Presentation is loading. Please wait.

Presentation is loading. Please wait.


Similar presentations



2 The Toyota Recall Crisis Toyota Recall Crisis Timeline August 28, 2009: Crash of a Lexus in San Diego that killed four people. Cause identified as pedal stuck under the floor mat Nov. 25 th, 2009: Recall of 4 million vehicles by Toyota, for unintended acceleration problemsunintended acceleration problems Jan. 26, 2010: Toyota temporarily suspends production of several of its vehicles in the north America May 2010: Toyota pays $16.4 million fine to US regulators for being too slow to recall vehicles with defective gas pedals February 2011, NASA released its highly anticipated report about the Sudden Unintended Acceleration charge in Toyota vehicles, finding no evidence that a malfunction in electronics caused large unintended acceleration ( The question remains How did a company thats known for superior quality, efficiency, and customer responsiveness, find itself in such a mess? To what extent the fate of Toyota reflect the challenges facing Japanese manufacturing industry today?

3 US Market Share of the Top 5 Auto Producers and Crisis Timeline Source: Andrews, Simon, Tian and Zhao (2011)

4 Toyotas Global Expansion Toyota successfully entered the US market in the late 1960s, taking market share from its American rivals largely due to the fuel efficiency of its vehicles By 1984, exports accounted for 52.5% of Toyotas sales, up from mere 19% in In 1983, Toyota entered into a 50/50 joint venture with GM under the name New United Motor Manufacturing Inc (NUMMI), a 250,000 capacity facility in Fremont, CA; By 2008, it had 10 assembly plants in the US producing 1.3 million vehicles per year (more than 50% of all Toyota vehicles sold in the US were locally produced) In 1989 Toyota moved to set up production in Europe; By 2008 it has four plants in Europe, with total production capacity of 800,000 vehicles a year Toyota expanded to the rest of Asia, adding three assembly plants in China by 2008 with capacity over 440,000 vehicles a year, and 10 other plants in Southeast Asia with annual capacity of over 1 million vehicles There are also significant assembly plants in South Africa, Australia and South America However, compared to its Japanese rivals, Toyota still has the highest percentage of production at home (38% versus 25% at Honda and Nissan)

5 Toyotas Lean Production System Toyota changed the mass production method pioneered by Ford, and introduced the lean production system which features short production runs, low inventory levels, and high product variety Ohno Taiichi, the creator of the TPS, successfully reduced the time required to change dies on stamping equipment from a full day to 15 minutes by 1962, and to as little as 3 minutes by By comparison, even in the early 1980s, many American and European plants required between 2 and 6 hours to change dies The significantly reduced setup time made small production runs economical, and also had the added benefit of reducing inventories and improving product quality Small production runs made it possible to increase product variety while still keeping the cost low The role of Just-in-Time supply network in TPS

6 Toyotas Product Portfolio

7 Toyotas Unique Supplier System Assembly of components into final vehicle accounts for only 15% of the total manufacturing process in automobile manufacturing. The remaining 85% involves manufacturing more than 10,000 individual parts and assembling them into about 100 major components, such as engines and suspension systems Historical approach used by GM and Ford was to coordinate this process by vertical integration – even in the mid 1990s, GM made 68% of its own components in house, while Ford made 50%. Toyota only produced about 25% of its major components in house, the rest were contracted to independent suppliers; It is of vital importance to make sure these suppliers are integrated parts of Toyotas manufacturing system Toyota has Tier one suppliers, and thousands of Tier 2 and Tier 3 parts suppliers. Toyota establishes long term relationships with its suppliers via cross- ownership, sending engineers to work with suppliers, and other strategies

8 Globalizing the Supplier System: The Challenges and Responses To facilitate the JIT system and integrate deeper into the local economy, Toyota has been moving its supplier network from Japan to the hosting countries By mid-2000s, the local content of cars produced in North America was more than 70% But maintaining the quality and efficiency levels for the foreign suppliers have been challenging In 1990, Toyota reports that the defect ratio for parts produced by 75 North American and European suppliers was 100 times higher than their 147 counterparts in Japan (1000 defects per million parts versus 10 defects per million parts) Toyota also reports that parts manufactured by North American and European suppliers tended to be significantly more expensive than comparable parts manufactured in Japan To improve the efficiency of its American based suppliers, Toyota established an aggressive supplier education process by creating the Toyota Supplier Support Center in 1992

9 Toyotas Recent Moves to Reduce Costs CCC21 (Construction of Cost Competitiveness for the 21 st Century) Launched in 2000, targeted 170 key parts/components for 30% price cut cross board Saved Toyota nearly $10 billion over the next 5 years Value Innovation Launched in 2005, lower cost by another 30%, and save more than $2.5 B annually Benchmark parts prices with Chinese suppliers Buying more from non keiretsu suppliers Cut number of components by half Cutting number of steel parts from 610 to 500 to deal with soaring steel price

10 The Growing Pain Average 26 abrupt acceleration reported annually in Camry and Lexus ES modelabrupt acceleration In models, this number soared to 132, almost 400% higher. Oct. 2007, Toyota lost the automatic recommendation from Consumer Reports Apr. 2008, Consumer Reports dropped 3 Toyota models from its 2008 recommendation list 2009, 2010, Toyota and Lexus slid in 2 consecutive years in J.D.Powers vehicle dependability report J.D.Powers vehicle dependability report Jan. 2010, Consumer Reports withdraw 8 Toyota models from its recommendation list due to the massive recall June 2010, Toyota dropped to 21st in J.D.Powers IQS reportJ.D.Powers IQS

11 99-09 NHTSA Unintended Acceleration Complaint Rate Per 100,000 Vehicles

12 Recent Expansion of Toyota: Spread Out Too Thin?

13 The Context of Toyotas Aggressive Expansion in the Global Market (I) The super endaka post Plaza Accordsuper endaka The strong yen forced Japanese firms to further cut costs, lower prices, and reinvent themselves through transplants or other innovations The Japanese firms benefited from the massive drop in the prices of their raw materials imports, which offset the negative impact on its exports As the trade surplus actually soared to more than $90 billion annually after 1985, the Japanese invested in their stock market, foreign equities, real estate, and foreign debt As the Bank of Japan lowered interest rates to 2.5% by 2/87, real investment skyrocketed from 27% to 32% of GDP by 1991 – an unprecedented level for a developed country Land prices in Tokyo and Osaka more than tripled, and the Nikkei stock market average rose from 11,000 to 39,000 points in a few years Land prices in Tokyo and Osaka more than tripled Japanese banks and investment funds bought US Treasury bills, and Japanese businesses bought nearly $140 billion of U.S. equities and real estate such as Columbia Pictures, Pebble Beach Golf, and New Yorks Rockefeller Center Japanese manufacturers built plants in the US, Europe, and southeast Asia to gain market access and avoid protectionism, to gain access to technology, or to lower labor costs – Toyota was one of them

14 Selected Exchange Rates to the US Dollar Over Time

15 The Context of Toyotas Aggressive Expansion in the Global Market (II) Eventually, endaka caught up with Japan. Under the pressure of asset speculation and a threat of inflation in 1989, interest rates were increased to cool off the economy. Rates rose further in 1990, and by 1991, Japan was in recession --The lost decade began. Challenges facing Japan and Japanese companies Problems with economic structure Has the surge in outward Japanese FDI over the 1990s created the hollowing out effect on Japanese economy?outward Japanese FDI over the 1990s BY 1993, the stock of outward Japanese FDI stood at $422 billion, almost 15 times the stock of FDI in Japan of $29 billion How has the relocation of Japanese production abroad led to changes in Japans trade structure?relocation of Japanese production abroad Institutional concerns Labor markets Capital markets: The role of kereitzu and cross-holding of shares within corporate families resulted in lack of transparency and flexibility

16 FDI Inflow and Outflow FDI Inflow and Outflow in Japan Source: IMF Working Paper, Bayoumi & Lipworth (1997)

17 Japans FDI Outflow and Trade Structure FDI outflows from Japan imply a movement of production capacity away from Japan to other countries, a structural change that is often linked to recent changes in the pattern of Japanese trade In the 1980s, Japanese FDI investments were mostly in the North America; Since the 1990s, investment in Asia has grown most rapidly The share of FDI outflows in manufacturing has also increased significantly during the 1980s; Even though the share of manufacturing sectors declined somewhat in the early 1990s, it became more dominant in recent years Since mid 1990s, Japanese FDI in North America has come to be dominated again by the manufacturing sector (electrical machinery, transport equipment and chemical industries), while in Europe it is still concentrated in the service sector (particularly, in finance & insurance and trade). In Asia, on the other hand, the service sector domination of Japans FDI during the late eighties bubble period, has since dropped steadily and by 2001, Japans FDI in Asia was dominated by manufacturing sector to the extent of some 65%. Of this, the electrical machinery industry continues to be the single largest recipient industry in Asia, followed by chemical and transport equipment and metal industries.

18 Japans Restructuring Efforts to Increase Corporate Competitiveness In mid 1990s, a comprehensive reform program dubbed the Big Bang was introduced, encompassing reforms in banking, capital markets, insurance, and accounting standards. In April 1996, the Japan Investment Council's statement on M&A espoused a new willingness on the part of Japanese corporate sector to embrace M&As as part of the market-oriented approach to corporate restructuring The key FDI targets include finance, insurance, the telecommunications industries, and automobile and machinery Previously, Japanese corporate law was full of restrictions that prevented companies from changing their corporate structure. Restructuring moves such as spin-offs of underperforming units were not allowed. Such bans were lifted in late 1990s, giving corporations more freedom in restructuring their organizations As a result of both the push of global FDI increase and the pull of domestic policy changes, FDI inflows in Japan experienced a surge in the late 1990s. The cumulative total from 1998 to 2002 together amounted to $97.0 billion – almost twice the $49.8 billion registered during the period 1970 to 1997FDI inflows However, even at this level, Japans FDI inflow accounts only 1.5-2% of global FDI inflows; In contrast, US accounted for 26% of global FDI inflows in 1999

19 Contribution of Cross-Border M&As to FDI Inflow to Japan Cross-border M&A sales by Japan* Growth rate in cross-border M&A sales by Japan 218%79%30%309%-5.4%-2.3% FDI Inflows* Cross-border M&A sales as % of FDI inflows 13.8%24.3%55%39.3%78%54%85% * In Millions of US Dollars (notification basis) Source: Japanese Ministry of Finance

20 The Impact of the Restructuring on Japans Auto Industry Since the revision of the cross-border M&A regulation, two major Japanese automakers have been targets of foreign acquisition Renault acquired controlling stakes in Nissan, and DaimlerChrysler did the same for Mitsubishi As a result of the Nissan and Mitsubishi Motors deals, only two of Japans twelve car makers, Toyota and Honda, remain independent, while eight now have foreign partners. Toyota holds stakes in the remaining two, Daihatsu and Hino While Renaults acquisition of Nissan proved to be successful, the Mitsubishi deal turned out to be a failure. In 2004, DaimlerChrysler decided to abandon its Japanese partner after Mitsubishis finances spiraled out of control How competitive are Japanese manufacturing industries today? What are Japans top exported goods currently?

21 The Global Auto Market: Post-Toyota Crisis The Toyota crisis will also have significant implications for the global auto industry as a whole, at both operational and strategic levels In early 2010, GM announced that all its new vehicles will have brake override system installed, as a precaution to prevent possible problems Toyota vehicles had experienced Both GM and Chrysler also introduced sales incentives for Toyota owners to trade their cars with GM and Chrysler brands, which to some extent led to sales increase for both manufacturers European automakers will continue to build market share worldwide by emphasizing on the quality and safety features of their products In the meantime, the emerging automakers from China and India are making inroads to the global auto market through aggressive acquisitions of leading brands such as Jaguar, Land Rover and Volvo Cars, signaling intensified competition from previously insignificant players from these regions The million dollar question: Will Toyota continue its rise to the No. 1 automaker in the world, despite the setbacks caused by the massive recall? The 3/11 earthquake and Tsunami have led to setback in Toyotas production in Japan. Its predicted that Toyota will fall behind GM and even Volkswagen in global vehicle sales this year Quarterly report released on May 11 th 2011 shows sharp decline of profit and uncertainty of earnings future Quarterly report


Similar presentations

Ads by Google