested $1 billion to create its new Toyota Research Institute in the U.S. as a way of cultivating a similar startup mentality.

IT companies and mobile phone makers are a big source of inspiration, he notes.

"They create the needs. All of us have these kinds of things," Leroy says, jauntily picking up his own iPhone. "Do we need these kinds of things, or do they create the need? This is a fantastic way to anticipate the customers' expectations."

Toyota's greatest fear: To become the old-school IBM that was relegated to making the computer box while the Microsofts and Apples of the world filled it with the value-added software.

It's a critical turning point as software becomes the "heart of the car," Leroy says.

Toyota will work with partners, he says. But when it comes to the key technologies of the future, Leroy pledges that Toyota, under his watch at least, will compete at the cutting edge.

"Data management -- we will do it by ourselves. Autonomous driving -- we will do it by ourselves," he says.

"All these kinds of things, we will do, to make sure we will never be just manufacturing the box and somebody [else] is putting the software inside."

Dave Guilford contributed to this report.