Image Courtesy – Japan Yours

In the automotive arena, Toyota Motor has once again secured its position as the world’s leading automaker for the fourth consecutive year, underscoring its market resilience and widespread consumer appeal.

Toyota’s ascendancy in the automotive market remains unparalleled, with a notable 7.2% surge in global group sales reported for the previous year. This impressive figure encompasses the performance of various entities under the Toyota umbrella, including the small-car manufacturer Daihatsu and the truck unit Hino Motors. The 11.2 million units sold in 2023 exemplify Toyota’s enduring ability to not only retain its market share but also expand its global reach.

Early days of Toyota

The story of Toyota, one of the world’s largest and most influential automakers, began in the early 20th century in the weaving industry. Toyota’s origins are deeply rooted in the innovative spirit of its founder, Kiichiro Toyoda, and the company’s journey from textile machinery to automotive excellence is a testament to adaptability, resilience, and a commitment to continuous improvement.

Kiichiro Toyoda, inspired by his father’s innovative spirit, recognized the potential in the emerging automobile industry. In 1933, he established the Toyota Motor Co., envisioning a company that would produce affordable and reliable vehicles for the masses. The decision to shift from looms to automobiles marked a pivotal moment in the company’s history.

One of the key factors behind Toyota’s success lies in the development of the Toyota Production System (TPS). This revolutionary manufacturing philosophy, often referred to as “Just-In-Time” production, emphasized minimizing waste, efficient resource utilization, and continuous improvement. TPS became a cornerstone of Toyota’s operations and set new standards for the global automotive industry.

Toyota introduced its first passenger car, the Model AA, in 1936. However, it was the post-World War II era that saw Toyota gain international recognition. The Land Cruiser, initially designed as a military vehicle, became a popular choice for off-road enthusiasts and laid the groundwork for Toyota’s global expansion. The introduction of the Corolla in the 1960s solidified Toyota’s reputation for producing reliable and fuel-efficient cars, making it a household name worldwide.

What’s the competition?

Toyota, despite facing intensified competition from second-ranked German rival Volkswagen Group, has demonstrated resilience by reporting record-breaking sales. In 2023, the conglomerate’s parent-only vehicles, encompassing both Toyota and Lexus brands, soared to a commendable 10.3 million units, showcasing a substantial 12% increase in deliveries. This notable surge serves as a testament to Toyota’s post-pandemic recovery, facilitated by the alleviation of supply chain bottlenecks.

A comprehensive breakdown of Toyota’s sales portfolio reveals a strategic emphasis on gasoline-electric hybrids, constituting approximately one-third of the total sales. Intriguingly, battery electric vehicles, while gaining traction, constitute less than 1% of the overall sales, signaling a nuanced approach to alternative propulsion technologies.

However, beneath the veneer of success lies a series of challenges that Toyota confronts. The recent suspension of shipments by Daihatsu, a subsidiary of Toyota, following a safety scandal investigation involving 64 models, poses a tangible risk to the group’s sales momentum. This event, coupled with a 25% decline in Daihatsu’s global production in December and an 8% dip in worldwide sales during the same period, demands strategic recalibration.

Moreover, Toyota’s decision to halt shipments of select models, including the Hilux truck and Land Cruiser 300 SUV, due to irregularities in diesel engine tests conducted by supplier Toyota Industries, underscores the vulnerability of even established automotive giants to supplier-related issues.

The shadow of a previous emissions scandal at Hino Motors, a Toyota subsidiary, looms large as well. The 2022 revelation that Hino Motors had falsified engine emissions data dating back to 2003 underscores the need for comprehensive quality control measures and vigilant oversight within the entire Toyota group.

What can infant industries learn from Toyota? (Link 01)

In the early 1930s, the Japanese automotive market faced domination by Ford-Japan and GM-Japan. Despite prior efforts by the Ministry of War to support military truck manufacturing, it failed to catalyze the development of a robust domestic automotive industry. Ford-Japan and GM-Japan, in their pursuit of efficiency, increased the import of automobile parts from the United States, contributing to Japan’s expanding trade deficit. The urgent need for a domestic automotive industry became apparent, especially from a national defense perspective.

In response, the Ministry of Commerce and Industry established the Automobile Industry Establishment Research Committee in 1931. This committee aimed to formulate plans for domestic automobile manufacturing. Despite initial progress with the design and completion of nine prototype vehicles in 1932, the Ministry’s plan collapsed two years later, and the establishment of a national automotive industry remained unrealized.

After World War II, Japan tightly controlled imports due to low foreign currency reserves. Government approval was necessary for foreign currency allocation, and stringent restrictions were imposed on imports to preserve monetary reserves.

In 1962, the Japanese Ministry of International Trade and Industry (MITI) established a passenger vehicle policy committee, signaling a shift towards considering trade liberalization in the automotive sector. By December 1962, the committee recommended liberalizing auto imports by the end of fiscal 1964, necessitating preparations to enhance the international competitiveness of Japan’s passenger vehicle industry.

MITI advised Japanese automakers to reduce passenger car prices and modified the foreign currency allocation system to allocate currency upon request, rather than adhering to a fixed quota system. Concessional government loans were offered to incentivize mergers among Japanese automakers for increased production scales.

In September 1964, MITI urged Japanese auto manufacturers to cooperate domestically, refraining from foreign alliances and foreign capital involvement. The liberalization process culminated on October 1, 1965, with the abolition of the quota system for assembled passenger vehicles, allowing the general public to import vehicles freely.

Notably, liberalization in 1965 applied only to assembled passenger vehicles, while import restrictions persisted for engines, major engine components, engine and chassis assemblies, and used passenger vehicles. The industry, supported by MITI, aimed to safeguard against foreign investment in assembly factories.

It is crucial to highlight that liberalization did not equate to zero tariffs. The reduction of the 40% tariff on imported assembled passenger cars began in 1968 and continued with subsequent reductions. By March 1978, Japan completely abolished tariffs on passenger car imports, marking a pivotal moment when automobile imports became free of both quotas and tariffs. This transformative phase opened new possibilities for Japan’s automotive landscape, paving the way for increased competition and international collaboration.

Link 01 – https://econ.meijigakuin.ac.jp/research/publication/pdf/153-11.pdf