Fact of the month - Jean-Jacques Chanaron

TOYOTA to the Skies

The tremendous economic and financial results achieved last year by Toyota, the industry leader, clearly pinpoint that it has an exceptional capability to cope with difficulties. It revealed its first increase in net income for five years and some substantial increase in market share in Japan. Toyota will have a net profit of FFR6,3bn for the period March 1994-March 1995 against a loss of FFR5bn for Nissan, its chief competitor.

Which are the competitive advantages of Toyota in a context of growing competition ? Acccording to specialists, it has a very strong range of cars, diversified and modern, a top quality and attractive prices.

Which are the key success factors of Toyota ? It has been the fastest to adapt its product range to the changing Japaneses market through a restyling of its old models and the launching of a few entirely new models, with an overall decrease in market prices.

Toyota considered the crisis as long-standing and structural toward cheaper and more attractive vehicles. There was only one way to achieve such a challenge: decrease the design and production costs.

Toyota carried out a huge cost reduction programme based on an increase in component standardisation - a decrease of component number by 30 % has been achieved in 1994 - and a decrease in the number of model variety by 25%. In 1994, Toyota managed to save up to $1,5bn milliard de dollars ! Thanks to the support of its workforce, its suppliers and its distributors.

Which are Toyota's remaining problems ? Industry analysts consider that like its main competitors, Toyota is suffering from a deep overcapacity in Japan with 4,4 millions of cars and small trucks when only 3,4 millions were produced in 1994. The cost is enormous with a negative impact on physical productivity. It would be deeply increased if the capacity of Toyota's affiliated assemblers would be taken into account ! Profit margins per unit fell from 6.7 % in 1990 to 0.9 % in 1994. The cost reduction programme will allow to restaure profit margins to around 3 % by 1996. Toyota could also bring in-house some production achieved so far by its affiliates such as Hino, Daihatsu, Toyoda Loom, etc. -. But it would be damaging an old and efficient partnership. It could also reduce its workforce or close some plants. But its philosophy seems firmly opposed to lay off and temporary unemplyement.

Toyota has clearly demonstrated its ability to cope with structural difficulties, i.e. to set p the appropriate financial, organisational, technological and human weapons to solve crisis situations. It remains questionnable how far the current collapse of the dollar (under 90 yens) will deepen the problem and delay a come back to euphoria.