TOYOTA CITY, Japan — If things look bad in Detroit, so, too, does the outlook for the "City of the Automobile" here.
The fortunes of this city of 400,000 residents are so closely tied to the Toyota Motor Co. that the two share a name. And as the automaker's profits declined in recent months, so, too, have its municipal tax payments.
Corporate business taxes are projected to plummet 96 percent this year, to about $16 million from more $442 million in 2008, said Showji Sawahira, Toyota City's finance director.
"We face a really tough situation," he said. "One-third of the budget is gone."
If there's any hope, local leaders said, it rests with Akio Toyoda, grandson of Toyota's founder who became president of the automaker in June. It's time for the company to return to basics, and Toyoda's unique family perspective should help him restore the company to profitability, they said.
"We have a great hope," said Deputy Mayor Kiyomi Nakamura. "He's determined not to incur losses. ... The basics of Toyota are to provide what the customer wants at a reasonable price."
Toyoda, a race car driver who studied business in the United States, inherited a company that reported more than $4 billion in operating losses last year, the biggest since its founding in 1937. It projects even larger losses for this fiscal year, which ends in March.
Toyoda's grandfather, Kiichiro Toyoda, named his company with the letter "T" on the last syllable because the Japanese characters in its name are considered to be lucky, a company spokeswoman said. Leaders of Toyota City, which used to be called Koromo City, decided to take the company's name for the municipality in 1959.
Prospects for the city never have been bleaker, Sawahira said. Ninety-two percent of the city's 196 small- and medium-sized companies reported declining business in a recent survey, and more than half expect things to get worse this year.
The city's economic problems stem directly from its ties to the auto industry. One-third of its 1,406 factories are auto-related, employing 88,374 people, according to municipal statistics. About 26,000 people work at Toyota's seven plants in the city, including its first, which opened in 1938.
Another indication of the city's reliance on the automobile is that although many Japanese cities have state-of-the-art public transportation systems, local train service stops at Toyota City. Fewer than 10 percent of residents here rely on a public bus system to get around.
No other Japanese city depends as much on corporate taxes, Sawahira said. In addition to the drop in corporate taxes, Toyota City owes Toyota Motor Corp. more than $200 million in refunds for collecting too much last year.
So far, city leaders have been reluctant to cut lavish social services such as the $20 million yearly that Toyota City spends on free health care for children younger than 15, Sawahira said.
Instead, the city cut $67 million from its annual budget by eliminating spending on major projects, such as an abandoned municipal building across the street from city hall, which was scheduled to be replaced this year.
Toyota City dipped into its rainy day fund for $282 million. It has $430 million remaining in its savings account, and local leaders figure they could stretch that over several years, if needed.
At Toyota's nearby Tsutsumi Plant, hundreds of Prius hybrid-electric cars — some with rooftop solar panels — move along the production line with what the Japanese call "jidoka," or the harmony of humans and machines. The company plans to build more hybrids and target developing regions such as China and the Middle East.
In all, Toyota operates 12 Japanese factories with about 71,000 full-time employees who have lifetime employment under the country's business system. In flush times, the company employs another 6,000 or so contract workers.
As bad as things seem, local leaders said they feel optimistic about the future with Toyoda running the company.
"We kind of developed hand-in-hand (with the automaker), and the people of Toyota City have a great appreciation for the founder," city spokesman Tashifumi Kuroyanagi said. "Citizens really welcome his grandson to become leader."
Even as city leaders consider a worst-case scenario, Sawahira said, they hope for a brighter future.
"Toyota Motor Corp. is such of a kind of great company with such potential that they might introduce a new kind of car, an electric car," Sawahira said.
"Toyota will find a way to survive. Nobody knows yet; we might go back to the heady days again."
Editor's Note: Andrew Conte is traveling in Japan as a fellow with the East-West Center's Japan-United States Journalists Exchange program.
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