Professional Documents
Culture Documents
The Toyota Recall Crisis: Causes, Contexts, and The Impact On The Global Auto Industry
The Toyota Recall Crisis: Causes, Contexts, and The Impact On The Global Auto Industry
The Toyota Recall Crisis: Causes, Contexts, and The Impact On The Global Auto Industry
DR. JUN ZHAO ASSOCIATE PROFESSOR OF MANAGEMENT COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION GOVERNORS STATE UNIVERSITY P R E S E N T E D A T T H E 3 0 TH I A S E T A N N U A L SPRING CONFERENCE
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 1967.
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)
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)
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 1971. 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
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 200-300 Tier one suppliers, and thousands of Tier 2 and Tier 3 parts suppliers. Toyota establishes long term relationships with its suppliers via crossownership, sending engineers to work with suppliers, and other strategies
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
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
2001 Camry and Lexus ES model In 2002-2004 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 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 report
Unit Auto Sales (2008) Total Revenue (2008) Net Income (2008) No. of Models No. of Overseas Plants No. of Foreign Countries with plants No. of countries with vehicle sales
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
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
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? 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? 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
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 1997
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
1995
1. Cross-border M&A sales by Japan* Growth rate in cross-border M&A sales by Japan 541
1996
1719
1997
3083
1998
4022
1999
16431
2000 2001
15541 15183
218%
79%
30%
309%
-5.4%
-2.3%
FDI Inflows*
Cross-border M&A sales as % of FDI inflows
3930
13.8%
7084
24.3%
5605
55%
10240
39.3%
21062
78%
28998
54%
17921
85%
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?
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 11th 2011 shows sharp decline of profit and uncertainty of earnings future