5, 14. 2006
Toyota announced its annual results for the year ending March 2006 on May 10. While Toyota has reported highest ever turnover and profitability, all the leading national dailies carried articles on May 11 that pose many-a-questions before Toyota management for the future.
These articles were entitled as under;
(1)Collapse of the “Toyota myth” due to large numbers of recalls
(2)HR crisis caused by sudden business expansion
(3)Sexual harassment lawsuit against former Toyota’s North American Chief Executive
(4)High cost management owing to huge investments in plant and equipment
Quality Control-Toyota’s biggest asset- takes a turn for the worse
All the dailies talked of loss of faith in the Toyota brand due to recalling of vehicles. In October 2005, as many as 1.28 million vehicles-the largest ever in Toyota’s history were recalled due to abnormality in the light switch. Even Lexus (11,000 numbers) whose USP is high quality had to be recalled due to manufacturing defect in the seat belt.
Yomiuri wrote “One gets a feeling that quality control that Toyota boasts of as its biggest asset has taken a turn for the worse.” It further writes “In the background are inability to keep pace on HR training with the rapid expansion of production and sales and degeneration of the manufacturing shop floor including the components manufacturers.”
In this regard, Sankei points that the shop floor is unable to keep pace with the increase in production and quotes a manufacturing executive that “Many of us are busy with overseas projects and domestically we are somehow managing the show with limited hands.” Mainichi writes that cost reduction, on the contrary, has proved counterproductive and remarks “Recalls usually increase when standard parts are developed. Abnormality with one component affects many models.”
Nikkei also quotes a remark by the Managing Director Watanabe. “We shall take up quality control as the foremost theme in the new financial year.”
In addition, suing of Toyota’s North American Chief Executive for sexual harassment could lead to tarnishing of Toyota’s image in America-the largest profit center for Toyota. Sankei carries a comment by a former Toyota employee saying “It is nothing but slackening of crisis management.” Mainichi cites the example of a similar problem that happened at the American subsidiary of Mitsubishi Motors in the 1990s that began with a protest from the human rights group but eventually escalated into boycotting of Mitsubishi vehicles. It warns “If taken lightly, it may not just remain confined to loss of faith but can trigger bashing of Japanese cars as earlier.” Nikkei carries a comment by Toyota CEO Watanabe wherein he says that “It has had no adverse impact on sales.”
Concern over decline in the selling power in the domestic market
It was Asahi that highlighted the decline in the selling power of Toyota in the domestic market. In spite of Toyota’s attempt to attract customers through lavish publicity, individualistic models and décor at the Netz dealerships, it could not achieve its annual sales target of 600,000 vehicles. Lexus dealerships had the style of a luxury hotel but the customers, on the contrary, felt it to be a threshold too high to cross and even half of the sales target could not be reached. Asahi carries the comment by a sales executive that “Company paid too much attention to the décor of the dealerships and the basic sales activities were ignored.” The news also points to high dissatisfaction among dealers due to reduction in domestic sales incentives and inability to offer discounts as the company wants to offset overseas discounts by cutting down on discounts in the domestic market.
Nikkei talks of decline in the profitability due to massive investments in production increase. Depreciation expense for 2006 is at its highest of \ 930 billion due to investment in plant and equipment. Ratio of Sales to Profit has declined by 0.4 points over the previous term to 8.5% and has worsened for 3 years in a row. The news carries a comment by a Toyota executive that “We will continue to invest in plant and equipment to the tune of \1.3 trillion to \1.5 trillion for the next 10 years.” However, Nikkei observes that it is doubtful that Toyota, beset with aforesaid problems, will actually be able to bear such risk of high cost over a long period of time.