Toyota Australia in Peril Case Study - General Motors Holden - Business Analysis Assignment Help

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Case Study

TOYOTA AUSTRALIA IN PERIL                              

On Wednesday, December 11, 2013, General Motors Holden (Holden) announced its plan to exit car manufacturing in Australia by the end of 2017.

Immediately after the exit announcement by Holden, Toyota expressed its fear that it was in peril:

This will place unprecedented pressure on the local 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.

Other stakeholders in the automotive industry also expressed similar fears. Apprehensive of Toyota’s ability to continue manufacturing, the Australian Manufacturing Workers Union (AMWU) national vehicles division secretary, Dave Smith, said, “It’s now highly likely that Toyota will leave Australia. In fact it’s almost certain.”

Why did Toyota fear that Holden’s exit would put unprecedented pressure on the local suppliers? How was Holden’s exit related to Toyota’s ability to build cars? Why were observers contemplating an exit by Toyota, the best-selling and most trusted brand in Australia, especially when it had been planning to continue its transformation journey? What had gone wrong with the company that had such a glorious long history of production? Should Toyota stop manufacturing in Australia?

TOYOTA AUSTRALIA: A GLORIOUS LONG HISTORY OF PRODUCTION5

Toyota 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 Toyota model assembled in Australia was the Tiara. Between 1964 and 1968, Toyota began assembling three more models —the Corona, the Crown and the Corolla. At its new Altona plant in Melbourne, it started producing engines in 1978, and car body panels in 1981. In 1986, for the first time, Toyota 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 form Toyota Motor Corporation Australia.

In 1994/95, Toyota stopped 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, Toyota expanded its reach to foreign markets by exporting the Camry to the Middle East, where it became the area’s number-one selling car. From the Altona plant, Toyota also started producing the Avalon model in 2000. Its journey with innovative products continued in the subsequent period. In 2010, it released the Camry hybrid, the first hybrid car manufactured in Australia. It launched the New Generation Camry Model in 2011.

Toyota emerged as the market leader in Australia for the first time in 1991. It registered record sales of more than 186,000 cars in 2003 and remained the overall market leader for the subsequent 11 years (see Exhibit 2 and Exhibit 3). The company also registered a huge success in the export market, and emerged as the leader in this segment. It exported almost two-thirds of its production (see Exhibit 4) from the Altona plant to 13 countries worldwide. In 2011, Toyota Australia, the country’s biggest automotive exporter, exported nearly 60,000 units worth $1.004 billion6 (including parts and accessories).

As per a poll conducted by Readers’ Digest Australia in 2013, Toyota was the most trusted automotive brand in Australia. A balanced business model and innovative quality products were the keys to Toyota’s past success and had helped to build its brand.

BUSINESS MODEL

Toyota Australia followed a balanced business model (see Exhibit 5), which included a three-pronged strategy  of  manufacturing  vehicles  domestically,  exporting  some  of  its  domestically  manufactured vehicles and importing some components from cheaper sources.

In the domestic manufacturing process, Toyota followed the “just in time” 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 turn, stimulated production and delivery of the necessary parts. The just in time approach resulted in the right parts and materials manufactured and provided in the exact amount and place where they were needed. Along with the just in time approach, Toyota   also   followed   “Kaizen,”    the   practice   represented   by   employees   making   day-to-day improvements in their working practices and equipment. “Jidoka,” automation with a human touch, was another process adopted by Toyota. Such approaches to the domestic manufacturing process strengthened Toyota’s brand image by contributing to Australian society in terms of value-addition and employment, and good quality products, and supported its position as the market leader.

However, Australia’s domestic market for cars was very thin. To overcome the constraint imposed by domestic demand, Toyota pursued an export-oriented strategy. As a part of this strategy, 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. Toyota’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 almost 70 per cent of Toyota’s total production (see Exhibit 4).Similar to other car manufacturers, Toyota 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 Toyota to manage the costs of components. This business model had made Toyota the most successful car brand in Australia.

ADVERSE EXTERNAL ENVIRONMENT

Toyota, along with other players in the automotive sector, operated in a growingly adverse environment.

Competitive Fragmented Market Structure

In 2013, apart from Toyota, Australia had two car manufacturers: Ford Motor Company of Australia (Ford) and General Motors Holden (Holden). Like Toyota, these manufacturers were foreign-owned subsidiaries of global companies that had affiliates in many countries. But, for Toyota, competition was not limited to these domestic manufacturers.
 

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