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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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Strong focus on research and development (R&D):

The company operates 17 research facilities in 8 different countries. The R&D on innovation has resulted in one of the highest automotive R&D spending. Toyota's R&D expenditures were approximately ¥1,055.6 billion (US$9.37 billion) in fiscal 2016, ¥1,004.5 billion in fiscal 2015 and ¥910.5 billion in fiscal 2014.

2. The most valuable automotive brand in the world:

According to Interbrand and Forbes, Toyota's brand is the world's 5th and 6th most valuable brand worth, US$53.6 billion and US$42.1 billion, accordingly.

3. Toyota Production System:

Toyota Production system or TPS is a manufacturing system developed by Toyota. The system's is about the ‘elimination of all waste from manufacturing process and was based on Just-in Time concept. Due to the TPS, Toyota's profit margin of 8.1% is the highest when compared to its largest competitors Volkswagen's profit margin of 0% or General Motors' profit margin of 6.4%.

4. Competence in hybrid vehicle production:

Toyota is heavily invested in its hybrid vehicle (HV) lineup and is betting its long-term future on HVs and electric HVs. The company has introduced its first hybrid vehicle Toyota Prius in 1997. Currently, Toyota offers over 30 usual hybrid vehicles and plug-in hybrid vehicles under its four brands. Toyota's HV technology is probably the best-in-class. Toyota's competence in hybrid vehicles is a long-term competitive advantage that its competitors will find very hard to replicate.

5. Innovative culture:

Toyota is famous for its innovative culture. The company's focus on being ahead of its competition by introducing some of the most innovative vehicles in the market has proven to be a successful choice.

Brand reputation valued at $30 billion:

Toyota vehicles are sold in more than 170 countries worldwide due to its environmentally, user friendly, durable and safe.

7. Strong brand portfolio:

Toyota has a powerful brand name which allows it to sell 70 different models of cars and it leads to brand awareness as well as customer satisfaction in using the vehicles.

8. The leader in ‘green' cars development:

Toyota recognizes the market demand of environmental friendly cars and consumer has also become more selective in reducing their spending in the fuel which the ‘green' cars by Toyota are actually fuel efficiency cars.

9. Oldest and reputed car manufacturer:

Toyota has been founded in 1937 which made the company one of the oldest car manufacturers and has high reputation until now. The company has kept growing from the past and become well established and known worldwide.

10. Excellent advertising and marketing campaigns:

Through TVCs, online advertisements, billboards, print media and other medium to perform the campaigns in order to promote the brand and vehicle.

Lack of competence in autonomous vehicles:

The company's first attempt to developing such technology was in 2015, through the Team Mobility concept, which aims to facilitate the connection between the car and its surroundings and between the car and the driver to assure safe and efficient driving. The company's lack of technology and experience in building autonomous vehicles puts it at disadvantage against such competitors as Tesla, Ford and General Motors.

2. Negative publicity due to large vehicle recalls:

Vehicle recalls more or less affect every automaker. Toyota is no exception. Nonetheless, Toyota's recall rates are very high and this draws more negative publicity than usual. In 2016 alone, the company has issued the following recalls which are 5.8 million various models recalled due to faulty airbag inflators, 750,000 Sienna models are recalled in North America and 340,000 gas-electric hybrid Prius cars recalled around the world over faulty brakes. Larger and frequent recalls negatively affect the company's brand reputation and result in disappointed customers as well as fewer sales.

3. Weak presence in the emerging market:

For the emerging economy market such as China and India make only small percentage of Toyota's revenues. China is the largest automotive market in the world with over 25 million vehicles sold. It is also the largest vehicle market for the two main Toyota's competitors, Volkswagen and General Motors. Toyota has sold only 1.12 million vehicles in China, compared to General Motors 3.73 and Volkswagen's 3.5 million units. The company's weak market share in China will significantly hinder its ability to grow sales in the future.

4. Limited market share growth:

The immense competition from other automobile manufacturer has limited the growth of Toyota's share in the market.

5. High brand switching:

Due to many options in the market, customers tend to switch from one automobile brand to another which will give an impact to Toyota revenue performance in the future.

6. 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. Thus, poor allocation of resources could hurt shareholder's value and confidence in the long term.

 Rising Japanese yen exchange rate:

More than 48% of Toyota's revenue comes from international markets, which means that the company has to convert foreign currencies to Japanese yen in order to calculate its revenues and send the profits back to Japan. Currency rates are volatile and the company's profits and revenue highly depend on the fluctuating exchange rates. The company itself identifies this as a key threat that will negatively affect the company over the next few years if the exchange rate increase which lead to a lower income.

2. The automotive industry is subject to various governmental regulations:

Increasing government regulations is one of the key threats affecting Toyota. The worldwide automotive industry is subject to various laws and governmental regulations. Toyota has incurred, and expects to incur in the future, significant costs in complying with these regulations. If the costs incur is significant in meeting laws and governmental regulations, Toyota's financial condition and results of operations may be adversely affected.

3. Increasing competition in the worldwide automotive market:

The competition is increasing due to the excess of vehicle production, rapid technological changes, new entrants and saturation of the largest markets. In China, one of the key company's markets, new home based Chinese manufacturers are competing by offering lower prices, but similar quality build vehicles. New companies, such as Tesla with its electric cars will make it very hard for Toyota to compete in the electric cars segment.

4. Toyota may be adversely affected by natural disasters:

Toyota and its suppliers have many manufacturing facilities in Japan, Thailand, China and Indonesia. These countries are often affected by natural disasters, such as earthquakes, tsunamis and flooding. In the past, Toyota's operations have been significantly impacted by such disasters and resulted in huge losses.

5. Reduce in market share:

Competition offering innovative features at lower price car reduce Toyota's market share.

6. New entrants:

New entrants in the same segment will offer better features and lower price.

7. Affected by recession and economic instability:

Being a global brand, its business is affected by recession and economic instability.

8. Decrease in fuel prices:

Decrease in fuel prices reduced the need for hybrid cars which will lower the income for Toyota.

9. Rising in raw materials prices:

Raw materials are the major component needed in producing a car, when the price of the raw material increase they will definitely need to lower down their profit margin or maybe no profit margin at all.

Fuel prices are expected to rise in the near future:

Fuel prices have been low for the last few years and are expected to rise in the near future due to the changes in the supply. Toyota heavily invested in its hybrid vehicles lineup, for which the demand will grow significantly if the fuel prices will rise. Toyota could further strengthen its hybrid vehicle, hybrid electric vehicle and electric vehicle lineups to benefit from the rising fuel prices in the future.

2. Demand for autonomous vehicles:

Currently, nearly 33 companies are working on autonomous vehicles. The autonomous vehicle is the next ‘big thing' for the industry. Toyota has just started serious work on autonomous vehicles and has no date of when it expects to launch the first autonomous vehicle. The company should speed up the development of autonomous vehicle technology and acquire the required skills as soon as possible if it does not want to stay behind Google, Ford or Tesla in this area.

3. Timing and frequency of new model releases:

The market share of the automotive companies is significantly impacted by the timing and frequency of new model releases. Due to the rising consumer expectations in relation to in-car technology and the competitive nature of the industry, there is an argument to release upgraded models more frequently. Toyota is well-positioned to be able to do this.

4. Positive attitude towards ‘green' vehicle:

The awareness of consumers on air pollution caused by gas emitted into the air is increasing. Customers tend to opt for a hybrid cars as their choice in order to avoid more pollution occur.

5. Growth through acquisition:

In order to gain new skills, assets and access in the market, Toyota should consider in acquiring another car manufacturer as it did in the past.

6. Concentration in hybrid segment:

Concentrated efforts in hybrid segment can help Toyota become a market leader.

7. Increase market penetration:

Augmenting worldwide distribution and servicing network to increase market penetration.

8. Launching new products for Toyota:

Expanding automobile market and opportunities in the market will help Toyota in launching the new product.

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