Toyota’s Troubles: Money, Metal and Memogate
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Toyota’s Troubles: Money, Metal and Memogate
By Frank Williams
February 9th, 2007
For decades, Toyota has balanced superb management, impeccable quality, exemplary financial discipline and flawless product planning. As other manufacturers chased market trends and neglected core models, Toyota made incremental improvements to existing models and introduced new models slowly and carefully. Their perseverance has paid off; they’ve elbowed Ford aside and are nipping at GM’s heels. But as Toyota prepares to replace The General as the world’s largest automaker, they’re finding out that getting to the top is one thing; staying there is something else altogether.
No doubt about it: Toyota’s on a roll. They posted a record $3.6b third quarter corporate earnings and hope to exceed $13b profits for this fiscal year. In spite of growing profits worldwide, the picture isn’t so rosy on this side of the globe. Although their revenues in North America were up 17.3 percent, their North American operating profits were down 22.4 percent in the third quarter.
Part of Toyota’s American problem relates to federal contract-sized cost overruns on their new truck plant in Texas. When ToMoCo started the project, they budgeted $850m to git ‘er done. To date, the company’s sunk almost $1.3b on the plant– and they’re still spending. The expenditure seems manageable enough, until you tote-up the cash they’re also shelling out to build another Canadian facility and modify the Subaru plant in Indiana to build Camrys.
Perhaps Toyota should be putting some more of their resources into making sure their products live up to their reputation for quality. As production numbers rise, their recall rate is keeping pace. The latest recall– involving faulty ball joints in the previous generation Tundra and Sequoia– could end up costing Toyota more than $600m.
And then there are the high hundreds of millions of dollars Toyota may need to settle the class-action suit for oil sludge (affecting about 3.5m Toyotas and Lexi). All in all, we’re talking about a serious chunk of change coming directly off the bottom line.
Meanwhile and in any case, sales of the Pious Prius are down. Whereas the automaker once measured the model’s supply in hours, there’s now a 30-day supply sitting on dealers’ lots. Though it’s nothing like the 80 day supply of GM product lingering on their dealers’ lots, the growing Prii glut is definitely trending in the wrong direction.
The extra inventory is attributable to a combination of factors which, uncharacteristically, Toyota didn’t read correctly. They increased production just as gas prices started going down, the hybrid tax credits started going away and those buying hybrids to make a social statement had bought them. So, for the first time in the model’s short lifetime, Toyota’s offering incentives. They’re nothing on the scale of The Big 2.5’s spiffs of course, but it’s cash on the hood nonetheless.
These issues pale in comparison to one problem that could make or break Toyota’s North American operations: their relationship with their hourly workers. In a confidential memo that accidentally ended up in workers’ hands, Seiichi Sudo, president of Engineering and Manufacturing in North America, discussed the cost of American labor and the steps they need to take to control those costs.
The memo, which was inadvertently stored on a shared computer drive, states the US auto industry pays some of the highest manufacturing wages in the world. It compares American wages to those in France and Japan (50 percent higher) and Mexico (500 percent higher). They project their American labor costs will increase by $900m over the next four years.
Toyota’s concerned that even though their profit margin is increasing, it’s not growing as fast as their labor costs. Their strategy: “base our Hourly Wages more closely with the State Manufacturing Wages where each plant is located, and not tie ourselves so closely to the US Auto Industry, or other competitors.” Their “challenge”: how they’ll tell the workers “so that they can understand and accept change.”
The bottom line: “Human Resources is developing strategies which will reduce Labor Cost (and increase Profits) by $300 Million by Fiscal 2011 by focusing on: Headcount and Rate (Wages and Benefits).” This isn’t exactly what you want the rank and file to hear.
This memo could do more to damage Toyota’s future than any other factor. Toyota got a lot of press when the (non-union) workers at their Kentucky plant made more than union workers on average last year. Now they want the same workers to take a pay and benefit cut. Is that the UAW I hear knocking at the back door?
Ironically enough, Toyota is in the roughly the same position (re: its labor relations) as GM during the ‘70’s. Of course, GM basically rolled over and played dead for the UAW, burdening itself with an unwieldy labor force and an unsustainable cost structure. Will Toyota make the same mistake? It’s not likely. But it is possible.
February 9th, 2007
For decades, Toyota has balanced superb management, impeccable quality, exemplary financial discipline and flawless product planning. As other manufacturers chased market trends and neglected core models, Toyota made incremental improvements to existing models and introduced new models slowly and carefully. Their perseverance has paid off; they’ve elbowed Ford aside and are nipping at GM’s heels. But as Toyota prepares to replace The General as the world’s largest automaker, they’re finding out that getting to the top is one thing; staying there is something else altogether.
No doubt about it: Toyota’s on a roll. They posted a record $3.6b third quarter corporate earnings and hope to exceed $13b profits for this fiscal year. In spite of growing profits worldwide, the picture isn’t so rosy on this side of the globe. Although their revenues in North America were up 17.3 percent, their North American operating profits were down 22.4 percent in the third quarter.
Part of Toyota’s American problem relates to federal contract-sized cost overruns on their new truck plant in Texas. When ToMoCo started the project, they budgeted $850m to git ‘er done. To date, the company’s sunk almost $1.3b on the plant– and they’re still spending. The expenditure seems manageable enough, until you tote-up the cash they’re also shelling out to build another Canadian facility and modify the Subaru plant in Indiana to build Camrys.
Perhaps Toyota should be putting some more of their resources into making sure their products live up to their reputation for quality. As production numbers rise, their recall rate is keeping pace. The latest recall– involving faulty ball joints in the previous generation Tundra and Sequoia– could end up costing Toyota more than $600m.
And then there are the high hundreds of millions of dollars Toyota may need to settle the class-action suit for oil sludge (affecting about 3.5m Toyotas and Lexi). All in all, we’re talking about a serious chunk of change coming directly off the bottom line.
Meanwhile and in any case, sales of the Pious Prius are down. Whereas the automaker once measured the model’s supply in hours, there’s now a 30-day supply sitting on dealers’ lots. Though it’s nothing like the 80 day supply of GM product lingering on their dealers’ lots, the growing Prii glut is definitely trending in the wrong direction.
The extra inventory is attributable to a combination of factors which, uncharacteristically, Toyota didn’t read correctly. They increased production just as gas prices started going down, the hybrid tax credits started going away and those buying hybrids to make a social statement had bought them. So, for the first time in the model’s short lifetime, Toyota’s offering incentives. They’re nothing on the scale of The Big 2.5’s spiffs of course, but it’s cash on the hood nonetheless.
These issues pale in comparison to one problem that could make or break Toyota’s North American operations: their relationship with their hourly workers. In a confidential memo that accidentally ended up in workers’ hands, Seiichi Sudo, president of Engineering and Manufacturing in North America, discussed the cost of American labor and the steps they need to take to control those costs.
The memo, which was inadvertently stored on a shared computer drive, states the US auto industry pays some of the highest manufacturing wages in the world. It compares American wages to those in France and Japan (50 percent higher) and Mexico (500 percent higher). They project their American labor costs will increase by $900m over the next four years.
Toyota’s concerned that even though their profit margin is increasing, it’s not growing as fast as their labor costs. Their strategy: “base our Hourly Wages more closely with the State Manufacturing Wages where each plant is located, and not tie ourselves so closely to the US Auto Industry, or other competitors.” Their “challenge”: how they’ll tell the workers “so that they can understand and accept change.”
The bottom line: “Human Resources is developing strategies which will reduce Labor Cost (and increase Profits) by $300 Million by Fiscal 2011 by focusing on: Headcount and Rate (Wages and Benefits).” This isn’t exactly what you want the rank and file to hear.
This memo could do more to damage Toyota’s future than any other factor. Toyota got a lot of press when the (non-union) workers at their Kentucky plant made more than union workers on average last year. Now they want the same workers to take a pay and benefit cut. Is that the UAW I hear knocking at the back door?
Ironically enough, Toyota is in the roughly the same position (re: its labor relations) as GM during the ‘70’s. Of course, GM basically rolled over and played dead for the UAW, burdening itself with an unwieldy labor force and an unsustainable cost structure. Will Toyota make the same mistake? It’s not likely. But it is possible.
Source : thetruthaboutcars
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right, how bout ttac has zero professionalism. it's nothing more than an internet blog, full of misinformation. they offer nothing but trash, and hate speech.
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All the memo states is that Toyota wants to lower labor related costs, this includes overhead.
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I see that. I guess Toyota could have a cleaver way to lower the labor costs, but generally that always means some sort of cut backs either in labor wages, benefits, or employees. Especially when they state they want to base hourly wages closer to the State's Manufacturing Wages where the plant is located. If the Toyota labor force has a higher average hourly wage than the State Manufacturing wages, what exactly is Toyota saying than? If you look at the chart in the square box, wages and benefits are mentioned in their goal of controlling labor by reducing it by $300 million.
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February 8, 2007, 3:10 pm
Toyota’s top North American executive Jim Press said Thursday that the auto maker is looking to cut labor costs in the U.S. without shaving wages for workers.
Mr. Press, speaking to the Economic Club of Chicago, said that the company needs to combat rising costs in North America to preserve its current level of profitability. He said Toyota offers employees “above average pay” and he said the auto maker is one of the “highest paying auto companies” in the U.S. His comments follow a report published Thursday by the Detroit Free Press that cited internal Toyota data related to a need to dramatically cut labor costs in the U.S.
Mr. Press acknowledged the report, but said it “doesn’t really state what our plans are … it’s a discussion.” He added: “What we want to do is head off the issues,” relating to a need to cut overhead in the U.S., where rising health-care expenses are taking a heavy toll on the U.S. auto industry. – John D. Stoll
Toyota’s top North American executive Jim Press said Thursday that the auto maker is looking to cut labor costs in the U.S. without shaving wages for workers.
Mr. Press, speaking to the Economic Club of Chicago, said that the company needs to combat rising costs in North America to preserve its current level of profitability. He said Toyota offers employees “above average pay” and he said the auto maker is one of the “highest paying auto companies” in the U.S. His comments follow a report published Thursday by the Detroit Free Press that cited internal Toyota data related to a need to dramatically cut labor costs in the U.S.
Mr. Press acknowledged the report, but said it “doesn’t really state what our plans are … it’s a discussion.” He added: “What we want to do is head off the issues,” relating to a need to cut overhead in the U.S., where rising health-care expenses are taking a heavy toll on the U.S. auto industry. – John D. Stoll
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recall Toyota added a clinic at the SA Tundra to cut costs.
ttac has zero credibility or training in predicting anything related to the market.
ttac has zero credibility or training in predicting anything related to the market.
Last edited by Mr. Jones; 02-10-07 at 02:45 AM.
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February 7, 2007, 12:26 pm
Toyota to Launch Major Prius Hybrid Marketing Blitz
Toyota is set to launch a major advertising blitz for its Prius hybrid-electric sedan that is intended to help increase the vehicle’s U.S. sales 75% in 2007, which would make it one of the best-selling midsize cars in the country.
Jim Farley, the head of the Toyota’s U.S. sales operation, said Wednesday in Chicago that the company must address concerns in the market regarding the vehicle, while also setting the vehicle apart from the growing number of hybrids available in the U.S. Mr. Farley said the company anticipates some headwind for the Prius coming late in 2007 related to a government regulation that will force the company to cut its fuel-economy rating from about 60 miles-per-gallon to the mid-40s.
Toyota launched the Prius in the U.S. in 2000 and has enjoyed considerable success relative to the growing hybrid market. The vehicle is capable of running on battery power and power from a conventional engine. Mr. Farley said the Prius is now Toyota’s third-highest selling passenger car in the U.S. and the plan is to have the vehicle become one of the best-selling passenger cars in the U.S. He said the company sold about 100,000 Prius models last year, and is looking to boost that to 175,000 in 2007. The company’s new marketing campaign may dwarf past efforts related to the vehicle, Mr. Farley said. Toyota, he said, has never had a devoted marketing campaign for the Prius and the push will be similar its support for the Camry sedan and Tundra pickup.
Mr. Farley said an increasingly crowded hybrid market has prompted Toyota to increase its Prius marketing. In addition, Mr. Farley said Toyota needs to combat misconceptions about the Prius. He said there is an “urban myth” that the Prius achieves better fuel economy than it actually does. He also said some people are afraid of the Prius’s technology and Toyota will work to combat that notion. – John D. Stoll
Toyota to Launch Major Prius Hybrid Marketing Blitz
Toyota is set to launch a major advertising blitz for its Prius hybrid-electric sedan that is intended to help increase the vehicle’s U.S. sales 75% in 2007, which would make it one of the best-selling midsize cars in the country.
Jim Farley, the head of the Toyota’s U.S. sales operation, said Wednesday in Chicago that the company must address concerns in the market regarding the vehicle, while also setting the vehicle apart from the growing number of hybrids available in the U.S. Mr. Farley said the company anticipates some headwind for the Prius coming late in 2007 related to a government regulation that will force the company to cut its fuel-economy rating from about 60 miles-per-gallon to the mid-40s.
Toyota launched the Prius in the U.S. in 2000 and has enjoyed considerable success relative to the growing hybrid market. The vehicle is capable of running on battery power and power from a conventional engine. Mr. Farley said the Prius is now Toyota’s third-highest selling passenger car in the U.S. and the plan is to have the vehicle become one of the best-selling passenger cars in the U.S. He said the company sold about 100,000 Prius models last year, and is looking to boost that to 175,000 in 2007. The company’s new marketing campaign may dwarf past efforts related to the vehicle, Mr. Farley said. Toyota, he said, has never had a devoted marketing campaign for the Prius and the push will be similar its support for the Camry sedan and Tundra pickup.
Mr. Farley said an increasingly crowded hybrid market has prompted Toyota to increase its Prius marketing. In addition, Mr. Farley said Toyota needs to combat misconceptions about the Prius. He said there is an “urban myth” that the Prius achieves better fuel economy than it actually does. He also said some people are afraid of the Prius’s technology and Toyota will work to combat that notion. – John D. Stoll
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