America's best car company (cont.)

By Alex Taylor III, Fortune senior editor

The latter is emphatically no coincidence. Beginning in 1988, when it started production in its first assembly plant in Georgetown, Ky., Toyota has been careful to locate each new assembly plant in a different state, partly to maximize congressional clout. "It is better to be spread as broadly as we can be spread," says Josephine Cooper, who runs Toyota's Washington, D.C., office. Toyota has no political action committee, but it has built an effective lobbying operation.

"Toyota is a public relations case study - a masterpiece of managing the message," says marketing consultant George Peterson of AutoPacific. "People refer to it as the Teflon car company." In 1989, for example, when the new Lexus had to be recalled to fix the high-mounted brake light, Toyota still emerged with its new-car smell unsullied when it returned the cars fixed, washed, and with a full tank of gas.

Toyota has sunk deep roots in the U.S., especially in the middle of the country, where it has built parts and assembly plants and technical centers in a north-south corridor stretching along I-75. The latest, a $1.3 billion assembly plant in Mississippi to make the Highlander SUV, is due to open in 2010. Toyota employs 34,600 Americans directly and 400,000 more indirectly at suppliers and dealers. Every year, Toyota buys $28.5 billion in parts and materials from U.S. suppliers, most of which goes into the 1.2 million cars and trucks that it builds here - about half the total it sells domestically. And when it is time to clear inventory, Toyota can be as brassy as any Yank.

In this sense Toyota can look as American as baseball, hot dogs, apple pie - and yes, Chevrolet. But in terms of how it's managed, that is not quite the case. Every U.S. function - sales and marketing, R&D, manufacturing - reports to Japan. U.S. managers sometimes endure 20-hour roundtrip flights to attend a single meeting. Japanese "coordinators" in the U.S. shadow each operation and make their own reports to headquarters. Organizationally it looks like a nightmare, but somehow the two-language, two-culture hybrid works.

The relaunch of the Tundra is about selling trucks; it is also about giving Toyota a more national presence - in a way, to make it more American. Toyotas sell well along both coasts, but it has been slower to penetrate the upper Midwest from Pittsburgh to Minneapolis, where it has a 10.6% share, and the Southwest (14.3%), according to J.D. Power estimates.

Those soft spots are part of the reason that Toyota became the first foreign brand to compete in NASCAR since MG and Jaguar in the 1950s. Toyota figures that NASCAR gives it access to a truck-loving heartland audience that usually ignores it. "We race Camrys to sell Tundras," says marketing boss Jim Farley. Toyota isn't taking any chances, providing technical support for three teams, but there is a learning curve ahead. None of its cars finished higher than 22nd (out of 43) in its first race, the Daytona 500, in February.

Being so much in the spotlight is leading to awkward moments. When Michael Waltrip, one of its big-name NASCAR owner/drivers, was fined for using an illegal substance to boost horsepower, the fallout was immediate. "Obviously this wasn't the way we wanted to start," Jim Aust, head of Toyota racing, told Sports Illustrated. And when a female employee complained last year that a Japanese executive in Toyota's New York office had groped her, the New York Post played it on page one: OH, WHAT A FEELING the tabloid blared. Toyota quickly sent the executive into early retirement, but for a few days it found itself in the unaccustomed role of tabloid fodder.

"We understand that as Toyota's presence increases, expectations and demands will also rise," president Katsuaki Watanabe told Fortune. Nuances will matter more than ever. When then-chairman Hiroshi Okuda in 2005 said Toyota might raise prices to take pressure off GM, the perceived condescension sparked outrage, followed by furious backpedaling. Okuda's remark betrayed Toyota's biggest fear: the financial collapse of one of the Detroit Three. Jim Lentz tries his best to deflect such talk. "We're all in this together," he says of his U.S. rivals. "We wish them the best."

If Toyota cares so much, why is it entering Detroit's last bastion of comparative strength? But Lentz swears that he means it and that the Tundra is simply a way to offer consumers a choice. The status quo, as he needn't point out, has served Toyota well. Despite occasional Japan bashing, Toyota has been able to grow. This process that has been gradual enough that the company is now an accepted - in fact, admired - part of the U.S. landscape. The dramatic failure of any of the Detroit Three would destabilize the industry - and make Toyota the villain. "The most important management task at Toyota these days," says auto consultant Jim Womack, "is to manage the decline of the domestics."

Fifty years ago, when the Toyopet rolled into California, who could have anticipated that this is where it would land?

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REPORTER ASSOCIATE Patricia Neering and Jenny Mero contributed to this article.