Why Toyota will be number one in 2007

By Dominique Numakura

After decades of being king of the mountain, a claim held since 1931, General Motors' (GM) title as the world's number one automaker will soon slip away and Toyota Motors will be crowned the new king.

Toyota expects to produce 9,285,000 cars worldwide this year, representing a 1.1% increase in production from the previous year. Conversely, GM does not expect any significant growth this year due in part to recent restructuring of manufacturing facilities in North America. Meanwhile, sales of Toyota vehicles surpassed 4,710,000 cars during the first half of 2007 translating to 50,000 more vehicles than GM.

Toyota's management stands behind their forecast to produce over nine million cars this year, and assured analysts any natural disaster or fluctuations in the global economy will not effect their predictions. Furthermore, Toyota expects its global car production will outrival GM's production this year.

Toyota recently reported fiscal year 2006 income over two trillion yen (more than US$19 billion). Internationally, several companies reported income levels above Toyota's; however, they are predominantly finance and oil companies.

Toyota is one of the few manufacturing companies reporting this remarkable income and they attribute their prosperity to an excellent balance between marketing and production.

It seems almost conflicting that one of Toyota's business strategies is ‘no long term business plan'. Of course, Toyota management team does think about the long term; whereas, tomorrow's business is their first priority.

Toyota's approach is a very conservative one where they do not invest a lot of money on different ideas; rather, Toyota prefers a safer ‘sure bet'. Marketing and sales methods within Toyota may not be very unique, but these functions are very solid. Can you think of any specialty models Toyota launched in the past? I cannot...their product lines are similar as well as safe and reliable.

The strength of Toyota lies within its manufacturing process. The famous ‘kanban' system is continuously enhanced every year in an effort to reduce costs even more, and their JIT (Just in Time) production system eliminates surplus inventories throughout the pipeline and frees up warehouse space at manufacturing facilities.

Outside analysts report inventory costs have shifted to subcontractors; however, this is not true. Toyota worked with subcontractors to introduce the kanban system. Toyota's subcontractors find the work for Toyota is not easy, but none of these subcontractors are prepared to loose Toyota as a customer.

Nowadays, many major electronic companies outsource the production of various manufactured products. It's a trend becoming more commonplace in the industry, and electronic OEM companies are free from expenses associated with manufacturing such as labor and material costs. Such OEM electronics companies negotiate prices for the identified outsourced item with electronics manufacturing services (EMS) or electronics contract manufacturing companies (defined as not owning the intellectual property for the products they produce).

Could these electronic OEM companies be creating a situation where there is a looser reign of control on some important aspects of their business?

Some major Japanese electronics companies such as Matsushita maintain manufacturing as a basic business policy.

Toyota plans to produce 9.8 million cars in 2008 and 10.4 million cars in 1009. Toyota could increase its lead over second place rival GM, unless GM adopts a practical and serious recovery plan.

Source: EPT Newsletter