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Toyota's rough ride forcing strategic rethink

Akio Toyoda, CEO of Toyota Motor Corp., talks to the media during a meeting at the company's plant in Cambridge, Ont., on Friday.

Fernando Morales/Fernando Morales/The Globe and Mail

Toyota Motor Corp., battered in the past eight months by natural disasters and the shock of the soaring yen, is rethinking some of the strategies it employed to become one of the world's leading auto makers.

"There may be some changes taking place in terms of parts sourcing and where we are going to build cars, including the perspective of hedging against earthquake risks," Akio Toyoda, the company's chief executive officer told a small group of reporters Friday at Toyota's assembly plant in Cambridge, Ont.

Disruptions in parts supplies that choked off vehicle production first because of the March earthquake and tsunami in Japan and most recently the floods in Thailand have created months of turmoil for Japanese auto makers. But it's the rise in the value of the yen on world currency markets that is leading car companies and other Japanese manufacturers to consider shifting production to low-cost countries, creating fears of a "hollowing out" of the mighty Japan Inc. export powerhouse of the 1970s and 1980s.

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"At the current level, the strength of the yen has already exceeded the level that efforts made by single companies can [offset]on their own," Mr. Toyoda said. Had the rise of the yen been more gradual – it now sits at about 75 to the U.S. dollar – Toyota would have been able to take countermeasures to adjust, he said.

The high value of the currency forces auto makers to raise their prices in export markets and thus risk losing market share, or keep prices low in those markets, which means they receive lower profits because they absorb the costs of the currency in their home operations.

Mr. Toyoda's comments in North America follow a plea that Japanese auto makers and drivers made earlier this month for tax relief on car purchases, with the car companies seeking to boost domestic sales to compensate for the battering they're taking in export markets.

"The Japanese manufacturing industry will go beyond just hollowing out and collapse," unless its home market is stimulated, he said at the time.

Toyota rose to the top in the world's auto industry by building a reputation for unsurpassed quality and creating a vaunted vehicle assembly process called the Toyota Production System that reduced waste, inventory costs and duplication of resources and effort.

Although its reputation for quality was tarnished by a recall crisis last year, it has learned from its mistakes and the entire operation is now focusing even more intently on quality, Mr. Toyoda said.

The Toyota Production System, with its emphasis on lean manufacturing, will also remain in place, he noted, but the auto maker will "revisit and revise" its supply chain to avoid a repetition of one the problems made evident by the earthquake, which is relying on a single supplier for a critical component.

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The scion of the family that founded Toyota in the 1930s is visiting Canada to mark the 25th anniversary of Toyota Motor Manufacturing Canada Inc., which began as an assembly plant making 50,000 Corolla compacts a year, but now consists of Ontario factories in Cambridge and Woodstock capable of cranking out more than 450,000 vehicles annually. The Cambridge plant is the only Toyota factory outside Japan that manufactures vehicles for the company's luxury Lexus division.

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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