ECON 230: Milestone 1 (Toyota)

Toyota Motor Company

Thomas Larkin

College of Arts & Sciences, Regent University

ECON 230: Macroeconomics

Dr. Bajah

Sunday, September 4, 2022

Toyota Motor Company

Company Overview

Founded in 1937 by Kiichiro Toyoda, the Toyota Motor Company (commonly referred to just as Toyota) has become the largest car company in the world by sales. While starting as a local Japanese car company, basing its designs off American and European designs, it has grown to dominance, known for low cost, reliable, and fuel-efficient cars. They employ 70,710 workers directly, and 372,817 workers in total through all of their subsidiaries (as of March 31, 2022) (Toyota, n.d.b). Toyota is responsible for making 10,076,246 cars in 2021 and has made 5,935,104 cars from January to July of 2022 (Toyota, 2022a, 2022b). While they are well-known for cars such as the Corolla, Camry, or Land Cruiser, the thing that has brought them the most fame is likely their cars’ overall reliability.

Does the company have a comparative advantage over its rivals?

Toyota’s comparative advantages can be ordered into three distinct categories. Those are its methods of manufacturing, its vehicles, and its philosophy. Toyota has a few simple policies to ensure that manufacturing is as efficient at catching defects as humanly possible. The first policy is just-in-time delivery (Toma & Naruo, 2017). By only having a few hours’ worth of parts at any given time, they ensure that if a defect is found within the parts, it can quickly be addressed, leading to minimal waste while maintaining high standards. Another policy is a focus on heavily utilizing automation during the manufacturing process (Toma & Naruo, 2017). By largely eliminating humans from the production of parts, they can eliminate many of the defects that would come from human error. To compliment this, if any worker on the factory line spots a defect, they can easily bring the whole production line to a halt, so that Toyota can trace the problem back to its roots and fix it (Toma & Naruo, 2017). This ensures that problems with the automation can be fixed quickly. Finally, all employees are encouraged to give suggestions for how they believe the system can be improved (Toma & Naruo, 2017). Upper management looks through these ideas and implements the ones that it thinks will work. While the manufacturing ensures high quality in its cars, another reason that Toyota succeeds is the cars’ designs. As mentioned before, if there is something Toyota is well known for, it is reliable, affordable, and fuel efficient cars. The base line model for the Camry LE, part of the Camry 2023 line, has a starting MSRP of around 26,000 dollars (Toyota, n.d.a). When looking at Ford’s lineup of cars and SUVs, only the Ford 2022 EcoSport, starting at 22,000 dollars, beats it in upfront price (Ford, n.d.). However, with that said, the EcoSport’s maximum mileage per gallon (that being 29) is only 1 mile higher than the Camry’s low end. On the Camry’s high end, it gets 39 miles per gallon (Ford, n.d.; Toyota, n.d.a). This leaves us with Toyota’s philosophy. Sorin-George Toma and Shinji Naruo, (two faculty from the University of Bucharest) made a paper in 2017 that explained what they believed to be the best practices that Toyota used to become as successful as they are (Toma & Naruo, 2017). They point to a focus on the customer as the first of such philosophies. They point out that Toyota, both in past and in present, strived for insight into foreign markets, and will often quickly learn from their mistakes, having gained a greater insight into those markets (Toma & Naruo, 2017). Toma and Narou also point out that strong leadership has always played a big part in the company (Toma & Naruo, 2017). Most of top management in the company tend to be visionaries that are very good at connecting with their employees and that give a guiding hand to the company. Finally, Toma and Narou point out that Toyota is constantly trying to improve what they have (Toma & Naruo, 2017). Rather than being satisfied with their spot as the top automotive manufacturer, they constantly push to improve their designs, knowledge, services, processes, and even their guiding philosophies. All of these things come together to plant them in the spot as the largest car manufacturer in the world.

Explain the supply and demand for its key product or service

Toyota is currently in an interesting spot when it comes to their supply and demand. Recently, the car market has been quickly losing ground to the SUV market (CNBC, 2020). This has led companies like Ford to stop making cars entirely (other than the Mustang). Given that a large portion of Toyota’s sales come from cars, you would think this is a detriment (CNBC, 2020). However, they see this as a golden opportunity (CNBC, 2020). The Toyota Camry’s market share went from 15 percent in 2015 to 20 percent in 2019 (CNBC, 2020). We can see this reflected in their sales. Looking at the sales reports from January of 2022 to July of 2022, we see that sales are outpacing production (Toyota, 2022a). In the first half of 2022, Toyota sold 6,010,568 vehicles in total (Toyota, 2022a). However, they only produced 5,935,104 vehicles during that time (Toyota, 2022a). This implies that for 2022, demand is greater than the current supply. Looking at the trends for 2021, we see that Toyota tends to underproduce cars during most months, having occasional bursts where they significantly overproduce. While there is no official statement as to the reason for this strange occurrence, we can deduce a likely reason. Given that this seems to have little to do with sudden drops in cars sold, (as we see them underproduce even during those drops), we can assume that when they overproduce, it is to rebuild reserves. In other words, they intentionally underproduce to ensure they do not have leftover inventory, with occasional bursts so that they can keep up with the trend. This seems to be in line with their general just in time inventory policy.

Provide the GDP of its home country and a key market (country).

Toyota’s home country, (Japan), has a GDP of 4.94 trillion U.S. dollars a year as of 2021 (The World Bank, n.d.). The U.S. (one of Japan’s most important markets) has a GDP of 23 trillion U.S. dollars a year as of 2021 (The World Bank, n.d.).

How does fluctuations in GDP, economic growth, investments, and patents affect the company’s profitability?

Toyota’s key markets include the U.S. and Japan. An increase is GDP in either country would be beneficial for Toyota. In Japan, an increase in GDP likely points to a healthy economy. This would make it easier to obtain loans, employees, and raw resources. An increase in U.S. GDP would likely have a similar effect, as the U.S. has a great deal of economic sway over the rest of the world, and any impact to their GPD would likely affect Japan. Beyond that, an increase to U.S. GDP would likely lead to an increase in car sales. Negative GDP growth would have an opposite effect. One major disadvantage for Toyota in foreign markets like the U.S. is the tariffs involved. The U.S. tends to be protective of its car industry, and so Toyota would have to increase prices to compensate for the tariffs. We have seen that Toyota has, (in part), gotten around many U.S. tariffs by making manufacturing plants in Canada, which has much more favorable trade deals with the U.S.

References

CNBC. (2020, March 2). How the ‘Boring’ Toyota Camry Became a Best-Seller in America [Video]. Youtube. https://www.youtube.com/watch?v=ZTSvpoUtON0.

Ford. (n.d.). All Vehicles. Retrieved September 1, 2022, from https://shop.ford.com/showroom/?gnav=header-suvs-all-vehicles#/.

The World Bank. (n.d.). GDP (current US$). Retrieved September 1, 2022, from https://data.worldbank.org/indicator/NY.GDP.MKTP.CD.

Toma, S. G., Naruo, S. (2017). Total Quality Management and Business Excellence: The Best Practices at Toyota Motor Corporation.  Amfiteatru Economic, 19(45), pp. 566-580. ttps://www.proquest.com/docview/1903083238/fulltext/C07FD750A0894249PQ/1?accountid=13479.

Toyota. (n.d.). Camry. Retrieved September 1, 2022, from https://www.toyota.com/camry/?srchid=SEM:700000001483657:MICROSOFT:71700000083579667:58700007062184415:p63563979612:&gclid=a33a0b86b06a1bdb0f4b68967fdf147a&gclsrc=3p.ds&msclkid=a33a0b86b06a1bdb0f4b68967fdf147a&utm_source=bing&utm_medium=cpc&utm_campaign=Model_Camry_CT&utm_term=toyota%20camry&utm_content=Model_Camry_Pure_Exact.

Toyota. (n.d.). Overview. Retrieved September 1, 2022, from https://global.toyota/en/company/profile/overview/?padid=ag478_from_header_menu.

Toyota. (2022, August 30). Sales, Production, and Export Results for July 2022. https://global.toyota/en/company/profile/production-sales-figures/202207.html.

Toyota. (2022, January 28). Sales, Production, and Export Results for 2021 (January - December). https://global.toyota/en/company/profile/production-sales-figures/202112.html.