Toyota European Exposure Case Toyota Motors Europe Essay

Excerpt from Essay :

Toyota European Exposure Case

Toyota Motors Europe Manufacturing was the only Toyota subsidiary that was experiencing losses when CEO Hiroshi Okuda requested in January 2002 for a proposal to reduce and eliminate the European losses. Toyoda Shuhei was the newest President of Toyota Motor Europe Manufacturing Toyota at the time, and despite Toyota dominating the Japanese market and the world market for the number of units sold, it was only number eight in sales in Continental Europe. In 2001, only twenty four percent of the automobiles that were sold in the European market were manufactured by Toyota. One of Toyota's biggest mistakes was its lingering of moving its manufacturing for European sales to Europe.

Much like the rest of the world market, Toyota was experiencing financial struggle due to global sales slowing and margins being pressured. The sales in America were greater than those in Europe in 2001, which would explain why, with budget crunches, Toyota decided to place its finances in this regional market rather than its European market. American sales were far more promising, thus Toyota continued to invest its money in developing home manufacturing locations within America, which produced sixty percent of North American sales for Toyota for 2001.

Though sales were not as great in Europe as they were in America, sales in Europe were second to America for number units sold in the foreign market, selling roughly 634,000 vehicles in 2000. During this time, Toyota Motors Europe Manufacturing expected to see an increase in their number of units sold by 166,000 vehicles by 2005. Despite this, the fiscal year of 2001 saw financial losses for Toyota Motors Europe Manufacturing of about $82.5 million.

It would make sense that Toyota would be nervous about further investing into their European market after expecting growth and experiencing a loss. The sales with the European demographic were meager and they experienced losses for the fiscal year of 2001. At the same time, Toyota sales were growing more rapidly within America. As most of the world saw budget crunches, Toyota had to make a decision about where to invest their money. Logically, Toyota had two options: A more aggressive marketing plan in Europe or to focus on a more profitable market. It would have been likely that Toyota would not increase their market in Europe in coming years, had it not been for the success that the Toyota Yaris, a little vehicle with a 1,000cc engine, had with the European market.

One reason Toyota has suffered losses in its European division is because the value of the euro was continuing to fall. In late 2000, Toyota Motors Europe Manufacturing announced that they would be unable to produce a noticeable profit for the next two years. Displayed in Exhibit 2, one can see that against the Japanese yen, the euro continued to fall all throughout the years of 1999 and 2000. It took until 2001 for the euro to correct itself, and at that point it still remained quite weak. This meant that against the yen, the euro was feeble. Though the Yaris had become popular in Europe, it was determined at an early stage that the vehicle would be manufactured in Japan and then imported to Europe. With nearly seventy five percent of Europe's Toyotas being produced overseas in Japan, costs to purchase a Toyota that was manufactured in Japan rose for the European consumers because the costs had to be converted from the Japanese yen to the euro. Toyota had to decide whether it would absorb the loss due to the exchange rate values or raise the price of their vehicles to the European consumers. Toyota decided to absorb the loss and thus generated shrunken and negative margins for both their Japanese and European market.

When a monetary union takes place, several countries agree to share a single currency amongst themselves. In order for the United Kingdom to successfully join the European Monetary Union, its economic policy and economic cycles must be in similar patterns to those in the rest of Europe. Assuming it meets these guidelines, the United Kingdom would then adopt the Euro, which with the time in question, was still weak against the yen. It is unlikely that if the British Pound were to join the European Monetary…

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