TOYOTAAUSTRALIAINPERILOnWednesday,December11,2013,GeneralMotorsHolden(Holden)announceditsplantoexitcar...

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TOYOTA


AUSTRALIA


IN


PERIL

































On


Wednesday,


Decem


ber


11,


2013,


General


Motors


Holden





(Holden)


announced


its


plan


to


exit


car manufacturing


in


Australia


by the


end


of


2017.





2




















Immediately


after


the


exit


announcement


by Holden,


Toy


ota


expressed


its


fear





t


hat


it


was


in


peril:


















This


will place


unprecedented


pressure


on


the

l


ocal


supplier


network


and our


ability


to


build


cars


in Australia.





We


will now work


with


our suppliers,


key stakeholders


and the government


to


determine our next


steps


and whether


we can continue


operating


as


the sole


vehicle





manufacturer


in


Australia. We


will


continue


with


our





transformation


journey


as


planned.





3




















Other


stakeholders


in


the


autom


otive


industry


also


expressed


similar


fears.


Apprehensive


of


Toyota’s ability


to


continue





manufacturing, the


Australian


Manufacturing Workers


Union


(AMWU)


national vehicles


division


secretary, Dave





S


mith,


said,


“Its


now


highly


likely


that


Toyota


will


leave


Australia. In fact


its


al


m


ost


certain.”



4




















Why


did


Toyota


fear


that


Holden’s


exit


would


put


unprecedented


pressure


on


the


local


suppliers?


How was


Holden’s


exit


related


to


Toy


ota’s


ability


to


build cars?


Why





were


observers


contemplating


an


exit


by Toy


ota,


the


best-selling


and





m


ost


trusted


brand


in


Australia,





especially


when


it


had


been


planning


to

continue





its





transfor


mati


on

journ


e


y?





What





had





gone


wrong


with


the


co


m


pany


that


had


such


a


glorious

long





histo


ry





of





product


i


on?





Shou


ld





T


o


y


ota


stop


manufacturing


in


A



ustralia?






























TOYOTA





AUSTRALIA:


A


GLORIOUS


LONG





HISTORY


OF


PRODUCTION








5




















Toy


ota


Australia


(Toyota;


see


Exhibit


1),


a


subsidiary


of


Toyota


Motor


Corporation


Japan,


was


founded in


1958


in


Port


Melbourne, Victoria,


Australia.


It


started


assembling


vehicles


in


Australia


in


1963


in


the Melbourne


factory


of


Australian


Motor


Industries.


The


first Toy


ota





model


assembled


in


Australia


was


the Tiara.


Between


1964


and


1968,


Toy


ota


began


assembling


three


more





models


—the


Corona,


the


Crown and


the


Corolla.


At


its


new Altona


plant


in


Melbourn


e,





it





started





producing





eng


i


nes





in





1978,





and


ca
r


body panel
s





in





1981.





In





1986,





for





the





first





ti


m


e,





To


y


ota


started


exporting.


In


1987,


Toyota


began


the


local











































manufacture


of


the


Camry,


which


replaced


the


Corona,


at


the


Melbourne plant.


In


1988,





Toyota’s


local operations


were


unified


to





f


orm


Toy


ota


Motor


Corporation


Australia.


















In


1994/9


5,


To


y


ota


sto


p


ped


manufacturing

in


its





Port


Melbourne


plant


and


shifted


all


its





operation


to


its Altona


plant





in


Melbourne.


The


Corolla


was


the


first





model to


be


built


there. As


a


strategic


shift,


in


1996, Toy


ota


expanded


its


reach


to


foreign





markets


by


exporting


the


Cam


ry


to


the


Middle


East,


where


it


became the


area’s


num


ber-one


selling


car.


From


the


Altona


plant,


To


y


ota


also


started


producing


the


Avalon





model in


2000.


Its





journey


with





innovative products


continued


in


the


subsequent perio


d.


In


2010,


it


released


the Camry





hybri


d,


the





first





hybrid


car


manufactured


in


Australia.


It


launched





the


New


Generation


Camry Model


in


2011.


















To


y


ota


emerged


as


the


market


leader


in


Australia


for


the


first


time


in


1991.





It


registered record


sales





of

m


ore


than


186,000


cars


in


2003


and


remained


the


overall





market


leader


for


the


subsequent 11





years


(see Exhibit


2


and


Exhibit


3).





T


he


co


m


pany


also


registered


a


huge


success


in


the


export


market,


and


emerged as


the


leader


in


this


segment.


It


exported


al


m


ost





two-thirds


of


its


production


(see


Exhibit


4)


from


the Altona


plant


to


13


countries


worldwide. In


2011,


To


y


ota


Australia,


the


countr


y’s


biggest


auto


m


otive exporter,


exported


nearly


60,000


units





w


orth


$1.004


billion





6








(including


parts


and





accessories).





7




















As


per


a


poll


conducted

by


Readers’


Digest


Australia


in


2013,





To


y


ota


was


the





m


ost


trusted


autom


otive brand


in Australia.





8








A balanced


business





model


and


innovative


quality


products


were


the


keys


to Toyotas past


success





and


had


helped


to


build


its


brand.




































BUSINESS


MODEL





















Toy


ota


Australia


followed


a


balanced


business





model


(see


Exhibit


5),


which





i


ncluded


a


three-pronged strategy

of

manufacturing

vehicles




d


omestically, exporting

some

of

its




d


omestically

manufactured vehicles


and


importing


some


co


mponents


from


cheaper


sources.


















In


the


domestic





manufacturing


process,


Toy


ota


followed


the


“just


in


tim


e



9








approach


to


production,


which allowed


the


entire


production


process


to


be


regulated


by the


natural


laws


of


supply


and


demand.


Customer demand


stimulated production of


a


vehicle,


which,


in


tur


n,


sti


mulated production and





delivery


of


the necessary


parts.


The


just


in


time


approach


resulted


in


the


right


parts


and


materials


manufactured


and provided in





t


he


exact


am


ount


and


place


where


they


were


needed.


Along


with





t


he


just


in


time


approach, Toy


ota

also

followed

“Kaizen,”



1


0




the

practice

represented

by

employ


ees

making

day-to-day

i


mprovements


in


their


working


practices


and


equipment.


“Jidoka,





1


1








automation


with


a


hu


man


touch, was another


process


adopted


by


Toy


ota.


Such


approaches


to


the


dom


estic


m
anufacturing


process


strengthened To


y


ota’s


brand


image


by


contributing





to


Australian


society


in


terms


of


value-addition and


employ


ment, and


good


quality


products,


and


supported


its


position


as


the





market


leader.


















However,


Australias domestic


market


for


cars


was


very





t


hin.


To


overcome


the


constraint


imposed





by domestic


demand,


Toyota


pursued


an


export-oriented strategy.


As


a


part


of


this


strateg


y,


it


started exporting





domestically


manufactured





vehicles


to


neighbouring New


Zealand


in


1986.


In


1996,


it


further expanded


its


export


reach


by


starting


to


export


to


Middle


East


countries,


and





in


the


subsequent period, began


exporting


to


the


South


Pacific


Islands,


Malaysia


and


Thailand.


To


y


ota’s


export-oriented strategy provided


a


larger


demand


base,


which


helped


Toyota,


to


some


extent,


to


overcome


the


constraints imposed


by


the


lower


domestic


demand.


Exports


constituted alm


ost


70


per


cent


of


Toyota’s


total production


(see


Exhibit


4).











































Similar


to other


car





manufacturers,


Toy


ota


Australia


operated


with


a


small


scale


of operation.


This


lack


of scale


at


the


car





manufacturing


stage


affected


even


local


auto


component





manufacturers,


by


keeping


their costs


higher.


Importing


cheaper


inputs


helped


To


y


ota


to


manage


the


costs


of


components. This


business

model


had


made


Toyota


the


m



ost


successful


car


brand


in


Australia.




































ADVERSE


EXTERNAL





ENVIRONMENT





















Toy


ota,


along


with


other


players


in


the





a


utom


otive


sector,


operated





in


a


growingly


adverse


environment.




































Competiti


ve


Fragmented





Market

Structure





















In


2013,


apart


from


Toy


ota,


Australia


had


two


car


manufacturers:


Ford


Motor


Co


m


pany





of


Australia (Ford)


and


General


Motors


Holden


(Holden).


Like


Toy


ota,


these


manufacturers were





foreign-owned subsidiaries of


global


companies


that


had


affiliates





in


many


countries.


But,


for


Toy


ota,


competition was not


limited


to


these


domestic





manufacturers.


















Australia’s


low-tariff


barriers


and


highly


open


trading


environment since





mid-1980s


provided


consumers with


easy


access


to





i


mported


cars.


Approximately 65


brands


and


365





models





co


m


prising


passenger vehicles,


sport


utility


vehicles


and


light


commercial

v


ehicles





co


m


peted


for


Australia’s


total


market


of approximately


1.1





million new


car


sales


per





year,





1


2








m


a


king


the


Australian


auto


m


otive


m
arket both


highly co


m


petitive


and


the





m


ost


frag


mented


in


the


world.




































Structural Changes and


Declining Demand





















Australia,


with


a


population


of


23.1


million,


representing


0.33


per


cent


of


total


world


population


in

201


3,





1


3








represented


a


small


market


for


cars.


In


the


same





year,


Australia’s


new


vehicles’


sales


accounted for


just


1.3


per


cent


of


the





t


otal


global





market.





14




















In


the


aftermath


of


the


global


financial


crisis,


demand


for


autom


obiles in


developed


countries


remained subdued


due


to


slow


recovery


and


shifted


to


emerging

markets


such


as


China,


India


and


Brazil.


Not


only were


there





structural


changes


in


the


geographical


distribution of


demand


but


also


changes


in


the co


mposition


of


demand,


in


favour


of


small


fuel-efficient


cars,





1


5




which


was


counter


to


the


types


of


cars manufactured





by Toyota.




































Small


Scale


of


Operations,


Underutilization


of


Capacity


and Higher


Cost


of


Manufacturing





















Australia


was


also


a


very


small


player


in


the


global





a


utom


otive production sphere.


It


produced


just





m


ore than


200,000


units


of


passenger


and


commercial vehicles,


which


accounted





for


approxim


ately 0.25


per cent


of


global


production.


Together,


the


three


Australian


auto


manufacturers


produced


well


below


the global


optimal


scale


of


operation,


which


was


estimated


to


be


200,000


to


300,000


units


of


vehicle


per

year.





1


6




Toy


ota,


the


largest


Australian


manufacturer,


with


an


annual


installed


capacity


of


150,000


unit


s





17




produced

j


ust





m


ore


than


100,000


vehicles


in


2012.





In


the


same


year,


Holden


produced

j


ust





m


ore


than 80,000


vehicle


units


and


Ford,


fewer


than


40,000


units.


The


small


scale


of


production


kept


the


average cost


of


production of


vehicles


in


Australia


at


a


higher


level


and





led


to


an


adverse





i


mpact


on


the


scale


at which


the


component





m


anufacturers operated


in


Australia


and


the


cost


at


which


they


could


supply


the co


mponents.





18













































In addition


to the


lack


of scale


econo


m


ies,


the


higher





labour


costs


and


other


costs,



1


9








such


as the


carbon


tax and


the


luxury


car


tax,


contributed


to


the


high


cost


of


manufacturing


cars


in


Australia.




































Government Policies and Declining Protection




















The Australian


government


had been


following


liberal


trade


policies


since


the





m


id-1980s.


As


a


part of


the opening-up


strategy,


quantitative


restrictions


were


phased


out


and


were


co


mpletely


eliminated


by


1988. At


the


same


time,


tariffs


were


brought down





to


5


per


cent





by


2010.


Though,


to


help





the


autom


otive industry


to


adjust


to


the


declining


tariff


levels,


the


governm


ent provided


direct


assistance


to


the manufacturers,


it


was


linked


to


investment





and


to


research


and


development


expenditure.





2


0







Gradually,

m


ore


and





m


ore


governm


ent assistance


was


redirected


from


the


assem


bly


of





cars,


the


least


com


petitive activity,


to


exports,


the





m


ost


co


m


petitive


activity


.





21






































Free Trade Agreements

and Unbalanced Trading

Environment





















To


improve





the


trade


and


capital


flows,


Australia


had


signed


various


free


trade


agreements


(
FTAs),


such as


the


Thailand–Australia


FTA,


the


Association


of





South


East


Asian


Nations-Australia-New


Zealand


FTA and


the


Australia-Gulf


Cooperation


Cou


ncil


(GCC)


FTA. Although


the


FTAs were


expected


to


result in


a win-win


situation


for


all


the


countries


involved,


the


FTAs


signed


by


Australia


with


countries


such


as Thailand,


Japan


and


South


Korea,


had


turned





o


ut


to


be


bad


news


for


the


Australian


car


industry.





2


2




The partner


countries had


either


retained


high


tariff


rates


on


imported cars


or


used


subtle





methods


to


keep


the imported


cars


out


of


their





d


omestic


markets.


For


example,


although


Thailand


did


not


impose


import


tariffs on


Australian


cars,


it


did





i


mpose


an


engine-size


duty


that


was


as


high


as


80





per


cent,


which


discouraged the


importation of


the


Australian


cars.


Japan


not





o


n


ly


imposed


a


10


per


cent


tariff


and


a


5


per


cent consumer


tax


on


imported


cars


but


also





i


mposed





several


technical


specifications, which


made


it


almost impossible


to


gain


regulatory


approval


for


foreign-made cars.


Similarly,


in


South


Korea,


Australian


cars faced


a


10


per


cent


tariff


and


a


clumsy


registration


process,


which


deterred


exporting.





23






































Adverse Currency


De


velopments





















Since 2001,

t


he


dramatic


strengthening


of


the


Australian


dollar against


the


U.S.


dollar (see


E
xhibit


6)


had significantly


reduced


the


profitability


of


Toy


ota


Australia’s


exports,


which


were


primarily





to


the


GCC countries


and


were


committed


in


U.S.





dollars.


















In

a

highly

open

globalized

econom


y,

these




various

high-cost

and

low-demand




factors,

vario


us government


policies


and


other


external


developments

affected


the


viability


of


Toy


ota


Australia


(e.g.,


the co


m


pany


reported


losses





of


$32.6


billion


in


2011/12





24


)


and


co


m


pelled


it


to


revisit


its


manufacturing and marketing


strategies.




































TOYOTA’S


EFFORTS


TO


COUNTER


ADVERSE


EXTERNAL


DEVELOPMENTS





















To


y


ota

Australia

practised

the

philosophy

of

steady

improvement in

productivity

and

continuous reduction


in


cost,


as


envisioned


in


the


To


yota


Production





S


ystem.



2


5







However,


the


realization


of


the gravity


of


the


problem,


in





the


event


of





sharp


adverse


developments


in


the


external


environment


in


the


late 2011,


necessitated


bold


steps


and


urgent


actions,


to





substantially





i


mprove


productivity


and





reduce


costs, in


an


effort


to


retain


Toy


otas


com


petitiveness


in


the


domestic


and


international


markets.














































Accordingl


y,


to


counteract


the


impact


of


adverse


external


developments,


for


the


period


2012


to


2018, To


yota


implemented


a


co


m


pany-wide transformation project,


referred


to


as


the


Toy


ota


Australia


Future Business


Transformation.



2


6








The


project


ai


med


to


improve


efficiency, to


reduce


the


cost


of





m


anufacturing cars


by $3,800


per


car,


to


improve


organizational


and





manufacturing


efficiencies


and


to


maxi


mize


sales


of the


domestically built


Camry


and


Aurion





models.


The


project


adopted


both


internal


and


external


cost- reduction


strategies. It


addressed its





internal


costs


in


early


2012,


by


reducing


its


workforce


by


350 employees


in


the


Altona


plant,


which


had


beco


me


redundant


in


the


downturn


in


the


aftermath


of


the Global


Financial


Crisis,





the


Japanese


earthquake


and


subsequent


tsunami,


and


the


floods


in


Thailand. External


costs


were


addressed


by


reviewing


the


sourcing


of


im


p


orted


components and


vehicles,


and


the local


supplier


capability


development


and


diversification.





















The project


introduced


a





radical


transfo


r


mation


to


the business


practices


of


Toyota


Australia.


As


stated


by the


com


pany’s chief


executive


officer


(CEO),


Max


Yasuda,


“Our


business


is


being


radically


changed


to counter


both


internal


and


external


pressures


impacting


us.


We


are


doing


ever


ything we


can


to


strengthen To


y


ota


Australia


and


ensure


our


long


term


future


in


this


country


as


an


importer


and





manufacturer.





27




















In


the


subsequent


period,


the


co


m


pany


also


tried


to


further


reduce


its


labour


costs


by


proposing


a reduction in


overtime payments on


work


done


on


Sunda


ys from


2.5


times


of


the


base


hourly


wage


to


just 2


times;


eliminating allowances such


as


the


$0.71


per


hour


respiratory


allowance


paid


to


paint


shop workers


and


the


“dirt


mone


y


allowance


for


perform


ing work


considered to


be


dirty


or


offensive; eliminating


the


eight-hour


day





for





maintenance


workers


and


including


Saturday


shifts


as


part


of


the normal


hours


of


work.



2


8








The


co


m


pany





CEO


Yasuda


tried


to


justify


the


proposed


measures


by


indicating that


the


co


m


pany


would


be


able


to


gain


approval


for


further


investment at


the





Altona


plant,


necessary


to maintain


production


of


the


Camry





model,


only


if


production


costs


were


slashed





by


$3,800


per


vehicle


by

201


8.





2


9








But,


under


the


strong


protest


from


the


AMWU,


which


blocked


the


vote


from


proceeding


by


taking the


issue


to


the


Australia’s


Federal


Court,



3


0








it


failed


to





garner


the


required


support





from


its workers.







































W


H


A


T

SHO


ULD

TOYOTA

D


O?





















Demand


and


cost


conditions


in


Australia


seemed


to


be


unfavourable


for


Toyota.


Given


these


adverse situations


and


manufacturing


losses,


should





To


y


ota





follow


the


route


adopted


by


Ford


and


Holden?


Many people


would


be


directly


or


indirectly


affected


by


Toyotas


decision.


Its


closure


would


result


in


job


losses not


only


for





its


employees


in


the





manufacturing unit


but


also


for


those


who


were


supported


by


Toyota vehicle


manufacturing through


supply





c


hain


linkages.


For


example,


many


component





manufacturers that depended


on


To


y


ota


as


their





major


buy


er


would


be


further


constrained


b
y


low





d


e


mand,


and


may


be


even required


to


shut


down





t


heir


manufacturing units.





The


resulting





u


nemploy


ment


would


greatly


affect


the Victoria region,


where


the


Altona


plant


was


located.


Should





To


y


ota


consider its


social


responsibility separate


from


its


consideration of


its


business


sense?


Would


it


be


better


to





wait


for


so


me


time


to


pass, which


could





lead


to


changes


in


the


demand


and


cost


conditions? If


Toy


ota


decided


to


exit,


would


it


be


a hasty


decision?


What


should


Toyota


do?










































































































EXHIBIT 1:

TOYOTA


AUSTRALIA’S

KEY CONTRIBUTIONS





















































































































Aspect











Contribution











T


otal Emplo


y


ment












4,200

direct

emplo


y


ees












Manufacturing


Emplo


y


ment












2,500 manufacturing emplo


y


ees












Vehicles Produced (2012)











101,424 (46%


of Australian vehicle production)












Vehicles

E


xported (2012)












74,335 (73% of production)











Vehicle Production Pla


n


ned (2013)












108,000

u


nits:

T


his includes

four

c


ylinder

petrol and

h


y


brid


engines


produced for local

b


uilt

c


ars as





w


ell as engine


e



xports


to Malaysia

and

Thailand









commencing

January


2013












Government Support vis-a-vis








T


o


y


o


t


a Spending











T


o


y


o


t


a spends


at least $20

in connection





with manufacturing in Australia for









every


$1 of

government support.





The spending is mainly


for


purchasing

local parts from suppliers


across Victoria,


South

A


ustralia, New





South

W


ales

and Queensland.

During 2013

T


oyota spent

$1.5 billion in connection





with buil


d


ing cars

in


Australia.





















Source:


Compiled


from


Toyota


Australia,





Initial


Submission


to


Productivity


Commission


Review of


the


Automotive






Manufacturing


Industry,












w


w


w


.p


c.gov.au/











data/assets/pdf_file/0011/130124/sub031-automotive.pdf,


accessed


September 20,


2014.







































EXHIBIT 2:

TOP-SELLING


CAR


BRANDS IN AUSTRALI


A, 2012–2013










































































































































































































































Rank




















Brand




















2013




















2012

















1











T


o


y


o


t


a











214,6


30












218,1


76












2











Holden











112,0


59












114,6


65












3











Mazda











103,144











103,886











4











H


y


undai











97,006











91,536











5











Ford











87,236











90,408











6











Nissan











76,733











79,747











7











Mitsubishi











71,528











58,868











8











V


o


lks


w


a


g


en












54


,8


92












54


,8


35












9











Subaru











40,200











40,189











10











Hon


da












39,258











35,812




















Source:





VFACTS,


Vehicle


Sales,


Federal


Chamber


of


Automotive


Industries,








w


w


w


.


fcai.com.au/sales/2013-ne


w-vehicle-






market,


accessed


April


1,


2015.







































EXHIBIT 3:

AUTOMOBILE


MANUFACTURERS’ AUSTRALIANMARKET SHARE BY

BRAND (IN PER CENT), 1998–2012
































































































































































































































































































































































































































































































































































































Brand




















19








9








8




















19








9








9




















20








0








0




















20








0








1




















20








0








2




















20








0








3




















20








0








4




















20








0








5




















20








0








6




















20








0








7




















20








0








8




















20








0








9




















20








1








0




















20








1








1




















20








1








2

















To


y


ota












19


.


6











19


.


5











20


.


2











18


.


3











19


.


2











20


.


5











21


.


1











20


.


5











22


.


2











22


.


5











23


.


6











21


.


4











20


.


7











18














19


.


6











Hold


en












19














19


.


7











19


.


7











21


.


4











21


.


6











19


.


3











18


.


6











17


.


7











15


.


2











14














12


.


9











12


.


8











12


.


8











12


.


5











10


.


3











M


az


da














3


.4











3


.4











3


.5











4


.4











4


.7











5


.8











5


.8











6


.7











6


.6











7


.4











7


.9











8


.3











8


.2











8


.8











9


.3











Hyundai











7.1











6











5.8











5.2











4.1











3.4











4.5











4.9











4.8











4.8











4.5











6.7











7.7











8.6











8.2











Ford











15


.


9











16


.


1











14


.


5











13


.


8











13


.


2











13


.


9











14


.


2











13


.


1











11


.


9











10


.


3











10


.


3











10


.


3











9.2














9











8.1














N


iss


an












5


.7











6


.2











5


.8











5


.6











6


.1











6


.4











6


.7











5


.7











5


.5











5


.7











5


.9











5


.6











6


.1











6


.7











7


.2











Mitsu


b


i


shi












10.4











8.9











9.3











8.8











8.2











8











6











5.8











5.6











6.2











6











6.1











6











6.1











5.3











Other











18


.


9











20


.


2











21


.


2











22


.


5











22


.


9











22


.


7











23


.


1











25


.


6











28


.


2











29


.


1











28


.


9











28


.


8











29


.


3











30


.


3











32














Total











100














100














100














100














100














100














100














100














100














100














100














100














100














100














100























Source: VFACTS, Retail





Sales,


Key Automotive Statisti


cs


2012, Australian


Government,


Department


of


Industry,





www.industry.gov.au/industry/automotive/Statistics/Documents/KeyAutomotiveStatistics2012.pdf,








accessed

September


20, 2014.














































EXHIBIT 4: AUSTRALIAN


AUTOMO


BILE MARKET


AND


TOYOTA’S


STATISTICS,


2006–2012




















































































































































































































































































20


06














20


07














20


08














20


09














20


10














20


11














20


12























Market











T


o


tal Market











962,5


21












1,049,9


82












1,012,


1


64












937,3


28












1,035,5


74












1,008,4


37












1,112,0


32












Lo


cally





M


a


de

Share of

T


otal









Market











21%














19%














17%














16%














14%














14%














13%














T


o


y


o


t


a Sales (incl. Lexus)











213,839











236,647











245,653











206,827











214,718











181,624











218,176




















Toyota











Lo


cally





M


a


de

Domestic Sales












33,000











48,372











42,629











34,756











36,778











28,084











36,304











Exports











80,000











97,688











101,668











63,345











82,670











59,949











74,335











Production











111,6


10












148,9


31












141,4


67












96,817











119,455











93,618











101,424




















Source:


Toyota


Australia,





Initial


Submission


to


Productivity


Commission


Review





of


the


Automotive





Manufacturing


Industry,









www.pc.gov.au/












data/assets/pdf_file/0011/130124/sub031-automotive.pdf,


accessed


S
eptember


20,


2014.






























EXHIBIT 5: TOYOTA


BUSINESS MODEL






















































Inputs




Manufa


cturing Market











































Domestic Supplies (Inputs)


























Imported Inputs



























Domestic Production


















Domestic

Market

(C


onsumption)


















Export Market

(C


onsumption)

















































Source:


Authors





o


wn


construct


based


on


Toyota


Australia,





Initial


Submiss


i


on


to


Productiv


ity


Commission


Rev


iew of


the



Automotive

Manufacturing


Industry,












www.pc.gov.au/











data/assets/pdf_file/0011/130124/sub031-automotive.pdf,


accessed September


20,


2014.






























EXHIBIT


6:





E


XCHANGE


RATE


MOVEMENT


DURING


TOYOTA


AUSTRALIA


S


EXPORT


PROGRAM







































1.2000

















1.0000

















0.8000







































Text Box: USD/AUD








0.6000

















0.4000



























USD


/


AUD


































0.2000

















0.0000





























Year






































Source:

compiled

from

Reserve

Bank

of

Australia,

“Exchange

Rates,

Historical

Data,

Statistics,

2014,





www.rba.gov.au


/statistics/historical-data.html,











accessed


December


2,


2014.

























1.








What factors are affecting the profitability of Toyota Australia? Which side of the market are they related to? Which of these factors can the company control to improve profitability? What strategy would you suggest improving the profitability? (10 Marks)

















2.








What is the type of market structure Toyota Australia operating? What challenges does this market structure pose for the company? ( 10 marks)

















3.








What is the minimum efficient scale of operation for car manufactures globally? What are the implications of minimum efficient scale of operations for the automotive market structure and for Toyota? ( 10 Marks)

















4.








What should Toyota do? Should it wait for demand and cost conditions to improve, or should it exit the market? (5 Marks)



















TOYOTA


AUSTRALIA


IN


PERIL

































On


Wednesday,


Decem


ber


11,


2013,


General


Motors


Holden





(Holden)


announced


its


plan


to


exit


car manufacturing


in


Australia


by the


end


of


2017.





2




















Immediately


after


the


exit


announcement


by Holden,


Toy


ota


expressed


its


fear





t


hat


it


was


in


peril:


















This


will place


unprecedented


pressure


on


the

l


ocal


supplier


network


and our


ability


to


build


cars


in Australia.





We


will now work


with


our suppliers,


key stakeholders


and the government


to


determine our next


steps


and whether


we can continue


operating


as


the sole


vehicle





manufacturer


in


Australia. We


will


continue


with


our





transformation


journey


as


planned.





3




















Other


stakeholders


in


the


autom


otive


industry


also


expressed


similar


fears.


Apprehensive


of


Toyota’s ability


to


continue





manufacturing, the


Australian


Manufacturing Workers


Union


(AMWU)


national vehicles


division


secretary, Dave





S


mith,


said,


“Its


now


highly


likely


that


Toyota


will


leave


Australia. In fact


its


al


m


ost


certain.”



4




















Why


did


Toyota


fear


that


Holden’s


exit


would


put


unprecedented


pressure


on


the


local


suppliers?


How was


Holden’s


exit


related


to


Toy


ota’s


ability


to


build cars?


Why





were


observers


contemplating


an


exit


by Toy


ota,


the


best-selling


and





m


ost


trusted


brand


in


Australia,





especially


when


it


had


been


planning


to

continue





its





transfor


mati


on

journ


e


y?





What





had





gone


wrong


with


the


co


m


pany


that


had


such


a


glorious

long





histo


ry





of





product


i


on?





Shou


ld





T


o


y


ota


stop


manufacturing


in


A



ustralia?






























TOYOTA





AUSTRALIA:


A


GLORIOUS


LONG





HISTORY


OF


PRODUCTION








5




















Toy


ota


Australia


(Toyota;


see


Exhibit


1),


a


subsidiary


of


Toyota


Motor


Corporation


Japan,


was


founded in


1958


in


Port


Melbourne, Victoria,


Australia.


It


started


assembling


vehicles


in


Australia


in


1963


in


the Melbourne


factory


of


Australian


Motor


Industries.


The


first Toy


ota





model


assembled


in


Australia


was


the Tiara.


Between


1964


and


1968,


Toy


ota


began


assembling


three


more





models


—the


Corona,


the


Crown and


the


Corolla.


At


its


new Altona


plant


in


Melbourn


e,





it





started





producing





eng


i


nes





in





1978,





and


ca
r


body panel
s





in





1981.





In





1986,





for





the





first





ti


m


e,





To


y


ota


started


exporting.


In


1987,


Toyota


began


the


local











































manufacture


of


the


Camry,


which


replaced


the


Corona,


at


the


Melbourne plant.


In


1988,





Toyota’s


local operations


were


unified


to





f


orm


Toy


ota


Motor


Corporation


Australia.


















In


1994/9


5,


To


y


ota


sto


p


ped


manufacturing

in


its





Port


Melbourne


plant


and


shifted


all


its





operation


to


its Altona


plant





in


Melbourne.


The


Corolla


was


the


first





model to


be


built


there. As


a


strategic


shift,


in


1996, Toy


ota


expanded


its


reach


to


foreign





markets


by


exporting


the


Cam


ry


to


the


Middle


East,


where


it


became the


area’s


num


ber-one


selling


car.


From


the


Altona


plant,


To


y


ota


also


started


producing


the


Avalon





model in


2000.


Its





journey


with





innovative products


continued


in


the


subsequent perio


d.


In


2010,


it


released


the Camry





hybri


d,


the





first





hybrid


car


manufactured


in


Australia.


It


launched





the


New


Generation


Camry Model


in


2011.


















To


y


ota


emerged


as


the


market


leader


in


Australia


for


the


first


time


in


1991.





It


registered record


sales





of

m


ore


than


186,000


cars


in


2003


and


remained


the


overall





market


leader


for


the


subsequent 11





years


(see Exhibit


2


and


Exhibit


3).





T


he


co


m


pany


also


registered


a


huge


success


in


the


export


market,


and


emerged as


the


leader


in


this


segment.


It


exported


al


m


ost





two-thirds


of


its


production


(see


Exhibit


4)


from


the Altona


plant


to


13


countries


worldwide. In


2011,


To


y


ota


Australia,


the


countr


y’s


biggest


auto


m


otive exporter,


exported


nearly


60,000


units





w


orth


$1.004


billion





6








(including


parts


and





accessories).





7




















As


per


a


poll


conducted

by


Readers’


Digest


Australia


in


2013,





To


y


ota


was


the





m


ost


trusted


autom


otive brand


in Australia.





8








A balanced


business





model


and


innovative


quality


products


were


the


keys


to Toyotas past


success





and


had


helped


to


build


its


brand.




































BUSINESS


MODEL





















Toy


ota


Australia


followed


a


balanced


business





model


(see


Exhibit


5),


which





i


ncluded


a


three-pronged strategy

of

manufacturing

vehicles




d


omestically, exporting

some

of

its




d


omestically

manufactured vehicles


and


importing


some


co


mponents


from


cheaper


sources.


















In


the


domestic





manufacturing


process,


Toy


ota


followed


the


“just


in


tim


e



9








approach


to


production,


which allowed


the


entire


production


process


to


be


regulated


by the


natural


laws


of


supply


and


demand.


Customer demand


stimulated production of


a


vehicle,


which,


in


tur


n,


sti


mulated production and





delivery


of


the necessary


parts.


The


just


in


time


approach


resulted


in


the


right


parts


and


materials


manufactured


and provided in





t


he


exact


am


ount


and


place


where


they


were


needed.


Along


with





t


he


just


in


time


approach, Toy


ota

also

followed

“Kaizen,”



1


0




the

practice

represented

by

employ


ees

making

day-to-day

i


mprovements


in


their


working


practices


and


equipment.


“Jidoka,





1


1








automation


with


a


hu


man


touch, was another


process


adopted


by


Toy


ota.


Such


approaches


to


the


dom


estic


m
anufacturing


process


strengthened To


y


ota’s


brand


image


by


contributing





to


Australian


society


in


terms


of


value-addition and


employ


ment, and


good


quality


products,


and


supported


its


position


as


the





market


leader.


















However,


Australias domestic


market


for


cars


was


very





t


hin.


To


overcome


the


constraint


imposed





by domestic


demand,


Toyota


pursued


an


export-oriented strategy.


As


a


part


of


this


strateg


y,


it


started exporting





domestically


manufactured





vehicles


to


neighbouring New


Zealand


in


1986.


In


1996,


it


further expanded


its


export


reach


by


starting


to


export


to


Middle


East


countries,


and





in


the


subsequent period, began


exporting


to


the


South


Pacific


Islands,


Malaysia


and


Thailand.


To


y


ota’s


export-oriented strategy provided


a


larger


demand


base,


which


helped


Toyota,


to


some


extent,


to


overcome


the


constraints imposed


by


the


lower


domestic


demand.


Exports


constituted alm


ost


70


per


cent


of


Toyota’s


total production


(see


Exhibit


4).











































Similar


to other


car





manufacturers,


Toy


ota


Australia


operated


with


a


small


scale


of operation.


This


lack


of scale


at


the


car





manufacturing


stage


affected


even


local


auto


component





manufacturers,


by


keeping


their costs


higher.


Importing


cheaper


inputs


helped


To


y


ota


to


manage


the


costs


of


components. This


business

model


had


made


Toyota


the


m



ost


successful


car


brand


in


Australia.




































ADVERSE


EXTERNAL





ENVIRONMENT





















Toy


ota,


along


with


other


players


in


the





a


utom


otive


sector,


operated





in


a


growingly


adverse


environment.




































Competiti


ve


Fragmented





Market

Structure





















In


2013,


apart


from


Toy


ota,


Australia


had


two


car


manufacturers:


Ford


Motor


Co


m


pany





of


Australia (Ford)


and


General


Motors


Holden


(Holden).


Like


Toy


ota,


these


manufacturers were





foreign-owned subsidiaries of


global


companies


that


had


affiliates





in


many


countries.


But,


for


Toy


ota,


competition was not


limited


to


these


domestic





manufacturers.


















Australia’s


low-tariff


barriers


and


highly


open


trading


environment since





mid-1980s


provided


consumers with


easy


access


to





i


mported


cars.


Approximately 65


brands


and


365





models





co


m


prising


passenger vehicles,


sport


utility


vehicles


and


light


commercial

v


ehicles





co


m


peted


for


Australia’s


total


market


of approximately


1.1





million new


car


sales


per





year,





1


2








m


a


king


the


Australian


auto


m


otive


m
arket both


highly co


m


petitive


and


the





m


ost


frag


mented


in


the


world.




































Structural Changes and


Declining Demand





















Australia,


with


a


population


of


23.1


million,


representing


0.33


per


cent


of


total


world


population


in

201


3,





1


3








represented


a


small


market


for


cars.


In


the


same





year,


Australia’s


new


vehicles’


sales


accounted for


just


1.3


per


cent


of


the





t


otal


global





market.





14




















In


the


aftermath


of


the


global


financial


crisis,


demand


for


autom


obiles in


developed


countries


remained subdued


due


to


slow


recovery


and


shifted


to


emerging

markets


such


as


China,


India


and


Brazil.


Not


only were


there





structural


changes


in


the


geographical


distribution of


demand


but


also


changes


in


the co


mposition


of


demand,


in


favour


of


small


fuel-efficient


cars,





1


5




which


was


counter


to


the


types


of


cars manufactured





by Toyota.




































Small


Scale


of


Operations,


Underutilization


of


Capacity


and Higher


Cost


of


Manufacturing





















Australia


was


also


a


very


small


player


in


the


global





a


utom


otive production sphere.


It


produced


just





m


ore than


200,000


units


of


passenger


and


commercial vehicles,


which


accounted





for


approxim


ately 0.25


per cent


of


global


production.


Together,


the


three


Australian


auto


manufacturers


produced


well


below


the global


optimal


scale


of


operation,


which


was


estimated


to


be


200,000


to


300,000


units


of


vehicle


per

year.





1


6




Toy


ota,


the


largest


Australian


manufacturer,


with


an


annual


installed


capacity


of


150,000


unit


s





17




produced

j


ust





m


ore


than


100,000


vehicles


in


2012.





In


the


same


year,


Holden


produced

j


ust





m


ore


than 80,000


vehicle


units


and


Ford,


fewer


than


40,000


units.


The


small


scale


of


production


kept


the


average cost


of


production of


vehicles


in


Australia


at


a


higher


level


and





led


to


an


adverse





i


mpact


on


the


scale


at which


the


component





m


anufacturers operated


in


Australia


and


the


cost


at


which


they


could


supply


the co


mponents.





18













































In addition


to the


lack


of scale


econo


m


ies,


the


higher





labour


costs


and


other


costs,



1


9








such


as the


carbon


tax and


the


luxury


car


tax,


contributed


to


the


high


cost


of


manufacturing


cars


in


Australia.




































Government Policies and Declining Protection




















The Australian


government


had been


following


liberal


trade


policies


since


the





m


id-1980s.


As


a


part of


the opening-up


strategy,


quantitative


restrictions


were


phased


out


and


were


co


mpletely


eliminated


by


1988. At


the


same


time,


tariffs


were


brought down





to


5


per


cent





by


2010.


Though,


to


help





the


autom


otive industry


to


adjust


to


the


declining


tariff


levels,


the


governm


ent provided


direct


assistance


to


the manufacturers,


it


was


linked


to


investment





and


to


research


and


development


expenditure.





2


0







Gradually,

m


ore


and





m


ore


governm


ent assistance


was


redirected


from


the


assem


bly


of





cars,


the


least


com


petitive activity,


to


exports,


the





m


ost


co


m


petitive


activity


.





21






































Free Trade Agreements

and Unbalanced Trading

Environment





















To


improve





the


trade


and


capital


flows,


Australia


had


signed


various


free


trade


agreements


(
FTAs),


such as


the


Thailand–Australia


FTA,


the


Association


of





South


East


Asian


Nations-Australia-New


Zealand


FTA and


the


Australia-Gulf


Cooperation


Cou


ncil


(GCC)


FTA. Although


the


FTAs were


expected


to


result in


a win-win


situation


for


all


the


countries


involved,


the


FTAs


signed


by


Australia


with


countries


such


as Thailand,


Japan


and


South


Korea,


had


turned





o


ut


to


be


bad


news


for


the


Australian


car


industry.





2


2




The partner


countries had


either


retained


high


tariff


rates


on


imported cars


or


used


subtle





methods


to


keep


the imported


cars


out


of


their





d


omestic


markets.


For


example,


although


Thailand


did


not


impose


import


tariffs on


Australian


cars,


it


did





i


mpose


an


engine-size


duty


that


was


as


high


as


80





per


cent,


which


discouraged the


importation of


the


Australian


cars.


Japan


not





o


n


ly


imposed


a


10


per


cent


tariff


and


a


5


per


cent consumer


tax


on


imported


cars


but


also





i


mposed





several


technical


specifications, which


made


it


almost impossible


to


gain


regulatory


approval


for


foreign-made cars.


Similarly,


in


South


Korea,


Australian


cars faced


a


10


per


cent


tariff


and


a


clumsy


registration


process,


which


deterred


exporting.





23






































Adverse Currency


De


velopments





















Since 2001,

t


he


dramatic


strengthening


of


the


Australian


dollar against


the


U.S.


dollar (see


E
xhibit


6)


had significantly


reduced


the


profitability


of


Toy


ota


Australia’s


exports,


which


were


primarily





to


the


GCC countries


and


were


committed


in


U.S.





dollars.


















In

a

highly

open

globalized

econom


y,

these




various

high-cost

and

low-demand




factors,

vario


us government


policies


and


other


external


developments

affected


the


viability


of


Toy


ota


Australia


(e.g.,


the co


m


pany


reported


losses





of


$32.6


billion


in


2011/12





24


)


and


co


m


pelled


it


to


revisit


its


manufacturing and marketing


strategies.




































TOYOTA’S


EFFORTS


TO


COUNTER


ADVERSE


EXTERNAL


DEVELOPMENTS





















To


y


ota

Australia

practised

the

philosophy

of

steady

improvement in

productivity

and

continuous reduction


in


cost,


as


envisioned


in


the


To


yota


Production





S


ystem.



2


5







However,


the


realization


of


the gravity


of


the


problem,


in





the


event


of





sharp


adverse


developments


in


the


external


environment


in


the


late 2011,


necessitated


bold


steps


and


urgent


actions,


to





substantially





i


mprove


productivity


and





reduce


costs, in


an


effort


to


retain


Toy


otas


com


petitiveness


in


the


domestic


and


international


markets.














































Accordingl


y,


to


counteract


the


impact


of


adverse


external


developments,


for


the


period


2012


to


2018, To


yota


implemented


a


co


m


pany-wide transformation project,


referred


to


as


the


Toy


ota


Australia


Future Business


Transformation.



2


6








The


project


ai


med


to


improve


efficiency, to


reduce


the


cost


of





m


anufacturing cars


by $3,800


per


car,


to


improve


organizational


and





manufacturing


efficiencies


and


to


maxi


mize


sales


of the


domestically built


Camry


and


Aurion





models.


The


project


adopted


both


internal


and


external


cost- reduction


strategies. It


addressed its





internal


costs


in


early


2012,


by


reducing


its


workforce


by


350 employees


in


the


Altona


plant,


which


had


beco


me


redundant


in


the


downturn


in


the


aftermath


of


the Global


Financial


Crisis,





the


Japanese


earthquake


and


subsequent


tsunami,


and


the


floods


in


Thailand. External


costs


were


addressed


by


reviewing


the


sourcing


of


im


p


orted


components and


vehicles,


and


the local


supplier


capability


development


and


diversification.





















The project


introduced


a





radical


transfo


r


mation


to


the business


practices


of


Toyota


Australia.


As


stated


by the


com


pany’s chief


executive


officer


(CEO),


Max


Yasuda,


“Our


business


is


being


radically


changed


to counter


both


internal


and


external


pressures


impacting


us.


We


are


doing


ever


ything we


can


to


strengthen To


y


ota


Australia


and


ensure


our


long


term


future


in


this


country


as


an


importer


and





manufacturer.





27




















In


the


subsequent


period,


the


co


m


pany


also


tried


to


further


reduce


its


labour


costs


by


proposing


a reduction in


overtime payments on


work


done


on


Sunda


ys from


2.5


times


of


the


base


hourly


wage


to


just 2


times;


eliminating allowances such


as


the


$0.71


per


hour


respiratory


allowance


paid


to


paint


shop workers


and


the


“dirt


mone


y


allowance


for


perform


ing work


considered to


be


dirty


or


offensive; eliminating


the


eight-hour


day





for





maintenance


workers


and


including


Saturday


shifts


as


part


of


the normal


hours


of


work.



2


8








The


co


m


pany





CEO


Yasuda


tried


to


justify


the


proposed


measures


by


indicating that


the


co


m


pany


would


be


able


to


gain


approval


for


further


investment at


the





Altona


plant,


necessary


to maintain


production


of


the


Camry





model,


only


if


production


costs


were


slashed





by


$3,800


per


vehicle


by

201


8.





2


9








But,


under


the


strong


protest


from


the


AMWU,


which


blocked


the


vote


from


proceeding


by


taking the


issue


to


the


Australia’s


Federal


Court,



3


0








it


failed


to





garner


the


required


support





from


its workers.







































W


H


A


T

SHO


ULD

TOYOTA

D


O?





















Demand


and


cost


conditions


in


Australia


seemed


to


be


unfavourable


for


Toyota.


Given


these


adverse situations


and


manufacturing


losses,


should





To


y


ota





follow


the


route


adopted


by


Ford


and


Holden?


Many people


would


be


directly


or


indirectly


affected


by


Toyotas


decision.


Its


closure


would


result


in


job


losses not


only


for





its


employees


in


the





manufacturing unit


but


also


for


those


who


were


supported


by


Toyota vehicle


manufacturing through


supply





c


hain


linkages.


For


example,


many


component





manufacturers that depended


on


To


y


ota


as


their





major


buy


er


would


be


further


constrained


b
y


low





d


e


mand,


and


may


be


even required


to


shut


down





t


heir


manufacturing units.





The


resulting





u


nemploy


ment


would


greatly


affect


the Victoria region,


where


the


Altona


plant


was


located.


Should





To


y


ota


consider its


social


responsibility separate


from


its


consideration of


its


business


sense?


Would


it


be


better


to





wait


for


so


me


time


to


pass, which


could





lead


to


changes


in


the


demand


and


cost


conditions? If


Toy


ota


decided


to


exit,


would


it


be


a hasty


decision?


What


should


Toyota


do?










































































































EXHIBIT 1:

TOYOTA


AUSTRALIA’S

KEY CONTRIBUTIONS





















































































































Aspect











Contribution











T


otal Emplo


y


ment












4,200

direct

emplo


y


ees












Manufacturing


Emplo


y


ment












2,500 manufacturing emplo


y


ees












Vehicles Produced (2012)











101,424 (46%


of Australian vehicle production)












Vehicles

E


xported (2012)












74,335 (73% of production)











Vehicle Production Pla


n


ned (2013)












108,000

u


nits:

T


his includes

four

c


ylinder

petrol and

h


y


brid


engines


produced for local

b


uilt

c


ars as





w


ell as engine


e



xports


to Malaysia

and

Thailand









commencing

January


2013












Government Support vis-a-vis








T


o


y


o


t


a Spending











T


o


y


o


t


a spends


at least $20

in connection





with manufacturing in Australia for









every


$1 of

government support.





The spending is mainly


for


purchasing

local parts from suppliers


across Victoria,


South

A


ustralia, New





South

W


ales

and Queensland.

During 2013

T


oyota spent

$1.5 billion in connection





with buil


d


ing cars

in


Australia.





















Source:


Compiled


from


Toyota


Australia,





Initial


Submission


to


Productivity


Commission


Review of


the


Automotive






Manufacturing


Industry,












w


w


w


.p


c.gov.au/











data/assets/pdf_file/0011/130124/sub031-automotive.pdf,


accessed


September 20,


2014.







































EXHIBIT 2:

TOP-SELLING


CAR


BRANDS IN AUSTRALI


A, 2012–2013










































































































































































































































Rank




















Brand




















2013




















2012

















1











T


o


y


o


t


a











214,6


30












218,1


76












2











Holden











112,0


59












114,6


65












3











Mazda











103,144











103,886











4











H


y


undai











97,006











91,536











5











Ford











87,236











90,408











6











Nissan











76,733











79,747











7











Mitsubishi











71,528











58,868











8











V


o


lks


w


a


g


en












54


,8


92












54


,8


35












9











Subaru











40,200











40,189











10











Hon


da












39,258











35,812




















Source:





VFACTS,


Vehicle


Sales,


Federal


Chamber


of


Automotive


Industries,








w


w


w


.


fcai.com.au/sales/2013-ne


w-vehicle-






market,


accessed


April


1,


2015.







































EXHIBIT 3:

AUTOMOBILE


MANUFACTURERS’ AUSTRALIANMARKET SHARE BY

BRAND (IN PER CENT), 1998–2012
































































































































































































































































































































































































































































































































































































Brand




















19








9








8




















19








9








9




















20








0








0




















20








0








1




















20








0








2




















20








0








3




















20








0








4




















20








0








5




















20








0








6




















20








0








7




















20








0








8




















20








0








9




















20








1








0




















20








1








1




















20








1








2

















To


y


ota












19


.


6











19


.


5











20


.


2











18


.


3











19


.


2











20


.


5











21


.


1











20


.


5











22


.


2











22


.


5











23


.


6











21


.


4











20


.


7











18














19


.


6











Hold


en












19














19


.


7











19


.


7











21


.


4











21


.


6











19


.


3











18


.


6











17


.


7











15


.


2











14














12


.


9











12


.


8











12


.


8











12


.


5











10


.


3











M


az


da














3


.4











3


.4











3


.5











4


.4











4


.7











5


.8











5


.8











6


.7











6


.6











7


.4











7


.9











8


.3











8


.2











8


.8











9


.3











Hyundai











7.1











6











5.8











5.2











4.1











3.4











4.5











4.9











4.8











4.8











4.5











6.7











7.7











8.6











8.2











Ford











15


.


9











16


.


1











14


.


5











13


.


8











13


.


2











13


.


9











14


.


2











13


.


1











11


.


9











10


.


3











10


.


3











10


.


3











9.2














9











8.1














N


iss


an












5


.7











6


.2











5


.8











5


.6











6


.1











6


.4











6


.7











5


.7











5


.5











5


.7











5


.9











5


.6











6


.1











6


.7











7


.2











Mitsu


b


i


shi












10.4











8.9











9.3











8.8











8.2











8











6











5.8











5.6











6.2











6











6.1











6











6.1











5.3











Other











18


.


9











20


.


2











21


.


2











22


.


5











22


.


9











22


.


7











23


.


1











25


.


6











28


.


2











29


.


1











28


.


9











28


.


8











29


.


3











30


.


3











32














Total











100














100














100














100














100














100














100














100














100














100














100














100














100














100














100























Source: VFACTS, Retail





Sales,


Key Automotive Statisti


cs


2012, Australian


Government,


Department


of


Industry,





www.industry.gov.au/industry/automotive/Statistics/Documents/KeyAutomotiveStatistics2012.pdf,








accessed

September


20, 2014.














































EXHIBIT 4: AUSTRALIAN


AUTOMO


BILE MARKET


AND


TOYOTA’S


STATISTICS,


2006–2012




















































































































































































































































































20


06














20


07














20


08














20


09














20


10














20


11














20


12























Market











T


o


tal Market











962,5


21












1,049,9


82












1,012,


1


64












937,3


28












1,035,5


74












1,008,4


37












1,112,0


32












Lo


cally





M


a


de

Share of

T


otal









Market











21%














19%














17%














16%














14%














14%














13%














T


o


y


o


t


a Sales (incl. Lexus)











213,839











236,647











245,653











206,827











214,718











181,624











218,176




















Toyota











Lo


cally





M


a


de

Domestic Sales












33,000











48,372











42,629











34,756











36,778











28,084











36,304











Exports











80,000











97,688











101,668











63,345











82,670











59,949











74,335











Production











111,6


10












148,9


31












141,4


67












96,817











119,455











93,618











101,424




















Source:


Toyota


Australia,





Initial


Submission


to


Productivity


Commission


Review





of


the


Automotive





Manufacturing


Industry,









www.pc.gov.au/












data/assets/pdf_file/0011/130124/sub031-automotive.pdf,


accessed


S
eptember


20,


2014.






























EXHIBIT 5: TOYOTA


BUSINESS MODEL






















































Inputs




Manufa


cturing Market











































Domestic Supplies (Inputs)


























Imported Inputs



























Domestic Production


















Domestic

Market

(C


onsumption)


















Export Market

(C


onsumption)

















































Source:


Authors





o


wn


construct


based


on


Toyota


Australia,





Initial


Submiss


i


on


to


Productiv


ity


Commission


Rev


iew of


the



Automotive

Manufacturing


Industry,












www.pc.gov.au/











data/assets/pdf_file/0011/130124/sub031-automotive.pdf,


accessed September


20,


2014.






























EXHIBIT


6:





E


XCHANGE


RATE


MOVEMENT


DURING


TOYOTA


AUSTRALIA


S


EXPORT


PROGRAM







































1.2000

















1.0000

















0.8000







































Text Box: USD/AUD








0.6000

















0.4000



























USD


/


AUD


































0.2000

















0.0000





























Year






































Source:

compiled

from

Reserve

Bank

of

Australia,

“Exchange

Rates,

Historical

Data,

Statistics,

2014,





www.rba.gov.au


/statistics/historical-data.html,











accessed


December


2,


2014.

























1.








What factors are affecting the profitability of Toyota Australia? Which side of the market are they related to? Which of these factors can the company control to improve profitability? What strategy would you suggest improving the profitability? (10 Marks)

















2.








What is the type of market structure Toyota Australia operating? What challenges does this market structure pose for the company? ( 10 marks)

















3.








What is the minimum efficient scale of operation for car manufactures globally? What are the implications of minimum efficient scale of operations for the automotive market structure and for Toyota? ( 10 Marks)

















4.








What should Toyota do? Should it wait for demand and cost conditions to improve, or should it exit the market? (5 Marks)


































Answered 3 days AfterNov 25, 2022

Answer To: TOYOTAAUSTRALIAINPERILOnWednesday,December11,2013,Gene...

Komalavalli answered on Nov 28 2022
37 Votes
Question 1:
Australia is also a minor contributor in the global automobile manufacturing industry. It manufactures little more than 200,000 passenger and commercial cars, accounting for around 0.25% of worldwide output. The three Australian automakers produced 200,000 to 300,000 automobiles per year, much below the world's ideal working size. Toyota,
Australia's largest automobile manufacturer manufactured little over 100,000 vehicles in 2012, with a yearly installed capacity of 150,000 vehicles. In the same year, Holden produced slightly more than 80,000 vehicles and Ford produced less than 40,000. Because of the small scale of production, average vehicle production costs in Australia are higher, which has a negative impact on the scale at which component manufacturers operate in Australia and the cost at which they can source components.
Because of the slow recovery and shift to emerging markets such as China, India, and Brazil following the global financial crisis, auto demand in developed countries remains weak. Not only are there structural changes in demand distribution, but there are also changes in demand composition, favoring small, fuel-efficient cars over Toyota-made vehicles.
Aside from the absence of economies of scale, increasing labour and other expenditures, such as the carbon tax and the luxury car tax, have contributed to the increase in the cost of making automobiles in Australia. Both high input cost and lack of demand affects the profitability of Toyota. They are mostly related to supply side factor.
Toyota should transition from small-scale to large-scale production by lowering costs in the following ways, which would improve profits immediately - I Modern and specialized machinery there is plenty of space to use machinery, resulting in a cheaper cost than pricing. A major firm can afford to invest in expensive, advanced machinery. Specialized machineries might be employed for each job. As a result, the production is highly lucrative, resulting in greater earnings.
Reduce costs: The cost of administration and distribution per unit of product is substantially cheaper with a huge corporation. The interest, bills must be paid, and other overheads stay constant regardless of output volume. As a result, devoting the same amount of money to higher production results in lower unit costs.
The firm can improve their profitability through:
Toyota should manufacture high-quality products in order to gain confidence, establish a great brand image, and so improve sales and profits. Toyota could also explore modifying its product range in order to dominate markets in developing nations by creating low-cost, fuel-efficient vehicles. Cost-cutting programmes should be maintained in order to further reduce costs in a variety of ways, such as reducing engine weight and thus costs, importing cheaper high-quality parts from manufacturers in other countries, and better negotiating with existing suppliers. They should also reach a labour cost-cutting agreement with the Australian Federation of Manufacturing Workers.
Question 2:
Toyota Australia operates under a monopolistic market framework. What is the definition of an oligopolistic market? An oligopoly is a market structure in which a few firms dominate. When only a few enterprises share a market, it is considered to be excessively centralized. Although a few huge corporations dominate the industry, there may be numerous smaller enterprises as well. Some oligopolistic marketplaces are extremely competitive,...
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