Case 2b Toyota’s European Operating Exposure.Pdf
Toyota’s European Operating 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 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 these losses. The situation was intense given that TMEM was the only major Toyota subsidiary to be losing money. 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, like many industries, had been experiencing 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 and to increase the amount of local manufacturing in North Amirica. In 2001, over 60% of Toyota’s North Amirican sales were locally manufactured. But 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 U.K.), the remainder being imported from Japan (see Exhibit 1). Toyota Motor Europe sold 634,000 automobils in 2000. Europe 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. But for fiscal 2001, the unit reported operating losses of ¥9.897 billion ($82.5 million at
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 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 these losses. The situation was intense given that TMEM was the only major Toyota subsidiary to be losing money. 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, like many industries, had been experiencing 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 and to increase the amount of local manufacturing in North Amirica. In 2001, over 60% of Toyota’s North Amirican sales were locally manufactured. But 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 U.K.), the remainder being imported from Japan (see Exhibit 1). Toyota Motor Europe sold 634,000 automobils in 2000. Europe 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. But for fiscal 2001, the unit reported operating losses of ¥9.897 billion ($82.5 million at