MINI-CASE

TOYOTA’S EUROPEAN
OPERATING EXPOSURE
GROUP 5

NGUYEN MINH TRI

HUYNH MINH KHOA

NGUYEN LE THIEN THU

 I. SCENE
TOYOTA AND AUTO
II. MANUFACTURING
CONTENTS
III. CURRENCY EXPOSURE
IV. MANAGEMENT RESPONSE
V. QUESTIONS & SOLUTIONS
 I. SCENE

 Jan. 2002:
 TMEM had the continuing losses
of the European manufacturing
and sales operations.
 It was the ONLY major Toyota
subsidiary suffering losses.
Þ The CEO of Toyota Motor Company
expected the reduce as well as cut
off the losses in European market.
II. TOYOTA AND AUTO MANUFACTURING
1. Overview
Toyota Motor Company was the best industry in
automobile manufacturing in Japan.

The 3rd largest manufacturer in the world.

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(5.5 million units or one auto every 6 seconds)

Number 8 in sales in Continental Europe.

Recently years, it had been experiencing and continued consolidation as:

• Margins were squeezed.
• Economies of scale and scope pursued.
• Global sales slowed.
 II. TOYOTA AND AUTO MANUFACTURING
2. Situation
Toyota had continued to rationalize its manufacturing along regional lines:

IN 2000 IN 2001
 The volumes of Motor  Toyota's North American:
in Europe sold was o Over 60% of Toyota's
634000. North American sales
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 Expected the strongly were locally.
growth in Europe sales manufactured and
and plan to reach continued to increase
800,000 units in 2005. the amount.

 Had total 5 assemble  Toyota's European:

plants: o 76% of Autos (Cars) were
o 3 in UK. imported from Japan.
o 1 in Turkey. o 24% was sold and
o 1 in Portugal.. manufactured in Europe.

Because of fiscal 2001, the unit reported operating losses of ¥9.897 billion ($82.5 million at
¥120/$).
II. TOYOTA AND AUTO MANUFACTURING
3. Action:

 Had recently introduced a new model

“Yaris” to the European market.
Þ Had got the success, because of the
super-small vehicle with a 1000 cc
engine.
Þ The sales was more than 180,000 units
in 2000.
 III. CURRENCY EXPOSURE
 The depreciation of Euro’s value (against
both the Japanese yen and the British
v
pound) negatively get the loss for
TMEM.

EXHIBIT 2: Illustrates the slide of the euro against the

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Japanese yen.

EXHIBIT 1: The cost base for the autos sold in Continental

Europe market was the Japanese yen.

 The yen rose against the euro:

Þ Costs in euro terms became higher than
yen one.
 III. CURRENCY EXPOSURE

Questions: How to preserve its price

competitiveness in the European market?

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Þ Toyota had to absorb most of the exchange rate

changes and suffer reduced margins on both
completed cars and key subcomponents
shipped to its European manufacturing centers.
 But:
Deciding to manufacture the Yaris in Japan had
only exacerbated the situation.
 IV. MANAGEMENT RESPONSE

 In 2001, operations were initially assemble in

Valenciennes, France.
 Toyota planned to expand in European capacity
and capabilities about 25% of European sales
by 2004.
 In 2002, assembly of the Yaris was scheduled
to be relocated to Valenciennes.
Þ The continuing problem was many of the
expensive value-added components of the
autos being assembled were still based in
either Japan or the UK.
IV. MANAGEMENT RESPONSE

 TMEM wished to decrease the

number of key components
imported from Toyota Japan.
Þ Reduce the currency exposure of
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the U.K. unit.
Þ The continuing problem of the
British pound’s value against the
euro.
Þ Reduced even the effectiveness
of this solution.
V.
QUESTIONS
&
SOLUTIONS
 QUESTION 1
 Why do you think Toyota
had waited so long to move
much of its manufacturing
for European sales to
Europe?
 Why do you think Toyota had waited so long to move much of its manufacturing
QUESTION 1 for European sales to Europe?

Automobile manufacturing is a very complex

and capital intensive industry

1. About Auto manufacturing in Eupore Ideas:

(RISK)
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 Automobile manufacturing industry needed a lot of investment in materials, equipment, money for
operating. (intensive capital)
 New manufacturing facilities, employees in European countries made it costly on operating and selling
locally.
(POTENTIAL)
 Europe was the second largest foreign market for Toyota (eventhough only 24% of the cars sold in Europe
were manufactured there), second ONLY to North America which hold over 60% local sales in
manufacturing.
 Why do you think Toyota had waited so long to move much of its manufacturing
QUESTION 1 for European sales to Europe?

Automobile manufacturing is a very complex

and capital intensive industry

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2. About Toyota:
 The target on business: increasing the profits and getting a low operating costs.
 Toyota wanted to get the steady step on manufacturing into the local and regional markets.
 Toyota wanted to pursue economies of scale and scope.
 Toyota did not see it as a pressing issue to move manufacturing locally, as importing cars and
components did not seem so risky and expensive.
 QUESTION 2
 If the British pound were to
join the European Monetary
Union would the problem be
resolved?
 How likely do you think this
is?
  If the British pound were to join the European Monetary Union would the problem be resolved?
QUESTION 2  How likely do you think this is?
 If the British pound were to join the European
Monetary Union (EMU):
o Will eliminate the currency risk between the UK
and Europe, but not between Japan and Europe.
o Will eliminate only the pound versus euro
currency deviations but not the euro versus
yen deviations.
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Þ The change would not be of so much help to the

Toyota company predicament
 Britain will not join the EMU as the euro is not
the most stable currency due to the crisis.
 In many ways the UK believes itself to be
somewhat the beneficiary of being the single
Only 24% of the autos sold in European market were large “European” country which is not euro-
manufactured in Europe (including the United Kingdom). based.
The remainder were imported from Japan
But:
 Only Portugal uses the Euro as official currency.
 QUESTION 3
 If you were Mr. Shuhei, how
would you categorize your
problems and solutions?
 What was a short-term
problem?
 What was a long-term problem?
  If you were Mr. Shuhei, how would you categorize your problems and solutions?
QUESTION 3  What was a short-term problem?
 What was a long-term problem?

 Short-term problem: the current exchange-rate issues:

o The continuous falling of the euro against the yen and the pound.
 Long-term problem: manufacturing strategy:
o The North American sales were supported by over 60% local manufacturing
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and continued to increase the amount.

o But in Europe were not.
Þ This is where the costs and losses came from.

Þ Solution:
o Should continue absorbing the yen costs until the market stabilizes.
o Should move manufacturing for the European market to European countries which are part of the EMU.
o Should move away from the facilities in Britain.
 QUESTION 4
 What measures would you
recommend Toyota Europe
take to resolve the continuing
operating losses?
  What measures would you recommend Toyota Europe
QUESTION 4 take to resolve the continuing operating losses?

 The Short-term solution:

 The primary short-term solution was to continue
to absorb yen-based cost increases in lower
margins on European sales (assuming that the
market would not bear passing-through the
exchange rate changes).
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 Why we should continue to absorb yen-based

cost:
o For the short-term solution, we want to point out
that
o We can see that EUR currency had slightly regain
its value against the Japanese Yen from the
 The medium-to-long-term solution: bottom in 11/6/2000.
 Manufacturing of cars targeted for Europe should Þ Although operating losses still occurred due to
be moved to Europe. the market share prioritization strategy, these
 Toyota should consider moving its manufacturing losses eventually decreased as expected Japanese
facilities to countries within the European Yen per Euro spot rate increased.
Monetary Union (not the UK).
THANK YOU
FOR WATCHING

GROUP 5

NGUYEN MINH TRI

HUYNH MINH KHOA

NGUYEN LE THIEN THU