Monday, February 26, 2007

Letter From California

Looking for the Pattern of Ordinary Life

New York Times
February 20, 2007

The other night there was thunder along the lower flanks of the San Gabriel mountains. It began just before dark, and at first I didn’t recognize what I was hearing. I thought it was the sound of Thursday night: the rumble of heavy plastic trash dumpsters, a whole street of them, being wheeled out to the curb.

The rain came and went and came again, throwing the scent of eucalyptus and dust into the twilight, the scent of this dry California winter. We watched the lightning — quick as a lizard’s tongue — from a plastic picnic table at Juanita’s, a taqueria near the San Bernardino Freeway. If you were driving past Juanita’s in a hurry, you might almost mistake it for a bail-bond shop, except that bondsmen are partial to neon and don’t wear hairnets at work.

We are living farther down the alluvial skirts of the San Gabriels than we did when we were here two years ago. In fact, we live down in the part of town that is what tract housing looked like half a century ago — uniform houses, stucco-clad, whose only homage to their location is small windows on the south side, where the desert sun lives. Across the street, a perfectly graceless little two-bedroom, one bath, has been marked down to $465,000.

This was jackrabbit country once, and now it is full of jackrabbit houses. At 7:50 a.m., all the cars back out of all the driveways at once. You can feel the haste — see someone dash from the house to the passenger door even as the car begins to roll backward out of the garage. I’m sure the same thing goes on in the ochre mansions higher up the mountain, where every now and then a cougar steals a Doberman from its own backyard. Everyone can feel the freeway beckoning.

What I find myself looking for here in L.A. is a sense of dislocation. And what I’ve come to realize is how closely dislocation and a sense of the ordinary are linked. I’ve discovered that I’m looking for a different topography than mountain and ocean, cactus and palm, landmark and icon. I find myself watching instead for the pattern of ordinary life, which is all the more moving to me here because I do not understand its rhythms.

I listen to band practice in the neighborhood park. I admire the profusion of baseball gloves in the local sporting goods store, a reminder that the amateur season is well under way here. I watch a young father in scrubs and his soccer-daughter waiting in line at the local burrito place, and I wonder what it’s like to grow up taking good carne asada for granted. I try to see how people’s lives are shaped, how they construct what seems normal to them, and whenever I get a glimpse of it, I find all the dislocation I could ever want. It is like standing on a strange lawn in the dark watching the glow of a television on the living room ceiling.

What I’m describing is a familiar pattern in Los Angeles. We go exploring along the boulevards, up La Brea, down Pico, over on Wilshire. All the business is on the boulevards and so are all the landmarks. But what always catches my eye are the side streets, which yawn open for an instant, left and right, and then close again, like gaps between the rows in a field of corn. A glimpse is all we allow ourselves: a double row of trees shading a quiet street, houses moated by lawn and landscaping. And yet looking into the crevice of each side street is like looking into a separate decade. I wonder what I would know if I lived there, and what I would take for granted.

We, in turn, have cobbled together our own private life here, so different from life in the country at home. I ride a bicycle up the alluvial grade to teach, and when office hours are over, I coast all the way back, across the MetroLink tracks and down onto the jackrabbit flats. The dogs, who are used to a pasture, stare transfixed at the squirrels on the power lines overhead, and they woof mournfully through the chain-link at a cat standing two houses away.

The morning we arrived, I brushed against a glossy shrub at the edge of the driveway. A tart oily scent clung to my hands. It took me half a day to place the smell. It was rosemary — not a sprig of it but whole, in the bush and about to bloom. It’s not as if I’d forgotten the smell of rosemary, lost the memory of it somewhere on the trip west. What I’d forgotten is the difference between familiar and unfamiliar, expected and unexpected, out here where the herbs grow wild and the thunder is solid citizens taking the trash out to the curb.

Copyright 2007 The New York Times Company

Sunday, February 25, 2007

The Movie Magic Is Gone,0,1709715.story?coll=la-opinion-center

Hollywood, which once captured the nerve center of American life, doesn't matter much anymore.
By Neal Gabler

February 25, 2007

TONIGHT'S Oscars will be awarded, most likely, in the usual atmosphere of solemn self-congratulation and decorous chest-thumping. But for all the outward celebration, the truth is that the industry is in a state of ongoing disquiet.

It is hardly news that for years now the American motion picture industry has been in a slow downward spiral. Though by some accounts attendance was slightly up in 2006 over the previous year, the box-office tracking firm Exhibitors Relations reported that attendance actually declined yet again, reaching its lowest point in 10 years. And though defenders of the industry protest that foreign markets account for 40% of a film's revenue and that those proceeds are compensating for falling domestic box office, foreign receipts have been down too, and even DVD sales are plateauing. In short, the overall trends remain discouraging.

Even more worrisome than what could be just a cyclical dip is how people are regarding motion pictures and the moviegoing experience. A recent Zogby survey found that 45% of American moviegoers had decreased their attendance over the last five years, with the highest percentage of that decrease in the coveted 18- to 24-year-old bracket; at the same time, 21% of respondents said they never went to the movies. The two most-cited reasons for seeing fewer movies were rising ticket prices and the quality of the films (a perpetual culprit).

Another survey, this one conducted by PA Consulting for the Motion Picture Assn. of America, reached an even more chilling conclusion. Eighty-three percent of its respondents said they were satisfied with the content of the films they saw, but 60% nevertheless expected to spend less of their income on moviegoing in the future, citing dissatisfaction with the moviegoing experience and the emergence of better alternatives for their time and money.

By this reckoning, no matter how much films may improve, their prospects are not likely to — which suggests that something has fundamentally changed in our relationship to the movies. The long, long romance may finally be losing its bloom, and that is why Hollywood should be concerned.

What is happening may be a matter of metaphysics. Virtually from their inception, the movies have been America's primary popular art, the "Democratic Art," as they were once called, managing to strike the American nerve continuously for decades. During the 1920s, nearly the entire population of the country attended the movies weekly, but even when attendance sank in the 1950s under the assault of television and the industry was virtually on life support, the movies still managed to occupy the center of American life.

Movie stars have been our brightest icons. A big movie like "The Godfather," "Titanic" or "Lord of the Rings" entered the national conversation and changed the national consciousness. Movies were the barometers of the American psyche. More than any other form, they defined us, and to this day, the rest of the world knows us as much for our films as for any other export.

Today, movies just don't seem to matter in the same way — not to the general public and not to the high culture either, where a Pauline Kael review in the New Yorker could once ignite an intellectual firestorm. There aren't any firestorms now, and there is no director who seems to have his finger on the national pulse the way that Steven Spielberg or George Lucas did in the 1970s and 1980s. People don't talk about movies the way they once did. It would seem absurd to say, as Kael once did, that she knew whether she would like someone by the films he or she liked. Once at the center, movies increasingly sit on the cultural margins.

This is both a symptom and a cause of their distress. Two years ago, writing in these pages, I described an ever-growing culture of knowingness, especially among young people, in which being regarded as part of an informational elite — an elite that knew which celebrities were dating each other, which had had plastic surgery, who was in rehab, etc. — was more gratifying than the conventional pleasures of moviegoing.

In this culture, the intrinsic value of a movie, or of most conventional entertainments, has diminished. Their job now is essentially to provide stars for People, Us, "Entertainment Tonight" and the supermarket tabloids, which exhibit the new "movies" — the stars' life sagas.

Traditional movies have a very difficult time competing against these real-life stories, whether it is the shenanigans of TomKat or Brangelina, Anna Nicole Smith's death or Britney Spears' latest breakdown. These are the features that now dominate water-cooler chat. There may have been a time when these stories generated publicity for the movies. Now, however, the movies are more likely to generate publicity for the stories, which have a life, and an entertainment value, of their own

But in the two years since, another phenomenon has battered the motion picture industry, attacking one of the very fundamentals of moviegoing: the movies' communal appeal. Before demographics became the marketing mantra, the movies were the art of the middle. They provided a common experience and language — a sense of unity. In the dark we were one.

Now, however, when people prefer to identify themselves as members of ever-smaller cohorts — ethnic, political, demographic, regional, religious — the movies can no longer be the art of the middle. The industry itself has been contributing to this process for years by targeting its films more narrowly, especially to younger viewers. In effect, the conservative impulse of our politics that has promoted the individual rather than the community has helped undermine movies' communitarian appeal.

All of this has been hastened by the fact that there is now an instrument to take advantage of the social stratifications. To the extent that the Internet is a niche machine, dividing its users into tiny, self-defined categories, it is providing a challenge to the movies that not even television did, because the Internet addresses a change in consciousness while television simply addressed a change in delivery of content. Television never questioned the very nature of conventional entertainment. The Internet, on the other hand, not only creates niche communities — of young people, beer aficionados, news junkies, Britney Spears fanatics — that seem to obviate the need for the larger community, it plays to another powerful force in modern America and one that also undermines the movies: narcissism.

It is certainly no secret that so much of modern media is dedicated to empowering audiences that no longer want to be passive. Already, video games generate more income than movies by centralizing the user and turning him into the protagonist. Popular websites such as Facebook, MySpace and YouTube, in which the user is effectively made into a star and in which content is democratized, get far more hits than movies get audiences. MySpace has more than 100 million users worldwide, and Fortune magazine reported that 54 million of them spend, on average, 124 minutes on the site for each visit, while 11.6 million users spend 72 minutes a visit on Facebook. YouTube's most popular videos attract more than 40 million hits, which is substantially larger than the audience for all but a very, very few movies.

But these sites are arguably not only diverting viewers who might be attending the movies, they are replacing one of the movies' functions: If stars' lives are superseding movie narratives, audiences are superseding the stars. Who needs Brad Pitt if you can be your own hero on a video game, make your own video on YouTube or feature yourself on Facebook?

The promise of an alternative life — the vicarious thrill of escape — has always been one of the movies' greatest blandishments. In the theater we could all imagine ourselves to be Cary Grant or Bette Davis. Now with avatars — essentially masks that one can use to represent oneself on the Internet — anyone can be Cary Grant or Bette Davis without having to imagine it. In effect, we have become our own movies.

Film no doubt will withstand these assaults. The industry, with its synergies, will probably find a way to profit from stars' lives and from our own star-like lives.

But it is much more difficult to survive a change in consciousness than a change in taste or technology, and that is what the movies face now — a challenge to the basic psychological satisfactions that the movies have traditionally provided.

Where the movies once supplied plots, there are alternative plots everywhere. Where the movies once supplied community, there is less hunger for it. And though we still love the frisson that stars provide, we like our own frisson too. How the movies cope with these threats will go some way toward determining whether they remain vital or will be usurped. But the problem for the industry, even on its biggest night, is that the answer is likely to lie less in the executives' hands than in our heads.

Copyright 2007 Los Angeles Times

Thursday, February 22, 2007

Study confirms stages of grief

By Ronald Kotulak
Chicago Tribune

February 22, 2007

CHICAGO — Accepted wisdom says that when a loved one dies, people go through five stages of grieving: disbelief, yearning, anger, depression and acceptance.

Now the first large-scale study of the five stages suggests that they are accurate, and that if a person has not moved through the negative stages after six months, he or she may need professional help to deal with the bereavement.

The study, published in Wednesday's Journal of the American Medical Assn., also found that, contrary to common belief, yearning or missing a loved one is a more dominant emotion than depression — meaning mental health experts who treat the grief-stricken may need to refocus on feelings of loss.

"It's important both for clinicians and the average layperson to understand that yearning and not sadness is what bereavement is really all about," said study author Holly G. Prigerson, associate professor of psychiatry at Harvard Medical School and director of Dana-Farber's Center for Psycho-Oncology and Palliative Care Research.

"It's about yearning, pining, longing and being angry and protesting that you can't have this person back," Prigerson said. Not everyone follows the exact same pattern of grieving, she said, but most do.

The three-year study of 233 people interviewed as part of the Yale Bereavement Study found that disbelief reached a peak one month after a death and then declined. Yearning steadily increased and reached its high point at four months before declining. Anger rises to a peak at five months, and depression peaks six months after a death. Acceptance is strongly present from the beginning, but becomes more dominant as time passes.

Christine Reilly, 39, of Whitman, Mass., says she still misses her son, Michael, who died in 1999 at age 5 after battling cancer for more than four years. "It's his physical presence, the laughter, the jokes, the hugs, the kisses and things that you miss. I can close my eyes and feel Michael's presence with me every single day."

After his death, Reilly said, she and her husband experienced feelings of anger and depression. "But after a period of time, four or six months, you sort of realize that Michael's in a much better place," she said. "There's nothing we can do. We can't bring him back, and there's no point in being angry."

The couple gradually accepted Michael's death and decided to move on. "The first five years that Michael was alive, cancer dictated what my life was going to be like," Reilly said. "I had two choices after Michael died. I could let cancer continue to dictate my life, or I could dictate my life. I chose to take over at that point and not let cancer run my life."

According to Prigerson, the Yale study found that survivors tended to deal better with their grief when the loved one had been diagnosed with a terminal illness more than six months before dying. Reilly said that in the last six months of Michael's life, when his condition steadily worsened and doctors said he wouldn't make it, she started coming to terms with the loss.

People have a harder time dealing with grief when a loved one dies suddenly and tragically, such as in an accident, the authors of the Yale study said. But such deaths are far less common than those due to chronic health conditions or terminal disease.

"Acceptance is the norm in the case of natural deaths, even soon after the loss," said the study's lead author, Paul K. Maciejewski, an assistant professor of psychiatry and director of statistical research in women's health at Yale.,1,2975851.story

Monday, February 19, 2007

A Green Entrepreneur in China

"Mr. Zhang Builds His Dream Town"

A singing workforce, Mongolian millionaires in Porsches, and saving the planet—inside the empire of a Chinese tycoon with more than money on his mind
by James Fallows

The Atlantic Monthly | March 2007


The first time I met the Chinese tycoon Zhang Yue, he was showing guests the Versailles-style palace he has built on his estate. This was happening far from the coastal cities where so much of China’s new wealth and glitter are on display. On a pleasant weekend last fall—“pleasant” with allowances for the opaque brown sky—Zhang (his family name) had invited three dozen fellow Chinese millionaires to join him at “Broad Town,” the place where he lives and where Broad Air Conditioning, which he owns and runs, is based. Broad Town is on the outskirts of Changsha, a city known by few people outside China even though its population is roughly as large as New York’s. In China, Changsha is famous as the capital of Hunan province and one of the places where the young Mao Zedong lived and worked. A twenty-three-foot-high statue of Mao, long a fixture in the city square, was recently re-covered in pure gold.

The event at Broad Town was a “luxury weekend” organized by Zhang and Jet Asia-Pacific magazine, a publication designed to introduce business jets and the associated lifestyle to “Asia-based High Net Worth Individuals” who are newly able to afford such products. Guests were flown in from across China, free, on private jets. On Saturday, foreign airplane manufacturers like Gulfstream, Bombardier, and Cessna displayed their latest products, and the French industrialist Serge Dassault, whose Falcon jets sell for tens of millions of dollars, described the joys of air travel without the airlines. This is largely a theoretical pleasure in China, where the People’s Liberation Army still tightly controls airspace and discourages private flights. But a few private jets, among them one owned by Zhang, already crisscross the country, and China’s current Five Year Plan calls for airspace controls to be relaxed so a personal-airplane industry can arise. Niu Gengsheng, the CEO of a group that controls one of China’s largest dairy-products companies, was among the several guests from Inner Mongolia (charmingly, his family name means “cow”). He told Jet Asia-Pacific that the conference had helped him understand “the rationale behind the acquisition of such an essential business tool.”

It was the aviation aspect of the event that got me there, by chance. I had agreed to help ferry a small Cirrus airplane that was part of the luxury weekend display from Changsha to its next destination, the Zhuhai Air Show in far southern China, near Macau. (The Cirrus was the same kind of plane I had owned and piloted in the United States.) But the weekend, I learned on arrival in Broad Town, was not just about airplanes. On Saturday evening, after the display, more than fifty guests and exhibitors dined at one long banquet table, in a marble-floored chamber that had been designed by Zhang’s wife, Lai Yujing, and resembles a palazzo in Tuscany.

Then on Sunday morning, the guests took test drives in brand-new Porsche racing cars—bright yellow, red, lustrous black—along an improvised course made by closing off a public street adjoining Broad Town. A Hummer was also part of the fleet. As each car rolled in at the end of a circuit, a small clash of cultures could be observed. The Chinese millionaires, used to doing what they wanted the instant it occurred to them, would stride to the driver’s side of the car, past anyone who happened to be waiting in line. Then a member of Porsche’s professional-driver team would look for a tactful way to guide the guest to the passenger’s side for a first, instructional run through the slalom cones and rapid-acceleration zones on the course.

After a few hours of driving, the guests went to Broad Town’s Mediterranean Club, which had one wood-paneled room full of long, narrow felt-covered tables for snooker and a similar room with squarer, squatter felt-covered tables for playing pool. (Plus bowling alleys, a vast and modern indoor swimming pool, antique Chinese furniture and statues, and so forth; the facilities are open to all company employees.) A huge video screen at the back of the room ran footage about Sunseeker motor yachts, the maritime equivalent of private jets. On leather seats in the clubhouse’s bar, the guests sat down to a tasting of $250-a-bottle French wine, poured by a young duo from Hong Kong. One of the wine merchants was British and looked like Prince William; as he described each wine in Chinese, his partner, a chic Chinese woman, went around the room pouring the wine. A few minutes into the tasting, the guests were summoned for lunch, and they carried along their glasses of 1994 Ch√Ęteau Latour to enjoy with mouth-burning Hunan dishes.

After lunch, Zhang thanked the guests for coming and invited them to spend time seeing some of the other highlights of Broad Town: the 130-foot-high gold-colored replica of an Egyptian pyramid, for instance, or the life-sized bronze statues of forty-three inspirational leaders from different eras and different cultures, from Confucius and Socrates to the Wright Brothers, Mahatma Gandhi, Rachel Carson, and Jack Welch. Later in the afternoon, one of the company helicopters came in for a landing not far from the Mediterranean Club. A group of guests ran toward the helipad to meet it—Zhang, in shirt and tie, running faster than anyone else, and grinning like a happy little boy.

The next time I met Zhang Yue was in Shanghai, at the China International Luxury Property Show, where resort properties from around the world—villas in France, ski lodges in Canada—were up for sale. His company was displaying its new line of home air conditioners in a small structure that got a large amount of attention because of two young female Broad employees who stood on its roof in skintight white bare-midriff outfits, playing electric violin and viola on numbers ranging from Bach to Grace Jones. (Or appearing to play: they were actually violin-synching—not that anyone cared.)

Zhang breezed smilingly past me and another foreigner who had come to see him. “Five minutes!” he said in Chinese, and spent the next half hour roaming through the display and pointing out to the dozen uniformed staff members every detail that could be improved. The Broad staffers stood at attention while listening, notebook in left hand and pen in right, as if trained in that pose—as I later learned they were.

A week later I saw Zhang Yue again, back at Broad Town. I had spent the previous night in the on-campus hotel, sans Internet or telephone, feeling remote from my known world. Then I ran into engineers from Trinidad, Russia, and Argentina who were in Broad Town for several weeks of lessons on maintaining Broad systems in their home countries. Like the 1,800 regular employees of the company, they were living next to the factory in Broad Town housing and eating three meals a day, free, in the company cafeteria, in a building with the English name Aspiration Theater. Unlike the 1,800, they were neither delighted by the prospect of Chinese food twenty-one times a week nor able to communicate easily in Chinese. “Remote!” a man from Trinidad scoffed when I told him the way I was feeling, and set off into an I’ll-show-you-remote soliloquy.

The next morning, I toured the factory where locomotive-sized institutional air conditioners were prepared for shipment to India, Germany, the United States, or one of forty other countries. I saw the company’s “Aviation Division,” where maintenance men kept Zhang’s helicopter ready in case he wanted to make a trip. I saw the laboratory, and the warehouse, and the NORAD-style control room, where a team of technicians watched readouts from every large-scale Broad system installed in a hotel, office building, shopping mall, or airport anywhere in the world. While I watched, the display switched from a hotel in Manhattan to the international airport in Madrid to a new structure in Beijing.

Then it was time to interview the creator and owner of it all, whom I invariably heard referred to in Broad Town as “our chairman.” Chairman Zhang strolled without formality or entourage into a tea-break room where I was sitting, slapped me on the back, and spent the next half hour grilling me, through an interpreter, about … airplanes. He loves flying, and he was the first person in China to buy a private jet. According to a Broad representative, he was also the first person in China to be certified as a private pilot, and while he rarely flies his airplanes himself anymore, he remains an aviation enthusiast. Now he wanted a new airplane. No—as an environmentalist, he needed a new airplane, one that was much more energy-efficient than the ones he now had. To be specific, he needed one that would go at least 300 miles an hour and get at least fifteen miles to a gallon of jet fuel. Zhang had lectured Dassault, the French aircraft baron, on the need to create such a plane. Zhang usually went by himself on business trips, so for efficiency he would be happy with a plane that had only two or three seats (plus one for a hired pilot). Since I had once written a book about airplanes, I should tell him which one to buy!

James Watt, the English inventor, and an Egyptian pyramid are among Broad Town's historical figures and buildings.

I delicately asked whether he needed such a plane now, or could wait two or three years for one of the many small jets currently being developed. Without waiting for translation he said, in Chinese, “Now! Now!” As I began to say (gulp) that no such plane existed at the moment, I saw his face cloud. So I backtracked and said I would call a friend at NASA who was the world’s expert on exciting new aircraft, to see if he knew of one. Fine! said Zhang. Let’s call him now! Well, it was 3:30 a.m. on the U.S. East Coast. Maybe we could wait an hour or two?

Airplanes deferred for the moment, Zhang spent half an hour talking about himself, his company, and his vision for China. Every second of that time, he was in motion around the room, talking as if dictating to scriveners. Zhang Yue is a short, very trim man, forty-six years old; his black hair appears undyed, and his face is youthful and smooth. “I have not taken a medicine in eighteen years!” he said at one point with pride. Nervous energy may be the key to his fitness. Like many Chinese nouveaux riches (I am told), he is impatient and indulged. Unlike many American pluto crats, he has no formality or stuffiness. I enjoyed being with him. Suddenly he decided that he’d had enough—and with a reminder that we’d meet that evening, after I called my NASA friend, he was gone.

China, like America, is too big, complicated, and contradictory to have any “typical” or representative character. Zhang Yue is no more representative of today’s China than a fur merchant like John Jacob Astor or a press baron like William Randolph Hearst was representative of the America of his time. But certain prominent characters are interesting because they are so clearly of their culture’s moment in history. Astor was of the era in which natural resources were being turned into fortunes, and those fortunes turned into social standing. Hearst built his fortune in the age of large urban markets and converted it, with mixed results, into political influence and the artistic legacy of his castle. Zhang is of the moment when China has opened the door to ambitious people with entrepreneurial plans. And to me he is more interesting than many others superficially like him, because he suggests an answer to one fundamental question about the China of the era to come. The question is what China will dream of, as its dreams of money begin to be realized. Most people will be poor, far into the future. But tens of millions of Chinese are already able to think of more than just getting by. Zhang, it turned out, had more than making money and buying as-yet-undeveloped planes on his mind.

Zhang of the Business World

Depending on the rankings, Zhang Yue stands somewhere between twenty-fifth and fiftieth on the list of the richest people in China, with assets worth as much as $300 million; Broad Air Conditioning has no debt, and last year it had annual sales of about $300 million. His wealth does not appear to be based principally on political connections, which have obviously been crucial in the formation of other empires—in real estate, construction, and broadcasting, for example. Indeed, Broad has been discussed in Chinese business blogs, which I’ve seen in translation, as proof that a business can thrive while keeping government more or less at arm’s length.

The company’s English name is derived, perhaps too literally, from its Chinese name Yuan Da, which might also have been rendered as “expansive” or “spacious.” The company’s logo—the familiar @ sign, but with the a in the middle replaced by a lowercase b, for Broad—is elegant and eye-catching; Zhang designed it in 1990, before e-mail made the “at” symbol common. Among the six “Broad Values” that Zhang says must guide the company, one is “Don’t pay bribes” and another is “Do pay taxes.” (The others are environmental protection, respect for intellectual-property rights, no price gouging, and no predatory competition.)

Nor does Broad aim to beat its competitors with a lowball “China price” that manufacturers in developed countries cannot match. According to a quite respectful case study of Broad used at the Harvard Business School, the company’s prospects have been closely tied to the technological niche that Zhang has insisted it occupy. Broad’s specialty is a form of air-conditioning that uses less energy than conventional means. Broad did not invent the technology on which its business is based, but it did take the risk of investing heavily in an approach that companies in Japan, Korea, Europe, and North America had looked at and neglected.

The company and its CEO came to their current identities through an indirect route. Zhang grew up near Changsha, studied art in college, and began work as an interior decorator in southern China. His younger brother Jian trained as an engineer at Harbin Institute of Technology, in Manchuria. In the late 1980s, as Deng Xiao Ping opened China seriously for business, Jian, in his mid-twenties, patented the invention that got the company started. This was a “pressure-free boiler” for factories, and its main selling point was that if anything went wrong, the boiler would collapse rather than explode. Such explosions were common in China; demand was brisk. Using the roughly $3,000 Zhang Yue had saved from his decorating business, the brothers went into business selling boilers and consulting on factory design.

By 1992, they had decided to concentrate on what is now Broad’s entire business: “nonelectric refrigeration.” The air conditioners most Americans are familiar with are compression coolers. They use electric power to compress a refrigerant such as Freon, and when the refrigerant expands, it cools the surrounding air. The nonelectric coolers instead use natural gas (or some other source of heat) to boil a special liquid, a lithium bromide solution, and when the vapors from that solution condense, they cool whatever is near them.

It sounds odd to use a flame to cool a building—and, indeed, when China’s premier, Wen Jiabao, visited Broad Town in 2005, he asked several times to have the principle explained. A company pamphlet that lovingly commemorates this historic visit calls the premier’s persistent curiosity a sure sign of his acumen. “If I spread a drop of alcohol on your hand, you will feel very cold,” Zhang told Wen, describing part of the cooling process. The account continues: “The Premier nodded in understanding and said, ‘Yes! Yes! For it evaporates and takes away the heat.’ The Premier is a specialist indeed.”

Zhang has never wavered from this technology, even when, in the early 2000s, market conditions temporarily turned against it and his sales force begged him to add normal, electric-powered air conditioners to Broad’s offerings. Its advantages all involve energy savings. Compared with typical compression systems, nonelectric air-conditioning as Broad makes it will always require less energy per unit of cooling, because when energy is converted from one form to another, some of it is lost. Electric-compression cooling requires more stages of conversion—fossil fuel to electricity at the power plant, electricity to mechanical power at the compressor, both stages very wasteful—than does using natural gas to boil liquid. Nonelectric cooling will also always be more adaptable to other sources of energy, since it is easier to apply a variety of heat sources, including solar power and biomass burning, to do the boiling than to use them to generate electricity in a remote plant and transmit it to the air-conditioning site. And this method of cooling helps reduce the costly peak loads imposed on the power grid, because natural gas is cheapest and most abundant in the summer, exactly when the demand for air- conditioning goes up. Indeed, since storing natural gas is expensive and difficult, in many countries the available gas is simply burned off—wasted—during the summer, when no one needs it for heating. In China, air-conditioning accounts for as much as 50 percent of the electric load during peak times in the summer. Zhang pointed out to me—as he has noted in countless speeches, and as is emphasized by the Harvard Business School case study—that with all of these advantages, his kind of air-conditioning can make both the electric and the natural-gas networks less wasteful while still keeping people cool in the summer. And while we’re at it: the nonelectric systems use a relatively benign natural salt (lithium bromide) rather than using—and inevitably releasing—Freon and other chlorine-based products that erode the Earth’s ozone layer.

The company made its first big sale of air conditioners in China, in 1992. As construction throughout China boomed, so did Broad’s business—partly because installing the system required little paperwork or official approval, compared with what was required for electric units, which would draw on the power grid. It succeeded overseas in India, Pakistan, and other countries with shaky electric systems, since the natural-gas-powered cooler would run during a brownout. “Japanese companies did poorly in markets like those, because their systems were designed for clean water and good management,” Sean Wang, who handles Broad’s international accounts, told me. “Ours were designed with the assumption of worse conditions and looser management.”

Broad made its first American sale in 1999, a combined heating-cooling system at a medical center in downtown Boston. It pushed hard into the California market after the blackouts of 2000–2001, it equipped a community college in New Jersey, and it arrived in New York: Near Zhang’s office is a large picture of a Broad cooler in a Con Edison plant in Manhattan. “Thomas Edison is our idol,” Wang said. The company competed for, and won, Department of Energy contracts to demonstrate energy-saving techniques, notably a major project in Austin, Texas. It now has more than 200 installations in the United States, including at Fort Bragg and other military bases, and many hundreds more around the world, including in the new airport facilities in Madrid, Athens, and Bangkok.

In 2001, ’02, ’04, and ’05, Broad was was named one of the “20 Most Admired Companies in China” by China’s Economic Observer weekly. I thought of asking Zhang: What happened in 2003? But I only thought it.

New Employees go through a ten-day session of boot camp, divided into platoons and living in barracks.

Zhang: Utopian or Tyrant?

The first time I was in an office building at Broad Town, a European friend who has lived in China for years nudged me and asked, What don’t you see? I looked around and realized: I didn’t see piles of junk.

There were no scrap papers, cigarette butts, half-empty teacups, or other debris on the Broad Town desks, which made it different from other places I had seen in China. What was true in the office was true of the factory as well: no heaps of spare parts or scrap metal, no workers holding welding guns while standing barefoot, no oily rags looking as if they were about to burst into flames. What I had seen in many other Chinese worksites fit the motto “If it’s worth doing, it’s worth doing sloppily.” But when I saw a gardener kneeling on one of Broad Town’s sweeping lawns and resodding a small plot of grass practically blade by blade, I realized: This is like Japan!

Those would be fighting words in much of China, so let me be precise: The people working at Broad Town seemed not just to be holding jobs but to have been made into a culture and team. Japan’s thoroughgoing organization of people into large teams—the Mitsubishi team, the Toyota team—often seems like a peacetime military. At Broad Town the connection is more explicit. New recruits go through a ten-day session of literal boot camp, wearing military-style outfits and living in barracks on the grounds. They run in platoons through Broad Town’s streets in fatigues, behind an instructor carrying a unit flag. Many of the blog-world concerns about Broad involve recruits who drop out during the training—or are summarily dismissed, for versions of “bad attitude.”

After demobilization into the regular workforce, employees are like an army in mufti. They eat, work, and sleep on the base—I mean, the factory grounds. They are roused each morning at 6:00 for physical training before the workday begins. Zhang and his wife and son live at Broad Town too, as do his parents, in houses tucked behind the fishpond that helps supply the company cafeteria. White-collar workers, male and female, wear a blue-blazer uniform every day, as does Zhang. Factory workers wear royal-blue uniforms with their employee number stenciled in large digits down one leg. Every Monday morning the workforce musters for the raising of the national and company flags. When I asked Sean Wang about the clean factories and overall air of control, he said, “We want to solve problems at their root.” He was talking about how a little bit of dirt in the factory could lead to big, expensive problems later on, but the point seemed to apply more generally. It was a one-company illustration of what former Singaporean Prime Minister Lee Kuan Yew and others have called the Asian social bargain: less individual latitude, more collective success.

I heard from a former factory worker that pay for blue-collar workers, nearly all of them male, starts at 1,200 yuan per month, or about $150. That’s not bad by Chinese factory standards—especially considering that Changsha is a low-cost area, and Broad workers get their food and housing free. I’ve visited factories near Shanghai and Guangzhou where monthly wages started at 900 yuan. Zhou Wei, of Broad, declined to comment on pay levels in the company, but I heard that white-collar workers started at around 2,000 yuan per month. In theory, Chinese law requires companies to pay overtime to anyone working more than forty hours in a week. Some managers of North American–, Japanese-, or European-owned companies with Chinese plants have mentioned to me that they obey this rule. It hardly ever comes up in discussions with companies from mainland China, Taiwan, or Singapore. At Broad the rule seems to be “Work till the job is done.” I met some former employees who said that they typically had two days off per month; often worked till midnight; and survived by shoveling down food as quickly as they could and then using the rest of their lunch and dinner breaks, two hours apiece, for sleep. They weren’t complaining: this is modern China.

As will be obvious by now, there are things both admirable and creepy about this utopia. In every way possible, Zhang has isolated the culture of Broad Town from influences other than his own. He has no public shareholders to second-guess his choices—whether to stick to environmentally friendly products or to build a pyramid—nor even bankers holding debt. He has distanced the company from governmental control as much as any Chinese company owner can. His workers are physically distant from the distractions of Changsha—and that city itself is distant from the thriving metropolises of the coast. The same blogs that complain about imposed cult-like behavior at Broad acknowledge that the jobs pay well enough that plenty of new applicants are always willing to put on military uniforms and live their lives at Broad Town.

The positive aspect of this invented world is its ambition for something more than sheer efficiency and success. The entire workforce also musters for musical events. Many employees play musical instruments, and apparently all can, or do, sing. On December 31, 1999, Zhang had all of his workers stand in front of the then half- finished Versailles to be photographed singing in the new millennium. (The palace now serves as a “management training center,” for meetings and seminars; the pyramid’s interior is being fitted out as an environmental museum.) The inspirational sayings carved on nearly every wall could sound like corporate boilerplate. From the founder of Toyota: “There is no boat that cannot be sunk” (Moral: Don’t let up). But the walls also bear sayings from Abraham Lincoln and other non-corporate figures. Among those honored with statues are Winston Churchill, the Chinese poet Li Bai, and Martin Luther King Jr. Zhang has not forgotten his background as an artist, and he is renowned for fussing over every design detail of every feature of Broad Town.

When I asked him a more polite version of what any visitor would wonder—What is the deal with the pyramid?—Zhang said: “Our products are to make people comfortable and happy. If our employees are comfortable and happy, that will affect their work ethic and their professionalism.” He said that good food matters—and the food at Broad Town is good. So does a visually pleasant environment—and most vistas in this controlled landscape are pleasant. “Many companies in China are looking only for the short-term profit,” he said in conclusion. “Some of our expenditures are not directly for manufacture and sales, but our vision is long term, and we believe that indirectly they will increase manufacture and sales.” And even if the steps don’t pay off, in the end it’s his company, and like utopians before him, he seems to consider it another work of art.

Zhang and Inconvenient Truths

If I had asked my European friend what he was seeing but not noticing at Broad Town, the answer should have been: wood. Polished, attractive wood shows up in every structure. Clean, gleaming wood floors and beams in a lovely Japanese house, built (for no apparent reason) as part of a “Global Village” of housing styles from around the world. Wooden parquet floors and walls in a gymnasium for badminton and Ping-Pong. Wooden furniture in many of the offices. Dark wood paneling in the Mediterranean Club. Wood-block flooring throughout. If China was ever rich in timber resources, it certainly is not now. Why should a heavy-industry facility use so much expensive wood?

Because it was free. All of the wood was recycled from shipping pallets and packing crates coming into the factory. Where it came from before that is another matter, but once it got to Broad Town, it was carefully reprocessed and reused—all at the insistence of Zhang Yue.

There is a showboat aspect to Broad Town’s recycling effort—every person I met there told me the story of the packing crates. And the Porsches roaring through town over the luxury weekend did not quite fit Zhang’s message that people should be conscious of their environmental impact at all times. But in fairness, when the United Nations Environment Program held a forum at Broad Town in 2003, Zhang argued that worldwide, systematic changes—in energy, packaging, and transportation—were essential so consumers could “enjoy a comfortable yet moderate life.” And when we finally reached my friend from NASA, around 6:30 a.m. EST, Zhang grilled him (through an interpreter) about the most efficient engines on the market—and lit up when he heard about a radically more efficient airplane being made in Austria. His company got its start partly because China was growing too fast for its own electric grid. Over the last decade he has read constantly about environmental problems and has come up with serious-sounding proposals for what his company, his country, and the world could do.

Solar-energy collectors are everywhere in Broad Town. Part of boot-camp indoctrination is training employees about environmental issues. When the company sells a cooling unit, it also offers guidance on reducing demand for air-conditioning. “For years the Chinese government focused only on economic development, but now they say that the environment and the economy should both be stressed,” Zhang told me. “But really the environment needs to be in first place, and economic growth in fourth.” Not seeing the trap, I asked what should come second and third. “The environment, and the environment!” he said. “The real measure of our economic progress is the life people can live, and the [gross domestic product] does not measure that.” He observed that a ton of dirty coal might bring 120 yuan, or $15, in profit—but recent studies had shown that a ton of coal cost at least 200 yuan in medical care for inhabitants of the bleak, cancer-ridden mining towns. “Any primary-school child can see what’s wrong with that,” Zhang said. “But our economists can’t.”

For another international conference on the environment, Zhang prepared a captivating and unintentionally revealing document called “The World in 2015.” Part of it is quiet Chinese triumphalism: the world’s largest trading zone will be in Asia; the international currency will be not the U.S. dollar but the Asian dollar; the world’s most popular movie will be a drama set in ancient China. The world’s most profitable and admired company will not be one that sells computers or airplanes or oil but one that quietly economizes on energy use around the world, starting with new air-conditioning systems. “This company still has little reputation, for they have done those things others don’t care about … It doesn’t matter that people may not know the name of this company, but they should know it is a Chinese company.”

The conclusion of the imagined history involves a historic UN speech by another of Zhang’s idols: “Albert Gore, sixty-seven years old, walked slowly to the platform. This old man, who became Secretary-General of the UN one year ago, has a dull look in his eyes.” Why had no one heeded his warnings when there was time? Why did the world keep building more coal and nuclear plants, instead of noticing what was happening to its climate and learning to conserve? “Choked with sobs, Secretary [Gore] cannot speak.” At last he finds his voice and challenges mankind, in the final words of Zhang’s essay, “to choose the establishment of the new moral ideal with higher standards.”

Subtle? No. Consistent with every detail of Zhang’s daily life? Probably not. But as an indication that more than pure moneymaking is under way, it is worth noticing. China will bring more than mere commerce to the world.

Photographs by Michael Christopher Brown

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How Toyota Rules

February 18, 2007

"From 0 to 60 to World Domination"


1. Here Comes the Tundra

For most of the January morning, the reporters at the Detroit auto show crisscrossed the COBO convention center like a herd of livestock, moving at least once every hour to feed — sometimes literally, since Lexus offered fresh fruit. All the world’s car companies were unveiling this year’s models. Often, the back-to-back corporate announcements required everyone to scurry clear across the exhibit floor to get a seat at the next press conference. It was hard not to lose yourself in the scenery, however, as you passed by a dazzling showroom exhibit of Maseratis, for instance, or encountered some gleaming Infinitis. The event was a place untroubled by thoughts of traffic jams, long commutes or gas prices. It was also a place where C.E.O.’s like Rick Wagoner of General Motors showed off electric cars like the Chevy Volt that cannot yet be produced — at least until battery technology improves — but that can nonetheless be driven slowly across a stage toward a cluster of photographers. In this context, it seemed, G.M. was not a company that posted a $10.6 billion loss in 2005, nor was Ford a manufacturer that announced plans last year to shed more than 30,000 employees. There were no overwhelming pension and health-care burdens.

Shortly after noon that day, in a ballroom just off the convention center’s main floor, the crowd was waiting for Toyota to unveil the latest (and largest) version of its new full-size truck, the Tundra. From where I stood, pinned against a back wall in the darkened room, it was getting hard to breathe. At this point I had been following Toyota and the Tundra for months; I visited the company’s new Tundra plant in San Antonio, its sales headquarters near Los Angeles, its executive offices in Manhattan and its Camry plant near Lexington, Ky. Apart from some recalls of faulty parts (an unusual and humiliating occurrence for the carmaker), Toyota had seemed as close to a juggernaut as any corporation in existence.

By any measure, Toyota’s performance last year, in a tepid market for car sales, was so striking, so outsize, that there seem to be few analogs, at least in the manufacturing world. A baseball team that wins 150 out of 162 games? Maybe. By late December, Toyota’s global projections for 2007 — the production of 9.34 million cars and trucks — indicated that it would soon pass G.M. as the world’s largest car company. For auto analysts, one of the more useful measures of consumer appeal is the “retail turn rate” — that is, the number of days a car sits on a dealer’s lot before it is turned over to a customer. As of November 2006, according to the Power Information Network, a division of J.D. Power & Associates that tracks such sales data, Toyota’s cars in the U.S. (including its Lexus and Scion brands) had an average turn rate of 27 days. BMW was second at 31; Honda was third at 32. Ford was at 82 and G.M. at 83. And Daimler-Chrysler was at 107. The financial markets reflected these contrasts. By year’s end, Toyota would record an annual net profit of $11.6 billion, and its market capitalization (the value of all its shares) would reach nearly $240 billion — greater than that of G.M., Ford, Daimler-Chrysler, Honda and Nissan combined.

When the Tundra finally arrived onstage in Detroit, Jim Lentz, one of the company’s North American executives, told the packed ballroom that this vehicle “changed everything” for Toyota. It was researched, designed, engineered and built in America, Lentz pointed out; and it seemed, from his presentation, to be the toughest, brawniest and most iconically masculine pickup truck anywhere, ever. Such boasts were in keeping with the spirit of car-dealership hucksterism at the show. Still, 50 years after coming to the U.S., Toyota views the Tundra, which arrived in American showrooms earlier this month, not only as another big truck but also as the culmination of a half-century of experimentation, failure, resurgence and domination. And as anyone with even a passing familiarity with Toyota’s strategic history knows, the company never makes rash moves or false promises.

Whether Toyota has evolved into the world’s most sophisticated modern corporation — one whose example has challenged the American model of manufacturing and management — happens to be a common topic of conversation among business analysts these days. “It’s influencing just about every major company in the world, in that they’re asking the question: What can we learn from Toyota?” says Jeff Liker, an engineering professor at the University of Michigan who has written several books on the company. Indeed, what you can learn from Toyota is something that even Bill Gates has pondered publicly. And yet deconstructing Toyota means breaking down a corporation that uses all its resources, and more than 295,000 employees worldwide, to construct things that are not meant to come apart.

2. Kaizen Means Never Being Satisfied

One of the Toyota executives attending the Tundra’s debut was Jim Press. A tall, lean Midwesterner, Press is the president of Toyota Motor North America, making him the company’s highest-ranking American. Toyota is governed by a large corporate board, which is made up of top executives in Japan and senior managing directors spread around the globe; Press is one of 49 managing officers of the company just below that level. For most of his career, Press worked on the West Coast, at Toyota’s North American sales headquarters in Torrance, Calif. More than half of Toyota’s profits now come from the U.S.; its success here, and its success globally, are so closely related as to be indistinguishable. In the view of one longtime Toyota watcher, Press’s high standing reflects the fact that, more than any single manager, he delivered the American market to Toyota. His efforts helped make the Camry the best-selling car and the Lexus the most popular luxury brand in the U.S.

Press, who is 60, never had an ambition to be an auto executive. When I first met him in his Midtown Manhattan office in October, he told me that after college he took a job working for Ford. “My family was in retail,” he said, “and this was a foray into the manufacturing side to kind of learn what goes on in the industry before I went on and became a car dealer.” In 1970, his boss at Ford moved to Toyota and encouraged him to join up too. At the time, Toyota sold a few Land Cruisers and was known mainly for one car, the Toyota Corona. It seemed like a poor career move. “When you’re young and your head is full of ideas, you don’t let facts get in the way,” Press said. So he took a flier, gave up his company car (a new Ford Thunderbird) and went to work at Toyota.

When he started, the Big Three completely controlled car sales in the United States. The only foreign company of any prominence was Volkswagen, and as Press recalled, Toyota’s modest sales were lumped with various tiny carmakers as “Other.” Still, soon after he arrived, Press realized he liked the company’s intimacy: he could meet face to face with top managers and exert some influence over marketing decisions. And he liked Toyota’s obsession with customer satisfaction. When he told me about his first trip to Japan, he seemed to be recounting a religious experience. “As a young person, you are searching for this level of comfort, you don’t know what it is, but you’re sort of uncomfortable,” he said. In Japan, as he put it, he found a home, a place where everything from the politeness of the people to the organization of the factories made sense. On that first trip, at a restaurant one evening, he tried a rich corn soup and asked the waitress for the recipe. She checked with the chef, who explained that there was no recipe; it had been handed down from his mother. The next morning, the waitress came to Press’s hotel room: she had found a cookbook with a recipe for the soup. Press, apparently, was still her customer. “That blew me away,” he said.

It can be simplistic, and often a distortion, to accept a corporate executive as the personification of a corporation, especially one as large and varied as Toyota. Yet Press serves as an apt representative, and not merely because his career arc mirrors the company’s ascendancy. Like Toyota, he expresses himself in private with modesty and care, yet in public his speeches are bold, declarative and effervescent. In his office, he has an informal, relaxed presence and exhibits just a hint of an avuncular stoop; yet he loves to race cars and sometimes swims 5,000 meters a day. Press also has a fluency in the company’s arcane systems and history. Toyota is as much a philosophy as a business, a patchwork of traditions, apothegms and precepts that don’t translate easily into the American vernacular. Some have proved incisive (“Build quality into processes”) and some opaque (“Open the window. It’s a big world out there!”). Toyota’s overarching principle, Press told me, is “to enrich society through the building of cars and trucks.” This phrase should be cause for skepticism, especially coming from a company so adept at marketing and public relations. I lost count of how many times Toyota executives, during the course of my reporting, repeated it and how often I had to keep from recoiling at its hollow peculiarity. And yet, the catch phrase — to enrich and serve society — was not intended, at least originally, to function as a P.R. motto. Historically the idea has meant offering car customers reliability and mobility while investing profits in new plants, technologies and employees. It has also captured an obsessive obligation to build better cars, which reflects the Toyota belief in kaizen, or continuous improvement. Finally, the phrase carries with it the responsibility to plan for the long term — financially, technically, imaginatively. “The company thinks in years and decades,” Michael Robinet, a vice president at CSM Worldwide, a consulting firm that focuses on the global auto industry, told me. “They don’t think in months or quarters.”

Certainly the most obvious example of Toyota’s long view is the Prius hybrid. Press said he believes that every automobile in the U.S. will eventually be a hybrid. I asked how soon. Not in five years, he replied, “but I think at some point in the not-too-distant future.” I asked whether Toyota developed and marketed the technology years ahead of the other major automakers because it possessed better technical skills. Press instead framed the issue as a matter of philosophy. Ten years ago, he said, at about the same time the Prius made its debut, Ford rolled out the huge S.U.V. franchise. “Both of us had the same tea leaves, the same research,” he said. “One of us bet on hybrid, one of us bet on big S.U.V.’s.” In his view, the wisdom of making big S.U.V.’s — Press left unacknowledged that Toyota eventually brought out its own line of S.U.V.’s — seemed dubious: “First of all, long term, is fuel going to get cheaper or more expensive? Is oil going to become more plentiful or less plentiful? Is the air going to become cleaner or more polluted? And so, do you do something proactive and innovative, to be in tune with where society is going? Or do you hold on to where it has been, and then don’t let go, to the bitter end?” It was never a matter of altruism, he seemed to be saying, but an example of how corporations survive in society. “What’s the right thing to do to sustain the ability to sell more cars and trucks?” he asked. The Prius was not about a fast return on investment. It was about a slow and long-lasting one.

The Tundra is hardly green like the Prius, yet it, too, illustrates Toyota’s characteristic patience and belief that it should serve every kind of customer. The biggest-selling vehicle in the United States is not the Camry (448,445 sold last year) or the Accord (354,441) but Ford F-Series trucks (796,039). Not far behind in sales are the full-size trucks from Chevrolet. These are among the most lucrative consumer products around, yielding anywhere from $6,000 to $10,000 in profit for every unit sold. “To the American automakers, that’s their bread and butter,” Jeff Liker, from the University of Michigan, explains. “They break even on passenger cars, lose money on small cars. But all their profits come from large S.U.V.’s and trucks. For the American auto companies, this is the last hill that they dominate.” Several auto analysts pointed out to me that G.M. and Ford trucks not only have an extremely loyal customer base; they’re also widely regarded as extremely well built and engineered (often in contrast to their passenger cars). When I asked Jim Press how long the company had been thinking about creating a full-size truck, he said it had been a priority dating to the early 1990s, when Toyota failed with its first big truck, the T100. The company failed again in 2000 when its first (and smaller) Tundra came out; only 124,508 units were sold last year.

Within Toyota, there is a rare and secretive designation for certain development projects known as irei, which is roughly translated as “not ordinary” or “exceptional” and refers to vehicles that the company will spend any amount on and go to almost any lengths to engineer, market and perfect. In the early 1990s, the Prius had this designation. When it came time several years ago to begin redesigning the new Tundra, it received the classification, too. The success of G.M. and Ford suggested that it was a product that could eventually reap tremendous profits. It was also a vehicle that could conceivably cement Toyota’s reputation, once and for all, as an all-American company.

3. The Engineers Open the Window on the Big World Out There

It’s often noted that American carmakers are hobbled by their obligations to pay health care “legacy costs” to their ranks of retirees. Toyota has only about 1,600 retirees in the U.S., and many of its factories have never been successfully organized by a union. Yet Toyota has other strategic advantages too. For one thing, its enormous cash reserves allow it to spend billions on the pursuit of market share in the U.S. — designing a new car or significantly redesigning an old one usually costs $1 billion, and building a new plant costs between $1 billion and $2 billion — and at the same time to think deeply about where society will be in 20 years.

These two pursuits, which might appear contradictory, actually reinforce each other. “Toyota has always gone where the money is, and there’s money in trucks,” says John Casesa, an industry consultant and a former automotive analyst at Merrill Lynch. “This is a company that has, as its mission, to serve any customer. But the other reality is that you’ve got to make a lot of money to develop the research and development for hybrids.” Toyota spends $20 million a day, Jim Press told me, on research and factories. “They are outspending G.M. in R.&D., product development and capital spending,” says Sean McAlinden, an economist at the Center for Automotive Research, a not-for-profit consulting firm in Ann Arbor. “If that trend continues, we’re dead. The problem is, suppose we made a car” as good as a Toyota. “Then we only have a car as good as they do. It’s not just about catching up, or getting into the game. You’ve got to get ahead somehow. But how?”

Toyota itself keeps pushing ahead. Under its system, an engineer appointed to lead a new project has a huge budget and near absolute authority over the project. Toyota’s chief engineers consider it their responsibility to begin a design (or a redesign) by going out and seeing for themselves — the term within Toyota is genchi genbutsu — what customers want in a car or a truck and how any current versions come up short. This quest can sometimes seem Arthurian, with chief engineers leading lonely and gallant expeditions in an attempt to figure out how to beat the competition. Most extreme, perhaps, was the task Yuji Yokoya set for himself when he was asked to redesign the Sienna minivan. He decided he would drive the Sienna (and other minivans) in every American state, every Canadian province and most of Mexico. Yokoya at one point decided to visit a tiny and remote Canadian town, Rankin Inlet, in Nunavut, near the Arctic Circle. He flew there in a small plane, borrowed a minivan from a Rankin Inlet taxi driver and drove around for a few minutes (there were very few roads). The point of all this to and fro, Jeff Liker says, was to test different vans — on ice, in wind, on highways and city streets — and make Toyota’s superior. Curiously, even when his three-year, 53,000-mile journey was finished, Yokoya could not stop. One person at Toyota told me he bumped into him at a hotel in the middle of Death Valley, Calif., after the new Sienna came out in 2004. Apparently, Yokoya wanted to see how his redesigned van was handling in the desert.

When I spoke not long ago with the Tundra’s chief engineer, Yuichiro Obu, and its project manager, Mark Schrage, both of whom work in Ann Arbor, they characterized their research for the Tundra as quite unlike what was done for the Sienna. For starters, designing a full-size pickup truck for the American worker is more complex than designing a van for a soccer mom. The way a farmer uses a truck is different from the way a construction worker does; preferences in Texas (for two-wheel drive) differ from those in Montana (for four-wheel drive). Truck drivers have diverse needs in terms of horsepower and torque, since they carry different payloads on different terrain. They also have variable needs when it comes to cab size (seating between two and five people) and fuel economy (depending on the length of a commute). In August 2002, Obu and his team began visiting different regions of the U.S.; they went to logging camps, horse farms, factories and construction sites to meet with truck owners. By asking them face to face about their needs, Obu and Schrage sought to understand preferences for towing capacity and power; by silently observing them at work, they learned things about the ideal placement of the gear shifter, for instance, or that the door handle and radio knobs should be extra large, because pickup owners often wear work gloves all day. When the team discerned that the pickup has now evolved into a kind of mobile office for many contractors, the engineers sought to create a space for a laptop and hanging files next to the driver. Finally, they made archaeological visits to truck graveyards in Michigan, where they poked around the rusting hulks of pickups and saw what parts had lasted. With so many retired trucks in one place, they also gained a better sense of how trucks had evolved over the past 30 years — becoming larger, more varied, more luxurious — and where they might go next.

Obu’s team, which drew on hundreds of engineers, ultimately produced a pickup model with 31 variations that include engines, wheelbases and cabs of different sizes. Design engineers, however, cannot simply create the best truck they can; they need to create the best truck that can be built in a big factory. In other words, Tundra’s design engineers had to confer with Tundra’s manufacturing engineers at every step of the way to create a truck — or 31 trucks, really — that could be assembled efficiently and systematically. To that end, Toyota spent $1.28 billion to build its San Antonio plant; it has the capacity to produce about 200,000 vehicles a year. The company considers it one of the most advanced manufacturing plants in the world.

I visited San Antonio in late November, after the factory had just begun operating. Management theorists who study Toyota’s production system tend to say that it is difficult to replicate, insofar as the company’s methods are not simply a series of techniques but a way of thinking about teamwork, products and efficiency. Still, some aspects of the system were clearly visible in San Antonio. In the Tundra plant, there is no real inventory of parts, which is a hallmark of Toyota’s approach. Once a truck chassis begins its run on the factory line, an order goes out to, say, an on-site parts supplier that provides seats for the interior. At Avanzar, an independent company located in a large workroom adjacent to the assembly line, I watched workers build a car seat from scratch. They chose a raw steel frame with springs, put it on their own minifactory assembly line to add padding, then leather, and then they transferred it (via pulley, over a partition wall) to the Tundra assembly line, where it was installed in the truck. If the front seat had not been ordered 85 minutes earlier, it would not exist.

The idea of actually situating a parts supplier inside an assembly plant is wholly novel. But the methods of low inventory — or what’s known as “just in time” production — are hardly unique to Toyota; these have been emulated with great success by other automakers. The same goes for other processes at the San Antonio plant: the line stoppages and quality checks, the time spent by workers discussing hand and body movements in the hope of shaving a crucial half-second from their work. Over the years, Toyota has assisted competitors, especially G.M., in helping to adopt its system, believing it to be in its interest to share practices, especially in exchange for insights into a rival’s methods. Toyota’s true technological advances, however, are another matter. In San Antonio, for instance, recent innovations in the paint shop that significantly cut production time were considered proprietary and off-limits to journalists.

It is a challenge to convey the scale of the Camry plant in Georgetown, Ky., which comprises 7.5 million square feet, or the orchestral complexity of its shop floor, where 7,000 workers assemble some 5,000 parts into 2,000 cars a day. I couldn’t help wondering if a glitch in the flow of door handles, or a broken welding robot, would put a crimp in the entire enterprise. “But that’s what the Toyota Production System is,” Gary Convis, the head of the plant, countered. “You actually create the conditions where things have to work to make it work.” Convis, like most Toyota engineers, mostly wanted to talk to me about Georgetown’s ceaseless drive for improvement. When a plant changes over to a new car design, as Georgetown did for the 2006 Camry, production slows down as parts and systems are updated. The last time Georgetown overhauled the Camry, in 2001, 59 days were needed to fully convert the factory to new-car production; last year, the new model took 16 days. The extra cars probably meant additional revenue of about $100 million.

Improving efficiency in the factory, though, doesn’t necessarily lead to greater profits. Savings on the assembly line can mean a nicer dashboard without making the customer pay more for it. “If you’re efficient in the things the customer doesn’t see, then you can put it into the things the customer does see,” Ron Harbour, a consultant whose company rates the efficiency of auto plants, told me. A result is a car more popular with customers. Success on the assembly line, in this way, begets success in the showroom.

4. The Long Road From Rural Japan to California and Beyond

Over the past few years, in an effort to amass a physical record of its business experience in the United States, Toyota has been tracking down and collecting automobiles it has sold here since the late 1950s. The Toyota USA Automobile Museum, as it’s known, is located in an unmarked white-brick building on a side street in Torrance, Calif., a few blocks from Toyota’s corporate sales campus. When I visited in early December, I took a leisurely stroll through the museum’s main room, a spacious, high-ceilinged garage filled with Toyotas, Lexuses and Scions, all in immaculate condition, all parked aslant on a concrete floor. The museum is open only by appointment; there were no other visitors. Time was compressed into a few strides. I passed a Toyota Corona (1966), a Corolla built in California (the first Toyota made in the U.S., 1986), a Camry from Kentucky (1989), an early Prius (2000) and an early Tundra (2003). To walk along the rows undermines any notion that Toyota’s success has been sudden; the progression of cars — in styling, popularity and increasing Americanization — was methodical and incremental. “We don’t move in an unpredictable manner,” Jim Press told me a few weeks before my visit to the museum. “We move jojo, a Japanese term, meaning step by step.”

Toyota grew out of an entrepreneurial foray by the Toyoda family — which made a fortune building textile looms early in the last century — in the 1930s under the leadership of Kiichiro Toyoda. (That’s also when it was decided that the car company would be better served by replacing the family’s “d” with a “t,” in part because it was deemed easier to write and pronounce. The Toyoda loom works did not change its name.) Toyota’s success has often been attributed to a Japanese quality of persistence and ingenuity. One of the first Western academics to look deep inside the company, Michael Cusumano, now a professor of management at M.I.T., debunked that notion when he compared Toyota and Nissan in the early 1980s. “The founders and the managers created and refined Toyota company culture, which is far more powerful than Japanese culture,” he says. “It does build on many things that are Japanese — precision, quality, loyalty. But the Toyota culture dominates.” Cusumano adds that Toyota’s origins, in a rural prefecture, hours from the international influences of Tokyo, provided a beneficial insularity. The company began growing just after World War II, nurtured by government regulations that effectively shut out big American automakers. Still, the devastated postwar economy in Japan necessitated extraordinary resourcefulness: because there was a lack of materials and parts suppliers, for example, Toyota had to create them from scratch. Since the early 1930s, Toyota engineers have looked everywhere for inspiration while tearing apart American products to see how they work. Toyota’s systems and worldview derive from an economy of scarcity. In 1950, the company’s near-bankruptcy during a difficult year further defined its philosophy of frugality. Toyota soon began to focus obsessively on reducing muda — or waste — and building up a vast storehouse of cash for security.

If history teaches another lesson, it is that Toyota’s executives recognized early on that improving the process by which cars are designed and built is just as important as improving the vehicles themselves. In the 1950s and 1960s, this conviction was famously driven by Taiichi Ohno, an engineer who never earned a college degree but who revolutionized modern manufacturing. Ohno was in awe of Henry Ford, but he recognized that the market for cars in postwar Japan — the market for any modern consumer product, he later posited — required greater flexibility as much as the traditional means of mass production. For Toyota to compete with American companies, it had to make small batches of many models (think of those 31 Tundras) that could satisfy all kinds of customers. Ohno, who died in 1990, took an anthropomorphic view of raw materials: just as an employee shouldn’t wait around without a task, neither should sheet metal or molded plastic. And so, at his factories in Japan, parts were created only in response to demand. Every worker was to focus on improving his efficiency, too (along with that of his co-workers). There was no best way to do something, but there were always better ways. John Paul MacDuffie, a Wharton professor of management, points out that the system was a “cognitive reframing of what is possible.” It showed that quality and productivity were not mutually exclusive; Toyota could indeed produce a greater variety of more durable cars more quickly than anyone else. Some of Ohno’s and Toyota’s ideas also had a deeply subversive quality. It is human nature to cover up a problem rather than call attention to it. At a Toyota plant, the identification of a problem became imperative and exciting. Because then it could be addressed.

Toyota’s production system first gained wide notice in the U.S. in the early 1990s, after the publication of “The Machine That Changed the World,” which was written by James P. Womack, Daniel T. Jones and Daniel Roos and serialized in this magazine. According to Womack, whom I visited in his Cambridge office, creating a new product like the iPod or even the Prius is a far more modest achievement than developing a new process. The former are what we normally think of as inventions, of course. But the latter, at least in Toyota’s case, presents a novel way of thinking about work and the capabilities of human organizations.

Womack notes that Toyota’s managerial competence has extended well beyond Taiichi Ohno; the company has been fortunate that the Toyoda family’s descendants, especially the former chairman Eiji Toyoda, have demonstrated tremendous leadership abilities. “They got very lucky with genetics,” Womack says of Toyota. The company also benefited from the savvy of an early sales-and-marketing executive, Shotaro Kamiya. In the 1950s, when Toyota could barely sell its cars to the Japanese public, Kamiya decided Toyota could drive up demand by investing in Japanese driving schools. Kamiya also decided to send three employees to California in the summer of 1957 on a survey mission; a few months later, Toyota set up a small dealership in Hollywood to sell an austere, ugly and underpowered vehicle called the Toyopet Crown — “Toyopet is your pet!” its ads claimed. The car went on sale in 1958 for $1,995; only 288 were sold. That year, the Christmas party, held in the new company’s garage in Hollywood, consisted of about 30 people. The custodian’s wife cooked the food.

The first years in the U.S. were in fact a disaster. Toyota sold a few Land Cruisers but eventually withdrew the Toyopet from the market. Meanwhile its engineers in Japan tried to create a passenger car that American customers would actually want. The result was the 1965 Corona, an air-conditioned and modestly priced vehicle. After that, sales grew steadily. A variety of factors helped — currency differences often made Japanese car imports cheap (for consumers) and profitable (for Toyota). Labor costs in Japan were lower, too. But perhaps the most important factor was timing. A few years after Jim Press began working at Toyota Motor Sales in California, the gas crisis of the early 1970s brought legions of customers to Toyota’s more fuel-efficient cars. By the time the company began setting up factories in the U.S. in the mid-1980s (just over half of the Toyota cars sold in North America are now built here), it was gaining respect for the quality as well as the gas economy of its vehicles. Then came the success of Lexus in the early 1990s. “When they really went at the U.S. market seriously, in the late 1970s and 1980s, the product they brought out was far superior to what the Big Three were producing,” Ron Harbour, the efficiency expert, says. “They created this impression and reputation early on. And in the ensuing years, Ford and G.M. have made great strides to make it up. They’ve narrowed a lot of those gaps. But when you lose that reputation, it’s very hard to recover.” Catching up is even harder, moreover, when Toyota’s cars, like those from Honda and BMW, have consistently higher resale values.

Let’s go back in time and say you’ve got a guy who in 1985 bought a Camry, Harbour says. That Camry buyer was surprised to find he never had to get his car fixed at the dealership. “That guy never, ever looked back,” he adds. “G.M., Ford, Chrysler — they’ve basically lost a whole generation of Americans.”

You might figure that Toyota is elated at the way things have gone lately: its market share in the U.S. has risen in the past couple of years while American automakers like Ford (and to a lesser degree, G.M.) have been in a tailspin. But this assumption is probably only partly correct. “We want them to be strong,” Jim Press says, referring to Ford and G.M. “When you play a ball game, you don’t want to win by errors.” Jim Womack puts it more bluntly: “The last thing Toyota wants is for any of those guys to collapse.” For one thing, it could be politically disastrous for the Japanese company if it were considered responsible for the death of a grand American institution. “But it’s also completely worthless to Toyota in the market,” Womack adds. “They’re selling all the vehicles they can make already. What they actually want is just continuous, slow decline — decline at the same rate that they have the ability to organically expand. That’s the ideal world for them.”

5. Toyota Has It Made in America

McAllen, Tex., is a small city in the state’s southernmost tip, which has among the highest numbers of pickup-truck sales in any U.S. market, according to Toyota’s research. That made it an ideal location for focus groups and marketing research: What did these people need? What did they think of Toyota? And what would actually get them to drive a Tundra? Toyota ultimately decided to pursue customers it calls “true truckers.” True truckers aren’t ordinary pickup owners; rather, these men are the Platonic ideal of truck-driving authenticity. They might work on the ranch or the construction site; they might fish for bass every weekend. “They’re the taste makers, the influentials,” Ernest Bastien, a vice president of vehicle operations, told me in San Antonio. “I think all consumers are influenced by professionals. The professional uses a certain tool, and then they want it, too.” What Toyota needed was to find the true truckers, get them behind the wheel of a Tundra and then hope that Obu and Schrage’s engineering would take care of the rest. If the true truckers bought it, their followers would, too.

Toyota expects that some buyers will be moving up from its smaller truck, the Tacoma; others will be trading in their weaker, older Tundra for the new model. Still other buyers may be families that view pickup trucks with big back seats (so-called double cabs) as an alternative to an S.U.V.’s But building a new factory in the U.S. for the truck, locating the plant in the heart of Texas pickup country and then flying the Texas flag outside all speak to the company’s focus on severing truck owners’ blood ties to Ford and G.M. These loyal owners are the hardest to woo. Indeed, they may be beyond reach. Just as G.M. and Ford may have lost a generation of car buyers, Toyota may have put off a generation of full-size truck buyers with the T100 and the first Tundra.

The company doesn’t think so. In recent years, Toyota has successfully marketed cars like the Prius and brands like the Scion through grass-roots endeavors, which often meant showcasing the Prius to an audience of influentials. With Scion, the company wanted to get the cars in the hands of hipsters who would make them seem desirable and rare to young drivers, a strategy backed by limiting production this year to 150,000 vehicles, even as demand will probably exceed that amount. Some of these techniques seemed appropriate for the Tundra too. “There are so many of these buyers that probably will feel uncomfortable going into a Toyota dealer because they don’t see a Toyota on the construction site and never have and they don’t want to be the first one to show up with one,” Brian Smith, the head of Toyota’s truck operations, told me. So for the past year, the company’s marketers have tried to “soften” resistance to the brand. “Street teams” drive Tundras to big construction sites with water in the summer and coffee and doughnuts in the winter. “We say: ‘Hey guys, you ever been in a Toyota before? Just take a moment to sit in it and tell us what you think,’ ” Smith says. Already Toyota has sent its street teams on hundreds of runs.

Toyota focused the marketing of the Tundra on what Smith calls five “buckets”: 1) fishers and outdoorsmen; 2) home-improvement types; 3) Nascar fans; 4) motorcycle enthusiasts; and 5) country-music lovers. Anyone wondering why Toyota has become a major booster of Nascar or a sponsor of bass-fishing tournaments can see the logic. It’s also why Toyota is sponsoring Brooks and Dunn, the country-music duo. And dealers are taking new Tundra trucks to Nascar events, country-music concerts, fishing tournaments and the like. “Parking lots tend to be a long ways away from where the events are,” Smith explains, referring to motocross competitions, “so we have our dealers setting up shuttles.” The plan is to pull up in a Tundra, offer visitors a ride but have them drive to the event on a slightly indirect course (laid out by a Toyota dealer). “At the end,” Smith says, “we say, ‘Thank you, you’re guests of Toyota, here’s a bottle of water, take a lanyard.’ ”

Based on the company’s track record, it’s tempting to predict a resounding victory — if not a quick one, then a slow and steady one. But Toyota is by no means infallible. It failed in the large-truck market in the 1990s, and it faltered in the youth market until it came up with the Scion strategy. Its vehicles are sometimes outranked in Consumer Reports in safety and customer satisfaction by other automakers, especially Honda. The company’s growth has sparked tremendous internal concerns about quality-control problems.

And Toyota has worries abroad too. Many auto analysts wonder if Toyota has the ability to succeed in emerging markets. “Toyota is fairly weak in what we see as the second-largest growth market in the world, which we consider India,” Ashvin Chotai, a London-based auto analyst for Global Insight, told me. In China, the largest growth area, Toyota expects to have 10 percent of the market by 2010, but the company faces intense competition, from both its American and Asian rivals. Jim Press often says that Toyota is not doing as well as the headlines suggest. The trustworthiness of this claim is debatable — Press also says that G.M. is doing just fine — but it’s undeniable that the company will soon assume leadership in a market that’s both global and brutal.

However the Tundra does in the next few months, the company’s history suggests that it never relinquishes a goal before reaching it. And what’s striking is that if Toyota succeeds, it won’t necessarily be because the company has done anything different this time. Toyota has never really caught the Big Three by surprise. Its marketing strategists have been trying to establish an aura of American authenticity since the early 1970s, when Toyota’s TV ads featured four Dallas Cowboys squeezing into a Corolla. When I asked Takahiro Fujimoto, a management professor at the University of Tokyo and a longtime Toyota observer, whether the company’s victories — or the fact that it is now the world’s largest automaker — were hard to envision, he said no: “Since almost everything that happened to this company in the past several decades has been evolutionary rather than revolutionary, there have been few surprises.”

Toyota’s triumphs are often reduced to spare inventory and just-in-time productivity, but that’s too simplistic; there are many factors at work. Among management theorists, success derives from what they call the Toyota Way — the company’s culture of efficiency and problem-solving. Among historians, Toyota’s supremacy is a product of happenstance, specifically its early years in the rural precincts of ravaged, postwar Japan. For those in the marketing world, Toyota has triumphed in its packaging of brands like Lexus and Scion. On Wall Street, its success is defined by huge profits and driven by low retiree costs and close relationships with parts suppliers. Toyota’s prosperity also owes a large debt to its dealers, the true links to the consumer, who are very good at letting company executives know what customers like and don’t like. And to the fact that Toyota does not award huge stock-option grants or bonuses to its executives. Our culture of excessive compensation has never really caught on there.

All this doesn’t make Toyota virtuous. But it does make Toyota different — in some deep, cellular way — from many American companies. Nothing in its DNA, to borrow a fashionable term among business-school academics, is focused on short-term gains. What’s more, the long view as a business outlook seems to link so many aspects of the company’s success. The long view took Toyota to California, and to its most important market, in 1957 and kept it in the United States even after the Toyopet failed miserably. The long view allowed Toyota to understand the need for improvement and the potential rewards of meeting a higher standard. And when it met higher standards, the company looked ahead at the evolution of its American customers, marshaled its resources and tried to figure out what should come next.

6. Getting the Carbon Out of Cars

Toyota’s president, Katsuaki Watanabe, who like all of the company’s top executives is based in Japan, recently declared that his dream for Toyota is to build a car that does not hurt anyone and cleans the air when it’s running. This is not quite as fantastical as it sounds. Several automakers are developing cars with sensors that literally prevent them from crashing (though not from being crashed into). And in the heavy intersections in Tokyo where air quality is poor, Takahiro Fujimoto told me, part of Watanabe’s vision is already real: “The emission gas of some advanced cars is in fact cleaner than the intake air.” The most vexing challenge, though, is what fuel cars will run on in a future where oil is too scarce or tailpipe emissions too dangerous on account of global warming. About 10 percent of global carbon emissions come from cars, S.U.V.’s and pickup trucks. Many automakers, Toyota included, now trumpet their vehicles as “clean,” but this label, while by no means unimportant, refers to engine technology that reduces smog-forming emissions like nitrogen oxides or unburned hydrocarbons. But every gallon of gas burned still produces more than 19 pounds of CO2.

What I found within Toyota is that its engineers and executives all take environmental issues seriously, but on their own terms. For many consumers, of course, Toyota’s hybrid innovations established a green halo over the company. Yet the environmental community is more wary of the company’s lauded progressivism than you might expect. Many environmental advocates are dismayed by Toyota’s participation (as a member of the Alliance of Automobile Manufacturers) in a suit to block California’s new laws curtailing greenhouse-gas emissions. And some view Toyota’s strenuous efforts, especially in the U.S., to sell gas-guzzling trucks and S.U.V.’s as counterproductive. “I think the reality is that Toyota’s focus on the truck market has been to make them look as American as possible, rather than be the global environmental leaders they are on the car side,” Jason Mark, the former head of the vehicle program at the Union of Concerned Scientists, told me. As Mark sees it, Toyota’s activities matter more than any other automaker’s. “First, they’ll be the biggest car company very soon,” he says. “Second, they’ve demonstrated a knack for innovation with the Prius. And third, they’ve demonstrated a commitment for stewardship that I don’t think one could attribute to the domestic automakers.”

When I spoke with John DeCicco, an automotive specialist at Environmental Defense, a New York-based advocacy group, he said that in the near term, at least, it’s better not to count on a silver bullet — a drastic changeover to hydrogen-powered vehicles, for instance. There are many reasons that this will remain a long-term goal. One is that cars, especially ones of good quality, last a long time. Another is that automakers are profit-driven public corporations, and any new technology has to be competitive in the marketplace. To see just how long that can take, consider that Toyota began developing the Prius at a time, 1991, when gas was plentiful and cheap. Today, seven years after its introduction in the U.S., it has less than 1 percent of the car market. Higher gas prices or gas taxes may alter this. But for now, environmental advocates like DeCicco urge carmakers to focus on making modest changes to popular vehicles (making S.U.V.’s lighter, for example, thereby increasing fuel efficiency), which could have a more significant environmental impact than a sophisticated new technology. When DeCicco began analyzing total greenhouse-gas emissions from each car company’s American fleet, he noticed that in 2003, for instance, there was a significant change for the better in Toyota’s rate. This wasn’t because of its hybrids but because of its redesign of the Corolla. “When you make a small change in efficiency in a high-volume product like that,” DeCicco told me, “it can have a bigger net effect in your carbon than a major change in a small-volume seller.”

Still, more economical cars for the short term cannot solve the long-term problem. Toyota expects to be in business 100 years from now, one person in the company’s West Coast office told me, long after oil has been depleted or rendered unusable because of its carbon content, and for that reason it has placed all its bets on hybrid technologies. Indeed, Toyota created its hybrid systems not so much with the current era in mind, but because it views hybrids as more practical and energy-efficient. Whether the future is in biodiesel, ethanol or hydrogen doesn’t seem to matter; the hybrid system could be adapted to any of those fuels, says Bill Reinert, Toyota’s U.S. engineer in charge of advanced vehicle planning. Reinert also told me that the current Toyota system already has the ability to accommodate the larger battery capacity of a plug-in hybrid, which would use electric power for local trips and fuel only for longer excursions. But those large batteries don’t yet exist. Was that extra capacity put there on purpose? “Hell, yes,” he says. “This company is not stupid.”

Reinert adds that every Toyota engineer designing a new car gets an environmental-impact budget as well as a financial one. Designers must consider the total amount of carbon dioxide produced in the design, production and lifetime operation of a new vehicle. This sounds both encouraging and socially responsible. But you have to wonder too if it’s really an equation for sustainability. Right now, Reinert says, there are about three-quarters of a billion cars worldwide; by 2050, if market trends continue, “we could conceivably have 2 billion or even 2.5 billion cars.” Accommodating those cars will entail building new roads and new factories and spending vast amounts of energy to make shipments. All those activities will create enormous emissions on their own. So even with giant strides in clean-vehicle technology, just doubling the number of vehicles could increase the overall environmental effect by a factor of three.

To their credit, engineers at Toyota like Reinert do not soft-pedal the immensity of the challenge. And they argue, sometimes convincingly, that Toyota will be a large part of the solution. Jim Press does, too, but his is a different kind of optimism. A few days after the new Tundra made its debut, Press gave a speech to the Society of Automotive Analysts in Detroit in which he seemed confident that this would be Toyota’s century. New technologies are on the way, he promised. And the demographics of the American market look good: boomers are buying more cars. Americans are living longer. And the growth rate of the U.S. population is greater than China’s. Even in the face of what looks like a difficult year for car sales, the industry is on the verge of a golden era. “This is one of the few countries on earth where we have more cars per household than drivers,” he said. “Isn’t that great?”

At the beginning of his speech, Press joked to the audience that he was about to reveal the secret of Toyota’s success. He never really did, except to look ahead with relentlessly bright expectations.

Jon Gertner, a contributing writer, last wrote for the magazine about the economics of making comedy movies in Hollywood.

Copyright 2007 The New York Times Company

How the Chandlers Hurt the LA Times

February 17, 2007

Of Taxes, Newspapers and Family


A little more than a year ago, representatives of the Chandler family approached the management of the Tribune Company, hoping to solve a little tax problem. Years before, when the family still owned Times-Mirror, it had set up two partnerships with the company that allowed the family to diversify its holdings without having to actually sell any Times-Mirror stock — thus avoiding a big tax bill. When the family sold Times-Mirror to Tribune in 2000, for $8 billion, a price that now seems be rich beyond belief, the Tribune Company inherited the partnerships.

The family needed to restructure the partnerships, but it wanted to do so in a way that left Tribune holding any tax liabilities that might ensue. That is, if the Internal Revenue Service ruled that the partnerships owed taxes after all, Tribune would pay them instead of the Chandlers. The potential tax hit was estimated at $40 million to $60 million.

Not surprisingly, Tribune said no. And who could blame the company? As part of the purchase of Times-Mirror, the company had agreed to take on an earlier potential tax liability — which had turned out disastrously. The I.R.S. wound up ruling against a highly controversial tax move Times-Mirror had made in 1998, and Tribune, after a bitter court fight, had to pay the government $1 billion. (That case is still being appealed.) Tribune’s management believed that the Chandlers, owners of 20 percent of Tribune’s stock and holders of three board seats, were putting their own interests ahead of the interests of other shareholders.

In early 2006, with negotiations over the partnerships going nowhere, a family representative sent a letter to Tribune that said, in effect, that if the negotiations weren’t settled satisfactorily, the family would try to put the company in play.

Scroll ahead now to February 2007. Over these last months, Tribune Company has most certainly been in play. During the fall and winter, after much public agitation by the family, the Tribune board conducted a “strategic review.” Potential buyers were invited to kick the tires. The company put itself on the auction block.

But the auction has turned out to be an embarrassment for its instigators, the Chandlers. The timing could not have been worse. With newspaper stocks in decline and the prospects of newspaper companies uncertain at best, there wasn’t a single serious bid for the entire company. Most private equity firms, which are gobbling up everything in sight, weren’t interested. Neither were other newspaper companies. They all saw what had happened to McClatchy after it bought Knight Ridder last year: its stock has swooned, and that deal is now viewed as a disaster. Instead, the small handful of bidders — including the Chandlers — made various offers that did not include a premium to shareholders, and included financial maneuvers like spinning off the company’s television stations into a separate company, or adding on piles of debt. Tribune viewed all of these bids as unacceptable.

All concerned would probably have been better off standing pat and waiting for a more opportune moment. But companies that find themselves in play don’t have that luxury. They have to do something or the stock will collapse. And it now appears likely that, sometime in the next six weeks, Tribune will announce its own restructuring plan, including a spinoff of the broadcast properties, a big one-time dividend to shareholders, and lots more debt. The company will hold on to its declining newspapers, and some other properties, like the Chicago Cubs.

Will this cure what ails Tribune? Unlikely. As a JPMorgan analyst, Frederick Searby, notes: “Financial engineering can only get you so far. That won’t eliminate the problems.” Mainly, it will give shareholders a one-time cash payout.

And all because the Chandlers were trying to duck some potential taxes? Well, that’s one way of looking at it.

If you have only a glancing knowledge of the newspaper industry, it’s natural to lump the Chandlers in with the other great newspaper families — the Sulzbergers of New York, the Grahams of Washington, the Bancrofts of Dow Jones, and so on. But this would be a mistake. In the modern age, there has really been only one Chandler — Otis, who ran The Los Angeles Times for 20 years and made it great — who viewed newspapering as a kind of public trust, the way those other families do.

Otis Chandler died last year, but long before then, other branches of the family had retaken control of Times-Mirror. Famously, they brought in Mark Willes from General Mills to run the company in the 1990s, and when he didn’t work out, they sold it out from under him to Tribune. Mr. Willes apparently didn’t even know Times-Mirror was up for sale until the deed was done.

Although eight family members sit on the board of the family trusts, Jeffrey Chandler, Otis’s 64-year-old cousin, appears to be the lead family member. He is one of the three family representatives on the Tribune board. The Chandlers are legendary for not giving interviews, but Jeffrey Chandler once complained bitterly to Forbes that The Los Angeles Times had become too liberal.

The Chandlers are legendary for several other things. The first is that they may be the most tax-averse family in the country. “I think The Los Angeles Times is a great paper and all,” said the Lehman Brothers tax expert Robert Willens, “but their greatest talent was tax avoidance.” Tribune’s $1 billion tax hit, for instance, came after Times-Mirror tried to make a sale of a subsidiary appear to be a tax-free corporate reorganization. The second is that they view newspapers as just another business — albeit the business they happen to be stuck with.

None of 170 or so family members work for the family business, so the Chandlers’ advisers know that their job is to extract the maximum amount of money they can from the assets they control. This has become an ever more pressing goal in recent years because the family trusts will expire after the last member of the current older generation dies, and the money will be disbursed to the heirs. That is likely to happen in the next 10 to 15 years.

Thus did the Chandlers rather unsentimentally sell Times-Mirror. And thus, as Tribune has struggled in the last few years, with the stock dropping some 40 percent, have the Chandlers have become increasingly unwilling to sit back and wait it out. The tax issue may have been the trigger, but the feeling among the Chandlers and their advisers was that Tribune management was costing them money — and that was unacceptable.

Tribune, meanwhile, had its own struggles. Its strategy has been a kind of Grand Unified Theory of the media business: if it owns lots of media properties in big markets — a TV station, the major newspaper, a radio station, Internet properties, tabloid giveaways, you name it — it will have something to satisfy all advertisers. But that strategy has not had much success; indeed major metropolitan newspapers like The Los Angeles Times have been among the hardest hit in circulation and advertising declines.

So Tribune’s management has turned to a strategy of relentless cost-cutting to maintain its profitability. This has outraged many of the journalists at its newspapers and led, for instance, to the recent departure of the Los Angeles Times editor Dean Baquet (who is returning to The New York Times in March as Washington bureau chief). But it does mean that Tribune has remained a profitable newspaper chain with very healthy cash flow — just the kind of cash flow you’d think a private equity buyout firm might lust after.

Yet even before the Chandlers began publicly rattling the cages, it should have been clear that the Tribune Company wasn’t going to get much interest from private equity firms. The Knight Ridder sale had taken place just a few months before; it not only drew surprisingly little interest, but when the company was finally sold, the price was lower than newspaper chains have historically sold for.

What’s more, precisely because Tribune’s managers have been so focused on cost-cutting, they really haven’t left much low-hanging fruit for private buyers to pick at. “We have now had two referendums on the newspaper business,” said Mr. Searby, the JPMorgan analyst, meaning Knight Ridder and now Tribune. In both cases, he added, the marketplace has given the industry a thumbs down. The Chandlers, by pressing their case when they did, not only didn’t get the sale they wanted, but they also helped reinforce the notion that the industry in which they hold their major asset is in irreversible decline. Nice going.

That’s why you have to wonder what in the world the Chandlers were thinking when then started this brouhaha. Maybe they really thought they could sell the whole company. Maybe they thought if they agitated loudly enough, something good would come of it. Maybe they thought they could reclaim the newspapers, and then sell them off one by one. If they actually have some end-game in mind, they’ve kept it to themselves—except to make it plain that they are looking out for themselves. Indeed, their own proposal was terribly lopsided in their favor.

“The Chandlers ultimately look very self-serving,” said Mr. Searby. For its part, Tribune management now views its largest shareholder as a bully, looking to gain advantage at the company’s expense.

Of course, there is one other possibility: maybe they really were just ticked off about the tax situation. As it turns out, the partnership dispute wound up being settled in September, quickly and quietly, in a manner that satisfied both sides. Tribune agreed to accept the tax liability, but the Chandlers paid the company to do so. It was much ado about very little, and proof that the company didn’t need to be put in play to get it settled.

But of course it is also true that instead of making a public stink over Tribune’s falling stock price, the Chandlers could have just sold their stock, and put their money in other, faster-growing ventures more to their liking. Oh right, I forgot. That would mean they’d have to pay capital gains taxes.

We can’t have that now, can we?

Copyright 2007 The New York Times Company
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