Toyota Psa Case Study - Aygo

Mission

"Toyota Motor Corporation is a company devoted to enhancing the quality of life for people around the world by providing useful and appealing products" (Toyota Motor Corporation, 1994). Its mission has not changed much in the past few years, for the current mission of Toyota can be characterized as becoming the world's leading vehicle manufacturer, which means that it expects to sell more cars than any competitors, whilst setting benchmarks on product quality and production efficiency.

Toyota also aims at providing good quality cars at competitive and affordable prices in order to well establish its dominancy within the industry and to remain the number one of all automakers in the world. On a long to medium term basis, Toyota even wants to become market leader in every continent.

Strategy

Toyota’s great success is related to its admirable image and reputation which allow the strategy of Toyota to be well implemented. Toyota strives at decreasing costs while maintaining quality and increasing production and operational efficiencies. Toyota invests subsequently in several strategic areas few other car manufacturers can afford, such as hybrid engine and manufacture new cars that comply with the current ‘green trend’.

Toyota also tries to expand its global presence in car manufacturing and enter new markets especially in Europe - through the mini-car market - which is mostly dominated by European brands. Toyota did a joint venture with PSA to penetrate this new segment; it already entered the luxury branch in 1989 when it launched a new brand: Lexus.

Toyota consequently wants to develop an attractive mini-car range with other car manufacturers to create synergies and benefit from experience curve effects. Toyota will grow step by step whilst building up a strong corporate reputation over time which facilitates good relationships between employees and with its suppliers, for it wants their relationships to be sustainable and healthy to keep moving forward and keep getting an edge over competitors.

DESCRIPTION OF PSA

PSA Peugeot Citroën is a French vehicle manufacturer, number four in terms of production in the world.

Mission

PSA aims at consolidating its position as a leader in Europe, becoming one of the major manufacturers in South-America and developing its activities in China and Russia. In the globalised context, PSA also tries to become more profitable. It ambitions to sell 4 million vehicles in 2010, and to consolidate its leadership in the green-car sector.

Strategy

In order to reach its ambitions, PSA develops joint ventures and creates synergies with other car manufacturers (BMW, Toyota…), fosters R&D in diesel and hybrid engines, pays attention to vehicle design and clever advertising campaigns and improves service quality by notably reducing number of problems and time spent solving them.

PSA also needs to seize opportunities in Eastern European market before others, invest in Mercosur countries and in China (R&D, plants, design centres), build highly competitive production facilities that can produce a great variety of models and finally offer competitive entry level vehicles and become an important player in this sector.

TPCA Mission & Strategy

Toyota Peugeot Citroën Automobile Czech (TPCA) is an automobile manufacturing company in Kolin, Czech Republic. It is a joint venture between Toyota Motor Corporation and PSA Peugeot Citroën. TPCA produces small cars for the European market such as Aygo by Toyota, 107 by Peugeot or C1 by Citroën. TPCA started producing in February, 2005.

It strives for the three companies to share the mini-car market in Europe by benefiting from their respective experience and creating synergies to master the market. TPCA takes the best each company has to offer and it is eager for its plant in Kolin to become the undisputed number one plant in Europe in terms of productivity and car production.

EXTERNAL ANALYSIS

GENERAL ENVIRONMENT

PEST ANALYSIS

Political In 1999, an agreement between the European Union and the European car makers was concluded in order to reduce the carbon dioxide emission to 140 grams per kilometers by 2008. Asian carmakers, such as Toyota, also accepted the agreement, with one more year to achieve it. This criterion can be met especially by developing hybrid engines or reducing the fuel consumption, which is a fantastic opportunity for the segment of mini-cars whose small engines consume less.

Economical Economic uncertainty, high unemployment rate (8.9% in March 2005), and increasing fuel price characterized the European economic environment. Therefore a gain in volume of mini-cars sells is likely to occur, as these cars are cheaper. Moreover, emerging markets are booming and eager to possess Western cars.

Social There is a growing concern about ecological issues among countries of the European Union, which may have an impact on the car customers. Moreover, because of poor economic conditions, customers increasingly pay attention to their purchasing power and to their consumption level. This is especially true for the car sector where fuel prices skyrocket.

Technology The hybrid new technology becomes a crucial asset to satisfy both the ecological concern and the performance expectations in the car industry.

GLOBAL FACTORS

Fuel prices increase worldwide so that car industry may face a slowing down growth in every country. The competition is therefore likely to increase significantly as the demand is narrowing. Car makers strive to look for other prospects for their products, for example by launching them in new countries. Developing countries such as India or China are notably famous for being attractive markets for carmakers, because these countries have an important population whose majority does not own a car yet.

INDUSTRY ENVIRONMENT

INDUSTRY SEGMENTATION

The European car industry can be segmented according to the different classifications of car. The following segments are therefore relevant: mini-cars, lower medium, upper medium, executive, luxury, sport or utility cars. Moreover other segments in the transport industry can be substitutes to car industry segments. For example, train or plane can replace cars of medium and big size, or intra city transports such as metro, buses or cable cars can substitute mini-cars or cars in general.

Porter’s five forces

Rivalry among competitors : very strong There are many competitors on the automotive market from different countries and with different targets on the market. The industry can be considered as a capital intensive industry, with high fixed costs. The market grow slowly; competitors try to attract new clients and gain market shares from their rivals with aggressive offensives like discounts and advertising.

Threat of substitutes : relatively low Substitutes are not a real threat for the automotive industry. They consist in train, subway, bicycle and walking. These substitutes are not very convenient for the consumer, for they do not enable him to reach his exact point of destination. Train and subway have precise schedules, which is not the case with a car. Subway can be more convenient than cars, only in big cities though. Switching costs are low; the price of a train ticket can sometimes be more attractive than taking his car.

Bargaining power of suppliers : very low A car producer works with many suppliers since it needs many different items to produce a car. This means that there are many suppliers on the market and therefore that their bargaining power is very low. Switching costs for car producers are really low.

Bargaining power of buyers : moderate Buyers do not purchase a car frequently and in large volumes. There are many buyers on the market which considerably reduces their bargaining power. However, switching costs for the customer are low. In fact, a customer can easily decide to sell his car and buy a new one as well as he can decide to take the train or the subway without many costs.

Threat of new entrants : very low The automotive industry is not attractive for new entrants. A new entrant would have to invest a lot of money in capital and R&D to start a new business and it would have to acquire a specific and technical knowledge. The market is mature; car producers already make economies of scale by producing cars in large quantities. New entrants would also have difficulties to access distribution channels.

Key Success Factors (KSF)

Safety It is a crucial element for car producers. Consumers want to buy reliable cars with many safety features and systems such as ABS or Airbag that could save their lives. Car producers have to be very innovative and technology-oriented.

Innovation Innovation is important to many consumers as far as components are concerned. To remain competitive on the market, car producers have to innovate all the time, especially as far as engines are concerned.

Low production costs Price is an important factor for customers, thus car producers must try to reduce production costs.

Access to distribution channels It seems impossible to enter the automotive market without contracts with car dealers. If a car producer wants to be well known and to sell many products it has to sell cars to as many car dealers as possible.

ATTRACTIVENESS

Even if it is almost impossible for new comers to enter the market, the automotive industry remains attractive, since there are plenty of booming markets, such as India, which offers a huge growth potential linked with its population or economic growth, or Eastern Europe whose economy is opening to market economy.

INTERNAL ANALYSIS

PSA CORE COMPETENCIES :

PSA is able to bring distinctive, innovative cars on the market as fast as possible: that way, it is able to reach customers’ expectations very quickly. This is based on PSA platform policy (Peugeot and Citroën cars share a very large amount of parts – Coupé Peugeot 407 and Citroën C6 for instance), which plays a core role in design and production. This ensures lower costs (production, design) and a shorter assembly time. In addition, the company can focus on developing a wide range of body styles for the various cars.

PSA has developed numerous strategic cooperation programmes to share the development of specific parts (petrol engine in cooperation with BMW, V6 engine with Renault) or models with other car manufacturers (Aygo, 107, C1 with Toyota – Boxer, Jumper and Ducato with Fiat).

TOYOTA CORE COMPETENCIES :

Less inventory, fewer man-hours, high quality cars and fewer defects than any other competing manufacturer are key elements that built Toyota success story and made it become the world leader of the automotive industry. Toyota aims high to get close to perfection and excellence. It results in a steadily growth of its market shares and the creation of a new model called “Toyota Way”, which refers to Toyota’s resources and capabilities and its ability to implement them to remain market leader.

PSA and Toyota core competencies mutually strengthen and are complementary. The JV is seemingly a great opportunity for both companies to benefit from each others’ resources and capabilities in order to get more market shares and grow efficiently.