Toyota Motors Corporation, known as the world’s leading auto manufacturer was founded in 1937 by Kiichiro Toyoda. In 1950, Toyota Motor Sales Co., LTD was established in Japan and seven years later Toyota made its presence in the United States. In 1972, the company began manufacturing operations in the United States. In 1989, it launched Lexus as its luxury line.
In 2000 with the rising cost of fuel, Toyota released the Toyota Prius, the first hybrid car in the United States. In 2008, the company became the number one selling automotive brand in America when it outsold General Motors by 614,000 more cars and trucks sold. Despite its success, Toyota’s inventory was depleted due to the recent earthquake and tsunami in Japan giving GM and Ford the opportunity to increase their sales by 11 percent. Production came to an halt as vital suppliers were affected by the disasters.
The brand’s image was also tarnished due to safety issues with failing brakes and uncontrollable self-accelerating gas pedals. This paper will focus on the cost leadership differentiation strategy that Toyota employed to its success and what new strategies it can exploit to gain a competitive advantage. Toyota lead the way in effective process design. The company implemented an efficient production system called “lean production” to produce quality vehicles efficiently at a quick rate.
The objective of the system was to minimize waste in the production process to avoid excess inventory, unnecessary processing steps and defective products, thus improving productivity. Its process “The Toyota Way” was so effective that Japanese companies implemented in their production process. With the adoption of its system, it created a culture where its employees contributed continuously to the improvement of the process. Toyota employees were empowered to making suggestions. Toyota’s business strategy is to be a cost leader in producing high quality vehicles at a low price. Toyota purchases its raw materials from several suppliers at a cost-effective price.
By establishing an effective production system, Toyota has been able to maintain a low cost structure. The company aims at reducing manufacturing costs by using a common platform for the production of a greater number of models. The company believes it will be able to achieve economies of scale benefit by producing larger volumes per platform. In response to the eco-conscious customers, Toyota was the first to produce the Prius, a hybrid vehicle running on an efficient combination of gasoline engine and motor. Since its inception in the market, there are now 18 hybrid models from various manufactures. With an increasing demand, Toyota expanded the lineup of hybrid vehicles to sedan, SUV, and minivan models.
Toyota plans to launch 11 hybrid car models by 2012, consisting of 7 brand new models and 4 redesigned models. In a continuous effort to address the concern of eco-conscious customers, Toyota has invested $50 million in the development of an electric vehicle. This niche strategy has contributed to 3 million units sold worldwide since it was introduced to the market eleven years ago. Toyota will need to dedicate more to its research and development sector by manufacturing vehicles with capabilities of doing things no other auto manufacturer has done thus far.
With unexpected natural disasters and numerous safety recalls, Toyota lost its momentum and was ranked third in sales as June sales fell by 21%. To regain its position as the number one auto manufacturer, Toyota will need to modify its current business strategy. With the yen having strength over the US dollar, it is becoming expensive for Toyota to manufacture vehicles domestically. Toyota will have to streamline its operation to make it cost effective by consolidating production facilities since 40% of its vehicles are manufactured in Japan.
Toyota’s viability rests on their ability to regain the confidence of consumers by manufacturing vehicles free of safety issues and producing more innovative vehicles rather than focusing on reliable cars without a competitive edge. This observation was even made by Toyota’s president Akio Toyoda, as he replied to a reporter: “I think cars need to be better looking. We are going to come up with better-looking, nicer cars.” It has been successful with its line of fuel efficient vehicles.
Now Toyota will need to focus on the design of its vehicles, reputation on quality alone will not suffice. If Toyota doesn’t act quickly, it will lose market share to Korean auto manufacturer Hyundai. Hyundai Sonata model which is relatively similar to Toyota’s Camry had a 29% increase in sales this year through June compared to last year’s period.
The company plans to revamp its Camry for 2012 by designing it to meet the needs of 21st century consumers. The new Camry will have a contemporary design, improved performance and provide advanced technological features. Toyota can rebuild its reputation by positioning itself as a trusted brand by being the market challenger. Toyota will have to streamline its production process to assure its vehicles are safe. The company will also need to focus on the design of its vehicles as they have been criticized for not producing stylish vehicles.
ReferencesOhnsman, Alan. “Toyota Sees Prius Beating 2010 U.S. Sales as Supply Grows: Cars” BusinessWeek 08 July 2011. <http://www.businessweek.com/news/2011-07-08/toyota-sees-prius-beating-2010-u-s-sales-as-supply-grows-cars.html> Bensinger, Ken. “Toyota outsells GM globally” Los Angeles Times 22 January 2009. <http://articles.latimes.com/2009/jan/22/business/fi-gm22> Kitamura, Makiko. “Sonata, Camry sales battle rages” Bloomberg News 15 July 2011, <http://articles.boston.com/2011-07-15/business/29778364_1_sonata-and-camry-hyundai-sales-figures-show> Glinton, Sonari. “After A Tough Year, Toyota Struggles To Mend” NPR 11 May 2011 <http://www.npr.org/2011/05/11/136213046/after-a-tough-year-toyota-struggles-to-mend?ft=1&f=1006> http://www.toyota-global.com/investors/ir_library/sec/pdf/20-F_201103_final.pdf