Economic Policy of the Toyota - Essay Example

?Bader Almarri May 2, Toyota Economy Economy During the Crisis - A Case Study of Toyota Introduction Current economic trends reveal that slowly and successfully few nations have reported positive figures giving an indication that the recession has finally ended. The recent financial crisis has left dreadful memories on the minds of some well-known industrialists and businesses. The crisis led to bankruptcy of corporate companies whose management capabilities would not be questioned by many, but these companies were the first to go bankrupt, thus marking the official beginning of financial crisis, as the experts say the crisis had already started in 2007. Most of the banking institutions have closed or merged their operations with the existing other institution in order to facilitate uninterrupted service to their customers. The financial institutions were not the only ones affected by the crisis, as other manufacturing and service sector companies like General Motors, Satyam Computers and so on were also affected. The recession has done bad things, but also good things to bring out some of the malpractices to the light of the stakeholders and government taking place within the organization of the company that resulted in bankruptcy. Additionally, there are companies that faced the past and present crises and are still going strong. This paper intends to study the impact of the crisis on Toyota’s economy, while assessing its strategies for future development. Growth of Toyota Motor Corporation Toyota Motor was the second step taken by its founder Sakichi Toyoda, when he first started the Toyoda Automatic Loom Company, which was supported by the Japanese Government due to its military application. In December 1945, Toyoda was permitted to start up a peacetime production by the U.S. military and by 1947 made the SA Model, called ‘Toyopet’. after setting up headquarters in Hollywood, the first Toyota car was registered in the United States, which was later withdrawn from the market, due to lack of performance. Then, in 1964, the first American made Toyota car, the Tiara-also known as the Toyota Corona- was a huge hit among the population with 6,400 sales in 1965, which climbed to 71,000 by 1968. Toyota was selling over 300,000 vehicles per year. Apart form manufacturing, Toyota was involved in many mergers and acquisitions which included the acquisition of Hino, Daihatsu and Denso, which were once Toyota’s electrical component that broke up after WWII (Toyota History, 2009). Presently, the current investment of Toyota Motors stands at 1.9 bn, with 6,850 employees. As per the 2007 FY Report, consolidated net sales valued at 1,651.2 bn yens, current income at -0.5 bn yens and net income -1.0 bn yens (Economic Report). However, the financial crisis has a definite impact on the development of Toyota in certain parts of the world. Effects of Financial Crisis Toyota suffered its worst slowdown since its inception in the year 1937, reduced the production, and cut back on investments to combat falling sales and increasing yen. It is reported that Toyota Motors will be incurring a loss of around 1.2 billion euros (rfi.fr). The recent financial crisis had a drastic effect on the business of Toyota Motor Corporation. According to the Economic Report in FY 2008, despite the increase of net sales, the company incurred huge operating losses, which resulted in the value of assets and shareholder equity. Mreg Marco (2008) reports that Toyota experienced a downslide of 32% in U. S. sales alone. Moreover, experts warned more doom and gloom in the coming years despite frantic measures being taken by the government to stem the tide of bad data (AFP, 2009). These financial losses and net decrease in sales has resulted in DBRS downgrading the long-term ratings of Toyota and its subsidiaries from AAA to AA. DBRS also reported that recent fiscal reports were far below the expectations with total revenues dropping to 20.5 trillion yen, a decline of 22% and an operation loss of 461 billion yen, despite cost cutting efforts. Global financial crisis affected its international market with Europe reporting a 17% sales drop year after year and 25% in North America, which is Toyota‘s core market. Stronger yen has also helped in degrading the performance of Toyota, which appreciated considerably to the U.S. dollar and the Euro that negatively affected the operation performance which amounts to approximately 760 billion yen (Toyota Motor Corporation, 2009). More recently, Toyota Motor Corporation reported losses of $7.7 billion in the January-March quarter and also warned that its net loss would further deepen in through the year to $5.5 billion, up from $4.4 billion in the past year. Toyota’s quarterly loss eclipsed General Motors’ $6 billion. Sales for the year dropped 21.9% to 20.529 trillion yen, with Toyota’s vehicle sales for the year ending March 31 fell 15.1% to 7.57 million vehicles, down from 8.91 million vehicles the previous year (Associated Press, 2009). Future Strategies I never imagined that Toyota would face a similar fate as many other companies, because it has been over half a century of slow progress with each decade showing an incremental increase in the market share, and is reported that one in every six cars bought in the United States is a Toyota. This makes it believable that the hard work that the company has put in to reach the top position and be called a leader in the market and giving tough competition to its rivals in domestic and international markets. Despite a great history and solid foundation, Toyota has been the victim of the present financial crisis. In order to defeat the crisis, Toyota Motors has taken certain measures, which are deemed to lift their economic indicator graph. The organization has adopted a ‘wait and see’ philosophy in order to determine the type of manufacturing facilities are needed and which products are in demand which is considered to be a wise strategy, instead of stocking products and reducing the prices to create demand. As the organization does not believe in offering inferior quality products, instead recognized the unique needs in an emerging market such as the use of alternative fuels to meet environmental requirements. Apart from this core strategy of Toyota is quality and with the recession happening, consumers may want cheaper cars of the best quality. Based on this phenomenon, Toyota aims to develop its technologies and processes in order to manufacture vehicles for all markets at a lower cost as part of its grand plan to produce cars better, faster and cheaper than their rivals do. The organization has launched a value innovation cost reduction program to reduce the cost through revolutionary design and development, through the integration of components. Not surprisingly, Toyota recognized the importance of human resources as an essential for the quality and growth of an organization which also includes growth to shareholder value (Emerald Insight, 2008). Conclusion It is evident that the recent financial crisis has not left any areas of business or operation, and is not limited to any one nation. Many companies have gone down eventually slashing the nation’s GDP and employment opportunities of millions of people. Through the study of Toyota Motors, it is understood that no foundation is solid unless its strategy of action are modified and developed according to the market structure. Toyota, in spite of a strong foundation has faced the same fate as other auto manufacturers incurring huge losses and whose drastic fall in economic conditions is surprising to many economists. However, the future strategies adopted by Toyota Motors, which relies on manufacturing environmentally friendly and inexpensive cars with the best quality during the period of recession, may boost the sales resulting in a rise of net profits. Toyota has a strong name and a strong presence in the market. Since its inception in 1937, Toyota has strived to maintain high quality vehicles at a minimum of expense to its customers. Although the recession is difficult on every business in the world, Toyota’s expertise, experience and drive to be the best and creating the best will push them through. Works cited “Toyota Forecast Deepens Gloom over Global Economy.” google.com google.com, 2008. Web. 03 May, 2011. “Toyota Sees Losses Deepening this Year.” msnbc.msn.com msnbc.com, 08 May, 2009. Web. 03 May, 2011. “Toyota Motor Corporation.” dbrs.com dbrs.com, 12 May, 2009. Web. 03 May, 2011. Emerald Insight. “The Toyota Blueprint for Improvement and Growth.” Journal of Strategic Direction. Vol 24, No. 4 (2008): 5-9. Print. Marco, Meg. “Toyota: Bad Economy, Bad Car Sales, Cheap Financing.” n.p. (2008). Web. 03 May, 2011. RFI. “Toyota Announces First Loss in Decades.” RFI. RFI Mag., 22 December, 2008. Web. 03 May, 2011. “Toyota History: Corporate and Automotive.” toyoland.com toyoland.com, 2009. Web. 03 May, 2011. “Economic Report.” toyota-body.co.jp toyota-body.co.jp, 2009. Web. 03 May, 2011. Read More