Friday, May 8, 2009

As the economic meltdown rings the ‘panic bell’ for Toyota Motor Corporation, the company is struggling with an unwieldy - inventory build up.

4Ps B&M’s Karan Mehrishi analyses...

It’s not often when business stories victimise Toyota for bad business acumen. The Japanese is perhaps one of the very few automotive behemoths which does every thing right or at least until now. So when the news about Toyota sales decline came in, we were surprised and skeptical for all the wise reasons. It has been more than 70 years since Toyota has reported a negative forecast about its performance. As per reports, Toyota expects its global sales to be close to 7 million units, a full 540,000 less than previously projected. The numbers which are 7% less than estimated figures will be a mind numbing 20% less than 2008’s 8.9 million in sales.

Global slowdown and poor consumer confidence have taken their toll on Japanese manufacturers as well, and Toyota along with Nissan and Honda are facing the heat. Toyota, which lost 35% sales in its largest market, US, in December 2008, seems to have bowed a bit to the market forces. Even in Japan, the home market sales failed to reach the 1.5 million mark, an event that occurred after 25- 30 years.

“Currently, the financial crisis is negatively impacting the real economy worldwide and automotive markets, especially in the developed countries, are contracting rapidly. This is an unprecedented situation and we are already taking measures,” said Mitsuo Kinoshita, Executive VP, Toyota Motor Corp. As a result, Toyota has already established an emergency committee to revive profits in the near future by working on production cost reduction and profit maximisation in order to improve operating margins. Even though Toyota overtook GM as the largest automotive manufacturer in the world in terms of net sales, it is perhaps following the former’s path to the bottom.

Toyota’s Global Master Plan is being blamed for this adverse situation. According to this plan, Toyota was to achieve the position of market leader by way of product planning and aggressive expansion. Though the strategy was in line with Toyota’s successive product planning, which included the new Lexus IS series and the new Toyota Yaris-derived small cars. The plan has proved to be ill-timed considering the current situation. Despite the fact that higher volumes were required to meet the unprecedented demands for Toyota products globally, it was also true that some large markets were already stagnating. The supplementary utilisation of the excess capacity generated here could also not be used in fast emerging markets because of strict import laws already incorporated in those countries. Also, the appreciation of the Japanese Yen vis-à-vis the Dollar and Euro, played an important role in falling margins. Since Toyota still manufactures its key components at its Japanese mother plants, an expensive Yen was a spoilt sport. Additionally, the plan called for expansion and the company pushed forward with disrespect for future scenarios. As the global economy took a turn for the worse, just like GM and Ford did earlier, Toyota too was stuck with stock that nobody was interested in buying. Years of excess capacity resulted in unsold inventory, which continues to bog Toyota’s coffers.

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
IIPM set to beat economic slowdown
IIPM Admission Detail
IIPM - Admission Procedure
IIPM : EXECUTIVE EDUCATION
IIPM, GURGAON

No comments:

Post a Comment