Toyota’s European Operating Exposure
1. Why do you think Toyota had waited so long to move much of its manufacturing for European sales to Europe?
By 2001, Toyota’s operating losses in Europe had reached 9.9 billion Yen. Much of this loss was due to Toyota’s operating exposure which was a result of the sliding value of the euro with respect to the Japanese Yen. Between early 1999 and early 2001 (2 year ~ medium-run time horizon), the euro had fallen by approximately 28% with respect to the yen and about 14% with respect to the British pound. By now, Toyota had already taken significant losses for their sales within Europe due to the sliding value of the euro. However, I believe that Toyota’s strategy at this point was to …show more content…
The main problem posing TMEM, and in particular, Mr. Shuhei was the fact that unfavorable euro exchange rates were resulting in continued operating losses. This was the essence of the mini case. The gradual slide in the euro between 1999 and by the end of 2000 subjected TMEM to a significant amount of currency risk and it would require an optimal solution to overcome this problem. If I were Mr. Shuhei, I would choose to keep the European sale prices constant (in euros) in the short-term. This would ensure that Toyota’s competitive advantage would remain un-compromised within the first year of the euros fall against the yen. In the Medium Run (2-5 year time frame), TMEM could adjust prices slowly in order to maintain the expected level of cash flows during this period. In order for TMEM to maintain its expected cash flows, competitive position within Europe and its overall financial health, it might be imperative to raise sale prices to offset the falling euro.
The first level impact of TMEM’s short term problem was the fact that they had suffered adverse affects on their expected cash flows. In November 2000, when the yen per euro was at its lowest, Toyota Motor Europe announced to shareholders that it would not produce positive profits for the