Toyota Motor Corporation is a diversified corporation that sells its automobiles in approximately 200 nations and regions worldwide, focused primarily in Japan, North America, Europe, and Asia. Toyota estimates that it employs close to 1 million individuals worldwide, including dealers. Meanwhile, Toyota is growing, as is evident in the 13% increase in revenues from 2005 to 2006 to a level of roughly 180 billion dollars. Net profit for Toyota Motor Corporation increased 17% over 2005 to 12 billion dollars in 2006. Introduction Toyota is a strong competitor in the automobile industry.
Most industry analysts believe Toyota is the leading competitor for the consumer dollar. The corporation, to generate increases in sales, revenues, margins, and profits over the last few years, has expanded upon several successful strategies claiming its position as a profitable automobile manufacturer. Toyota’s many strengths can be used to maintain this position, and existing market opportunities can be capitalized on to stimulate growth. However, weaknesses present in the company and threats evident in the industry need to be appropriately addressed to prevent permanent pitfalls to Toyota’s ongoing success.
Without exception, the evident strengths, present weaknesses, available opportunities, and imposing threats directly influence Toyota’s continued success as the leader in the auto manufacturing industry. Strengths In an extremely competitive industry, the Toyota Motor Corporation leads the industry in numerous areas. Toyota’s strengths are the foundation of what drives it to be constantly increasing revenues from year to year, emerging as the new leading manufacturer in the industry, and performing the way it does.
The company possesses multiple strengths such as its impressive brand recognition, unique “Toyota Way,” and innovative “JIT,” or, just in time production principles. Toyota’s brand recognition is the most powerful in the industry. Businesses across the globe view Toyota’s management techniques, “the Toyota Way,” as extremely effective and innovative. Many manufacturers in various industries have implemented the “JIT,” production process pioneered by Toyota to increase profits by minimizing unnecessary inventory costs. Brand Recognition Toyota is a faceless organization.
No names or individuals hold up or represent the company name like Bill Gates of Microsoft or Steve Jobs of Apple. Toyota’s brand has a bulletproof reputation that simply sells cars. Out of 100 companies, the Toyota brand was 9th most recognizable, being the strongest in the automobile industry. BMW and Mercedes were two other automobile manufacturers among the 100. While most industry articles on automakers report on their earnings, or continued lack of such, before anything else, Toyota receives impressive articles reporting on the quality of their cars.
Most recently, Toyota’s growing line of hybrids has contributed to and enhanced their strong reputation in the industry. This quality reputation can most likely be related to the attitude that “Toyota really believes and nurtures the idea that they should be able to build a car with no problems or flaws. ” The “Toyota Way” The “Toyota Way” is to always watch and listen to what the consumer wants, and continuously improve products to fit the particular need and desire. There is no end to improvement if the supplier is always trying to meet the demands of the customer.
However, the “Toyota Way” is about more than product. Employing around 1 million individuals, there exists a dedicated human resource army from every culture sharing ideas and working with the same concepts and philosophy of doing business. Suppliers are often contracted without negotiation of cost, as long as they can meet the standards and perform to the processes of Toyota. These management techniques are unique to the business world, and have inspired the model of doing business for many other corporations. The “Toyota Way” is about
respect for people and upholding the quality and reputation of the company. “JIT”- Just in Time Production Principles An extension of the “Toyota Way” is the unique production method pioneered by Toyota. Also implemented by many manufacturers across the world, the just-in-time production process increases production volume and decreases production costs through better use of inventories of raw materials, work in progress goods, and finished products. Under this method, a product arrives when it is needed in the production process, and a stock of inventory is not kept on hand in a warehouse.
The bottom line of the “JIT” way of production is to reduce inventory, and to produce only what is needed. Toyota believes anything produced over the quantity required is a waste. Weaknesses Toyota Motor Corporation has grown strong over the last several years with the production of new lines and emergence into new markets. Throughout this growing process, gaps have been created, and cracks in the success of certain areas have risen. Toyota’s emergence into the full-size truck category has been costly and not as successful as forecasted.
Problems of successful performance in Europe have been evident in years past, and the company admittedly remains weak in that region. Naturally, these weaknesses identify areas of concern for the company to properly address in the near future. Full Size Pick-up Truck The Chevrolet Silverado won awards last year for best truck in its class of six trucks. Where did the Toyota Tundra rank? Detroit’s Auto Show in 2006 ranked the Toyota Tundra dead last. It had the second highest starting price and the greatest high end price. The truck ranged from $16,155 to $41,850.
“Toyota is confident that their brand will sell the product, because the price won’t. ” The emergence into the full size truck category has been costly. Tundra’s are only produced in the Texas and Indiana plants, requiring all materials to be U. S. made or imported. Given that there is not a high volume of Tundra’s sold annually, the high costs are difficult to cover in this vehicle class. The Tundra still upholds the Toyota brand reputation, but it “may be out of the consideration of some customers, simply because it has the highest price. ” Low Performance in Europe
Due to the high volume of European made cars, the market for an automaker outside of Europe is significantly challenging. Mercedes and BMW, two companies also present in the list of top the 100 most recognizable brands, have a large share of the market in Europe. Although a revenue increase of almost 12% was recorded in Europe for Toyota during 2006, the company still recognized a decrease in profits of roughly 14%. This low profitability points to high costs of materials and labor in the region. Nevertheless, Toyota has projected a 10% increase in profits for 2007.
While this projection is a highly attainable goal, the challenge of high costs still remains. Opportunities With the nature of the auto industry becoming increasingly competitive due to advances in technology and production methods, Toyota is currently facing opportunities that can strengthen its foundation if it can appropriately address and take advantage of what lies ahead. For example, management issues surrounding other manufacturers have opened the door for Toyota, allowing them to take over the spot as the number one auto manufacturer in the world.
In addition, the high demand for fuel-efficient automobiles and hybrid technology in an economy where gas prices have risen drastically provides Toyota a highly popular untapped emerging market. Emerging as #1 Auto Manufacturer in the World Reports for the first quarter of 2007 show Toyota out-sold the leading manufacturer of the past 76 years, General Motors. The company has passed both the Ford and Daimler-Chrysler Corporations, and has been closing the gap on General Motors over the last several years.
Recent strikes of GM workers have forced GM’s management to incorporate future increases of 35 billion dollars in the health care benefits of retirees. The strikes have resulted in a 2 billion dollar loss in profits, and will have a magnified affect on GM’s financial statements for 2007. With the door virtually wide open for Toyota as GM struggles, analysts say, “Toyota is advancing precisely in the areas the General Motors Corporation has fallen behind. ” The opportunity for Toyota to become the number one auto manufacturer in the world can become a reality if Toyota can capitalize and fill in where corporations, like GM, have struggled.
Fuel-Efficient Cars In a day of rising gas prices economies worldwide are looking for more fuel-efficient, cost cutting automobiles. Decades of automobile emissions have had a serious impact on the environment, and Toyota is conscious of this concern in the industry and has the ability to make an impact. The company’s engineering capabilities will allow it to excel in the vastly changing industry and pave a path in the area of fuel-efficient cars. Toyota was the first manufacturer to produce a mass-produced hybrid car, called the Prius, operating on a combination of gasoline and electric power.
The hybrid technology was a foreign idea to many, and how well the engine would hold up was a big question. Would the new Prius hybrid be as long lasting as previous Toyota vehicles? The engineering capabilities pioneered by Toyota in regards to the hybrid car have sparked a lot of new research to improve the fuel efficiency of cars. Toyota’s sales are projected to boom thanks to the fuel-efficient Corolla and Yaris, along with the hybrid Prius. The advancement of Toyota’s capabilities has given them a “leg up” on the competition. Threats While Toyota has opportunities that, if taken advantage of, will benefit the
company greatly, there are also imposing threats that may hinder its continued success. The designs of other auto manufacturers’ models appear to be more popular among younger age groups as a whole. As well as the design issue, rising costs in raw materials are threatening the cost of production, and the current weakness of the Japanese Yen currency is causing trade tension and impatient feelings with other manufacturers. Stylish Affordable Models While Toyota may excel in production capabilities or be efficient in managing costs, they lack in innovative design.
Companies such as GM and Ford have decided that the best way to outdo a company, who is beating them in other areas such as cost cutting and production, is to “out-design” them. Focusing on efficiency in production requires Toyota to use similar parts and products for each model. The production line is quick when using only a couple different tools and parts, but it does not allow for much flexibility. Toyota has been lacking in the appeal to younger buyers, whose business has gone to other manufacturers who have basically out-designed them.
The stylish affordable models from other companies sets a higher standard that Toyota must consider meeting if they are to continue as the number one auto manufacturer in the world. Rising Raw Material Prices From 2005 to 2006, operating expenses for Toyota have increased sharply in Japan from 7. 5 to 9. 3 billion, North America from 1. 8 to 2. 1 billion, and Europe from 1. 66 to 1. 91 billion. This increase can in part be related to the growth in each country, but is largely due to the increase in raw material prices. Aluminum and steel prices have been on the rise over the last several years, but reached all time highs in 2006.
This high price in raw materials is causing expenses in each region to increase in turn having an effect on the operating margin, which in turn increases the cost of the vehicles. Even though this issue is an industry wide problem, it is a significant problem for Toyota’s production line. Weak Japanese Yen One huge part of Toyota’s sales is the hybrid vehicle, the Prius. However, the popular Prius is not manufactured here in the United States; thus, it needs to be imported. Toyota imports rose by 135,948 vehicles, a 14% increase from 2005. Why the huge increase? Detroit automakers claim Toyota is benefiting from a weak Japanese currency.
The weak currency in Japan makes Japanese exports to the United States less expensive and U. S. imports to Japan more expensive. This means that Japanese imported cars cost much less to produce, but yet sell for the same amount in the United States. The difference is said to be roughly a $4,000 to $10,000 gain per imported car. The undervalued Yen has had an extreme impact on where Toyota decides to produce the larger number of its vehicles. Two thirds of the United States 88 million dollar trade deficit with Japan is auto related and largely in part to the 2. 4 million vehicles imported from the country.
The large deficit is evidence of the impact that the weak Yen is having on the U. S. Patience is wearing thin between Detroit automakers and the Japanese way of importing to the U. S. “This is a huge disadvantage for American automakers and is costing Michigan a lot of jobs. ” While Toyota is capitalizing on the trade situation, the feelings of other automobile manufacturing corporations and the United States government are strained. Conclusion While Toyota Motor Corporation is growing rapidly, the corporation, just like all corporations, has various cracks and weak points in its organization.
The company demonstrates above average performance in its production models and in its brand recognition and reputation. Toyota’s reputation alone virtually sells the cars it manufactures. The “Toyota Way” of doing business has proved extremely successful in the negotiation of contracts and the quality of the product produced. Among the several strengths of Toyota exist a few weaknesses that challenge the company. Toyota’s performance in Europe has been below average over the last few years, however, projected plans of an increase in sales may improve the operating margin in that region.
The full size truck model for Toyota has proven itself weak when compared to the other five trucks in its class. The cost to produce the truck here in the states is extremely high, thus the price of the truck is comparatively high in relation to other full size trucks. Relative to the strengths and weaknesses threaded into the organization lie internal industry opportunities and external industry threats facing the company that have great potential to help or hinder Toyota’s future success.
Toyota’s excellent engineering capabilities have introduced the hybrid technology to the automobile industry, which will have immeasurable affects on the progress for making cars much more fuel-efficient. Capabilities such as this have improved Toyota’s sales and production, thus predicting Toyota to be the number one auto-manufacturer in the world in 2008. However, contrary to the bright side of Toyota’s future, threats to the company’s success appear in the lack of innovative design appeal along with rising raw material prices.
In addition to these threats are the irritated automakers and government officials who believe Toyota is taking advantage of the weak Japanese currency. These external factors are threats that will have an impact on the future of Toyota as a whole. The analysis of the strengths, weaknesses, opportunities, and threats of Toyota Motor Corporation combine to allow us to view the different facets of the company and decide where it is positioned, and determine its standing in the industry now and for the near future.