“Toyota : Looking Far into the Future”
A Brief History of Toyota
1) Toyota begins work on small car, a niche neglected by Detroit a. Toyopet is introduced in 1947.
b. Reinvest profits from small cars into research and development 2) In 1957, Toyota performs its first American road test a. Modified Toyopet performs poorly, failing the road test due to heat and vibration b. Start over and by 1960 Toyota has a new Toyopet that can withstand American conditions 3) Research and development results in Corona, introduced in 1965 a. Sell 6,388 models in 1965
b. Toyota introduces the smaller Corolla in 1968
i. Toyota hopes that by introducing a smaller car they will differentiate themselves from Detroit cars, which at the time are big heavy cars loaded with horsepower and options. ii. By entering the American market with small cars, they prevent head-on competition with formidable American car companies iii. Toyota has a first mover advantage in small cars, able eventually to achieve terrific economies of scale in this category. iv. Toyota’s pricing is geared towards lower to middle class customers, not the customers who are buying cars loaded with expensive options. Barriers to Entry, Economies of Scale
1) One barrier to entry into the U.S. market was the reputation of Japanese cars as low quality cars a. Japanese thought to be clumsy around machinery. b. Japanese manufacturing seen as sub-par
2) In the 1950s, American car companies have huge economies of scale a. In 1952, the average American car costs $1500 to build, while the average Japanese car costs $2,950 to build. 1 3) To overcome these barriers to entry, Toyota hires manufacturing and quality control consultants from the United States a. First among these is W. Edwards Deming, a man shunned by American car manufacturers i. Deming’s theory puts quality at the center of the entire manufacturing process b. Toyota follows Deming’s advice and ruthlessly implements his quality control techniques i. Toyota improves on Deming’s methods, culminating in the creation of the Toyota Production System 4) By 1964, the Toyota Production System has resulted in economies of scale. a. Now Japanese car companies produce cars more cheaply, with the average Japanese car costing $1,400 to build and the average American car costing $1,900 to build. b. American car companies are now suffering from a first mover disadvantage. i. American cars companies are stuck with outdated equipment and outdated production methods ii. To take advantage of new production methods, American car companies would have had to scrap old plants and replace them with the kind of state-of-the-art plants the Japanese were developing c. Table showing growing cost advantage of Japanese car companies over American carmakers: |Cost of Producing One Car |United States |Japan | |1952 |$1,500 |$2,950 | |1959 |$1,900 |$2,100 | |1961 |$1,850 |$1,750 | |1964 |$1,900 |$1,400 | |1970 |$2,215 |$1,210 |
Toyota Production System (TPS)
1) As stated before, Toyota’s success in entering the U.S. market was largely a result of its...