Case 2: Toyota’s European Exposure It was January 2002, and Toyota Motor Europe

Question

Case 2: Toyota’s European Exposure It was January 2002, and Toyota Motor Europe Manufacturing (TMEM) had a problem. More specifically, Mr. Toyoda Shuhei, the new President of TMEM, had a problem. He was on his way to Toyota Motor Company's (Japan) corporate offices outside Tokyo to explain the continuing losses of the European manufacturing and sales operations. The CEO of Toyota Motor Company, Mr. Hiroshi Okuda, was expecting a proposal from Mr. Shuhei to reduce and eventually eliminate the European losses. The situation was intense given that TMEM was the only major Toyota subsidiary suffering losses. Toyota and Auto Manufacturing Toyota Motor Company was the number one automobile manufacturer in Japan, the third largest manufacturer in the world by unit sales (5.5 million units or one auto every six seconds), but number eight in sales in Continental Europe. The global automobile manufacturing industry had been experiencing, like many industries, continued consolidation in recent years as margins were squeezed, economies of scale and scope pursued, and global sales slowed. Toyota was no different. It had continued to rationalize its manufacturing along regional lines. Toyota had continued to increase the amount of local manufacturing in North America. In 2001, over 60% of Toyota's North American sales were locally manufactured. However, Toyota's European sales were nowhere close to this yet. Most of Toyota's automobile and truck manufacturing for Europe was still done in Japan. In 2001, only 24% of the autos sold in Europe were manufactured in Europe (including the United Kingdom).The remainder were imported from Japan (see Exhibit A). Toyota Motor Europe sold 634,000 automobiles in 2000. This was the second largest foreign market for Toyota, second only to North America. TMEM expected significant growth in European sales and was planning to expand European manufacturing and sales to 800,000 units by 2005. However, for fiscal 2001, the unit reported operating losses of ¥9.897 billion ($82.5 million at ¥120/$). TMEM had three assembly plants in the United Kingdom, one plant in Turkey, and one plant in Portugal. In November 2000, Toyota Motor Europe announced publicly that it would not generate positive profits for the next two years due to the weakness of the euro.

Questions: Explain in details:

1. If you were Mr.Shuhei, how would you categorize your problems and solutions? What was a short-term and what was a long term problem?

2. What measures would you recommend Toyota Europe take to resolve the continuing operating losses?

Explanation / Answer

In 2001 Toyota's working misfortunes in Europe had achieved 9.9 billion Yen. This misfortune was because of Toyota's working presentation which was a consequence of the sliding estimation of the euro concerning the Japanese Yen. Between mid 1999 and mid 2001 (2 year ~ medium-run time skyline), the euro had fallen by roughly 28% concerning the yen and around 14% as for the British pound. At this point, Toyota had officially taken huge misfortunes for their deals inside Europe because of the sliding estimation of the euro. In 2004, Toyota made moves to grow its ability and assembling capacities inside Europe. Toyota held up so long to extend its assembling operation inside Europe was because of the sheer idea of the car business - where fabricating is extraordinarily multifaceted and fiscally requesting. Besides, in spite of the fact that Toyota was just eighth in car deals inside mainland Europe, their officially settled assembling base inside Japan permitted them key financial points of interest over contenders because of economies of scale.

The way that noteworthy Toyota operations existed in the United Kingdom would be a proceeding with issue as long as the UK remained out of the EMU.

The value of the pound against the euro did not look good for UK-based operations for European deals.In the more extended term, Toyota, in the same way as other different multinationals, would need to consider moving a greater amount of its assembling and cost structure to inside the EMU, not in Japan and not in the UK. so I would recommend to absorb incresing cost on european sales.

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