SUMMARY OF MINI-CASE:

TOYOTA’S EUROPEAN OPERATING EXPOSURE

I. Scene:
- Jan. 2002, the problem happend in Toyota Motor Europe Manufacturing (TMEM):
+ The new President of TMEM, Mr. Toyoda Shuhei go outside to explain the
continuing losses of the European manufacturing and sales operations.
+ The CEO of Toyota Motor Company ​(the parent company of TMEM) expected
the reduce as well as cut off the losses in European market.
+ TMEM was the ONLY major ​Toyota subsidiary​ suffering losses.

II. Toyota and Auto Manufacturing:

1. Overview:
- Toyota Motor Company was the best industry in automobile manufacturing in
Japan, - The 3th largest manufacturer in the world ​(5.5 million units or one auto every
6 seconds),
- But number 8 in sales in Continental Europe.
- Recently years: the global automobile manufacturing industry
+ Had been experiencing and continued consolidation as:
• Margins were squeezed.
• Economies of scale and scope pursued.
• Global sales slowed.

2. Situation:
Toyota had continued to rationalize its manufacturing along regional lines:
- ​In 2000​:
+ The volumes of Motor in Europe sold was 634000. (the second largest foreign
market for Toyota, second only North America)
+ TMEM expected the strongly growth in Europe sales and plan to reach 800,000
units in 2005.
+ TMEM had total 5 assemble plants:
• 3 in United Kingdom.
• 1 in Turkey.
• 1in Portugal.
=> In Nov. 2000, Toyota Motor Europe announced publicly that the loss for the
next two years due to the weakness of the euro.
- ​In 2001​:
+ Because of fiscal 2001, the unit reported operating losses of ¥9.897 billion ($82.5
million at ¥120/$).
+ Toyota's North American:
• Over 60% of Toyota's North American sales were locally manufactured and
countinued to increase the amount, so on.
+ Toyota's European:
• 76% of Autos (Cars) were imported from Japan.
• 24% was sold and manufactured in Europe.
(See Exhibit 1)

3. Action:
- Toyota had recently introduced a new model “Yaris” to the European market, and
get the succeed, because of the super-small size with a 1000 cc engine.
- The sales was more than 180,000 units in 2000.
- The decision had been made early on to manufacture it in Japan although it
specifically designed for the European market.

III. Currency Exposure

- The ​depreciation​ of Euro’s value negatively get the loss for TMEM.
- The Euro had fallen in value against both the Japanese yen and the British pound.
• EXHIBIT 1: the cost base for the autos sold in Continental Europe market was the
Japanese yen.
• EXHIBIT 2: illustrates the slide of the euro against the Japanese yen.
- The yen rose against the euro
=> Costs in euro terms became higher than Y=yen one.
- Questions: to preserve its price competitiveness in the European market?
=> ​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 continue to expand in European ​capacity and capabilities and to
source about 25% of European sales by 2004 (although accounting for a relatively
small percentage of total European sales as of January 2002).
- In 2002, ​Assembly of the Yaris was scheduled​ ​to be relocated to Valenciennes.
=>​ ​The continuing problem was it was an assembly facility.
=> Many of the expensive value-added components of the autos being assembled
were still based in either Japan or the United Kingdom.
- Mr. Shuhei, with the approval of Mr. Okuda, had also initiated a local sourcing and
procurement program for the United Kingdom manufacturing operations.
- TMEM wished to decrease the number of key components imported from Toyota
Japan to reduce the currency exposure of the U.K. unit.
=> The continuing problem of the British pound’s value against the euro, as shown in
Exhibit 3, reduced even the effectiveness of this solution.