It is hard to feel sorry for Toyota. It is a mammoth corporation and a force in its industry. Still the Japanese automaker has been going through a rough stretch. Some of its problems are surely of its own making (e.g., quality issues and recalls), but others are largely beyond its control (e.g., turmoil in the world economy). One item in the latter category is the appreciation in the yen (see the graph at right).
As the Wall Street Journal reports (For Toyota, Patriotism and Profits May Not Mix, Nov 29), Toyota despite years of building factories in the US and elsewhere still has a larger share of its production capacity in Japan than its main domestic rivals. Given a weak Japanese market for new cars, Toyota would have to export heavily from Japan in order to make good use of that capacity.
How has Toyota responded to this challenge? In part they have been using innovative ways to decrease the size and cost of assembly plants. Check out this spiffy graphic:
What is the outcome of these changes?
At the new plant, half-built Corolla compacts and subcompact Yaris sit side by side, rather than bumper to bumper, shrinking the assembly line by 35% and requiring fewer steps by workers. Instead of car chassis dangling from overhead conveyor belts, they are perched on raised platforms—cheaper by half and allowing for dropped ceilings that reduce cooling costs 40%.
But is that enough to save Toyota’s manufacturing in Japan? No question it helps but it is hard to imagine that it is a total game changer. The problem is global trends in the auto industry as much as a currently high yen.
Major growth in the auto industry is going to be coming from developing countries and that will favor building in those locations if only to score government treatment and lower wages. That will likely mean that Toyota will have to continue to expand in China and elsewhere. If anything, the techniques they are now developing make it cheaper to expand overseas.