3.3.SWOT Analysis
Strengths:
Strong market position and brand recognition: Toyota has a strong market position in different geographies across the
world. The company's market share for Toyota and Lexus brands, (excluding mini vehicles) in Japan was 45.5% in
FY2012. Similarly, Toyota has a market share of 12.2% in North America, 13.4% market share in Asia (excluding Japan
and China), and 4.3% market share in Europe. In addition, the company holds a 7% share of the Chinese market and a
significant market share in South and Central America, Oceania, Africa and the Middle East regions. Such strong market
position allows the company to gain competitive advantage and also expand into international markets. In addition,
Toyota holds a portfolio of strong brands in the automotive industry. Thus, the company's strong market position gives it
significant competitive advantage and helps it to register higher sales growth in domestic and international markets. 8
Strong focus on R&D: Toyota has a strong focus on R&D to expand its product portfolio and improve the functionality,
quality; safety and environmental compatibility of its products. The company's R&D efforts are directed at developing
new products and processes and improving the capabilities of existing products. The company conducts its R&D
operations at 14 facilities worldwide. Strong focus on R&D has helped the company in incorporating newer features to its
existing range of products and also in bringing out latest technologies in the varied areas. The company's strong focus on
R&D allows it to uphold the technological leadership in most of its product segments. It also enables Toyota to develop
innovative products, leading to strong sales. 9
Extensive production and distribution network: Toyota has an extensive production and distribution network. Toyota
and its affiliates produce automobiles and related parts and components through more than 50 manufacturing companies
in 27 countries and regions besides Japan. During FY2012, the company produced 7,435,781 vehicles, including
3,940,000 vehicles in Japan and 3,495,000 vehicles across all other manufacturing locations. In addition, Toyota has an
extensive distribution network. While the company’s geographically well spread production base diversifies business
risks, its extensive distribution network provides a wider reach, thus boosting revenues. 10
Weaknesses:
Product recalls could affect brand image: Toyota has conducted a number of product recalls in the recent past, which
could affect the brand image and overall sales of the company. For instance, in 2011, Toyota recalled 111,000 models of
Toyota and Lexus brands’ vehicles due to the damage to elements of the substrate and potential shutdown of the hybrid
system. Further in the year, Toyota recalled 181,000 vehicles in Japan in relation to abnormal noise and oil leakage that
Analysis of Toyota Motor Corporation by Thembani Nkomo
may have resulted from slack of bolts in the sub transmission and the rear wheel differential. In addition, the company
was involved in government investigations related to product recalls. For instance, in February 2012, the National
Highway Traffic Safety Administration initiated a preliminary investigation of a potentially faulty power window master
switch in the driver-side doors in model year 2007 Camry and RAV4 vehicles. This could also result in significant
penalties, which could affect the operational margins. 11
Declining sales in key geographic segments: Toyota witnessed a decline in its sales in key geographic segments. In
FY2012, the company witnessed declining sales across North America, Asia, Europe and other geographic reasons,
which together accounted for 60.8% of the total revenues of the company. Thus, a continuous decline in the company's
key geographic segments could put pressure on the profit making segments and the overall revenues of Toyota. 12
Poor allocation of resources as compared to peers: Toyota has low return on equity (ROE) and return on assets (ROA)
compared to its peer companies. The company's competitors such as Honda Motor and Nissan Motor have more ROE
when compared to Toyota. Honda Motor's ROE was 4.8%, while Nissan Motor's ROE was 8% in FY2012. In contrast,
Toyota's ROE was 2.7% in FY2012. Lower ROE and ROA compared to its peers indicates that the company is not using
the shareholders' money efficiently and that it is not generating high returns for its shareholders. Thus, poor allocation of
resources could hurt shareholder's value and confidence in the long term. 13
Opportunities:
Growing global automotive industry: The global automotive industry was severely affected by the economic downturn,
with a decline in revenues being recorded in 2008 and 2009. However, 2011 saw a strong rebound which has continued
into 2012. According to MarketLine, the global automotive manufacturing industry grew by 8.9% in 2012 to reach a
value of $1,563.9 billion. The recovery of global automotive industry thus provides Toyota an opportunity to gain more
customers and increase revenues. 14
Toyota poised to benefit from growing partnership with BMW: Toyota is poised to benefit from the growing
partnership with BMW. In June 2012, BMW and Toyota signed a memorandum of understanding aimed at long-term
strategic collaboration on technological fields. As part of the agreement, the two companies will partner for the joint
development of a fuel cell system, joint development of architecture and components for a future sports vehicle,
collaboration on power-train electrification and joint research and development on lightweight technologies. The growing
partnership between the two companies is expected to boost the technological know-how of the companies and may
result in the development of new products thus increasing revenues in the long run. Also, in the short run, the combined
partnership will result in significant synergies and cost-savings, boosting the operational margins. 15
Strong outlook for the global new car market: The global new cars market has experienced moderate growth during
2008-2012. However, forecasts suggest this will accelerate to strong double digit growth during the 2012-2016 periods.
Thus, the strong outlook for the global new car market coupled with the company’s new product launches provides a
growth opportunity for the company. 16
Threats:
Intense competition: The worldwide automotive market is highly competitive. Toyota faces strong competition from
automotive manufacturers in its various markets. The competition among various auto players is likely to intensify in
light of continuing globalization and consolidation in the worldwide automotive industry. The factors impacting
competition include product quality and features, the amount of time required for innovation and development, pricing,
reliability, safety, fuel economy, customer service and financing terms. Increased competition may lead to lower vehicle
unit sales and large inventory, which may result in downward pricing pressure, thus impacting the financial condition and
results of operations of the company. 17
Appreciating Japanese Yen a major concern: Toyota is sensitive to the fluctuations in foreign currency exchange rates
and is principally exposed to fluctuations in the value of the Japanese Yen, the US dollar and the Euro. The strengthening
of the Japanese Yen against the US dollar and fluctuations in foreign exchange rates would have a material adverse effect
on Toyota's reported operating results, which in turn would impact the valuation of the company. 18
Natural disasters could impact production structure: Toyota is subject to disruption of production due to natural
disasters such as earthquakes, floods, among others. Toyota primarily operates in Japan which is a highest earthquake
prone region in the world. The country has witnessed many devastating earthquakes in the recent years which seriously
disrupted the economy. In 2011, the country witnessed one of the worst hit earthquakes in its history in the form of 2011
Tohoku earthquake, which led to a temporary production halt at its domestic auto manufacturing facilities. In the same
year, major floods occurred in Thailand which halted its operations and production of about 150,000 Toyota automobiles.
Such natural calamities, if occur frequently, could severely influence the production output of the company due to work
stoppages and in turn impact the overall revenue base and profitability.