Toyota, which surpassed General Motors as the world’s largest car maker this year, has a fairly good reputation in Japan and all over the world. Toyota stands for efficiency, quality, profitability and with the hybrid car Prius being a smash hit in America, Toyota has also a reputation as a green car maker.
But in these harsh economic times, not even Japan’s number one that has become accustomed to success for several decades can continue business as usual. Actually this should not be to anyone’s surprise. Car sales plunged in the U.S. and around the world. Logically, this also affects the market leader. For the first time in about 70 years, Toyota will have to report an annual operating loss. Toyota projects a $1.66 billion operating loss for the financial year ending in March 2009. It looks like Toyota sold 1.4 million cars less than expected a year ago.
On the one hand, Toyota’s Prius and Camry are still fairly popular. However, a drop in the availability of consumer credit also hits potential buyers of these cars and the company which managed to build up a green image in recent years. But Toyota was also making lots of money with gas-guzzling SUVs like the Toyota Sequoia and the Highlander. Since this year’s oil price spike and sky-high gasoline prices earlier this year, drivers have become more conscious about fuel economy.
In addition, the surge of the Japanese yen against the dollar as well as the euro made Toyota’s cars more expensive outside of Japan and eroded profits generated there. Japan is an export-oriented economy, Toyota is also heavily reliant on exports, especially to the U.S.
Now that the crisis has come to Toyota, the prefecture of Aichi around the city of Nagoya is hit painfully. Though Toyota’s full time employees’ jobs are safe, temporary workers are going to be laid off. Suppliers are already feeling the impact, but he worst is probably still to come for car makers. The entire region is seeing its tax revenue vanishing. At the same time, unemployment is going up and welfare expenditures are rising.
Katsuaki Watanabe, Toyota’s president, said that this were a crisis that “comes once in a hundred years”. He didn’t even give a forecast for the next year. The planned expansion of the production capacity is put on hold. Nevertheless, investments are still being made.
Japanese companies tend to be focused on their long-term goals. Therefore, Toyota is concentrating on research and development as well as on restructuring. The company should still be profitable if its sales fell to 7 million cars a year from now 8.96 million. The workforce is to be trained while new ideas will be tested. In Watanabe’s opinion, the car of the future will be small, affordable, friendly to the environment and efficient. Hybrid technology will play a central role in the reorientation process, but electric cars will also be important. A car running purely on electricity is to be presented at the North American International Auto Show next year. (http://www.freep.com/article/20081223/BUSINESS01/81223038) It was already announced that the electric car will be smaller than the Prius, which combines an electric motor with a gas engine. Toyota knows that in order to maintain the technology leadership, the car of tomorrow needs to be developed today.
I wish you a merry Christmas!!