TOYOTA AUSTRALIA IN PERIL

On Wednesday, December $11,2013,$ General Motors Holden $($Holden$)$ announced its plan to exit car manufacturing in Australia by the end of $2017\mathrm{.}2$

Immediately after the exit announcement by Holden, Toyota expressed its fear that it was in peril:

This will place unprecedented pressure on the local supplier network and our ability to build cars in Australia. We will now work with our suppliers, key stakeholders and the government to determine our next steps and whether we can continue operating as the sole vehicle manufacturer in Australia. We will continue with our transformation journey as planned$\mathrm{.}3$

Other stakeholders in the automotive industry also expressed similar fears. Apprehensive of Toyota$$s ability to continue manufacturing, the Australian Manufacturing Workers Union $($AMWU$)$ national vehicles division secretary$,$ Dave Smith, said, $$It$$s now highly likely that Toyota will leave Australia. In fact it$$s almost certain.$4$

Why did Toyota fear that Holden$$s exit would put unprecedented pressure on the local suppliers? How was Holden$$s exit related to Toyota$$s ability to build cars? Why were observers contemplating an exit by Toyota, the best$-$selling and most trusted brand in Australia, especially when it had been planning to continue its transformation journey? What had gone wrong with the company that had such a glorious long history of production? Should Toyota stop manufacturing in Australia?

TOYOTA AUSTRALIA: A GLORIOUS LONG HISTORY OF PRODUCTION$5$

Toyota Australia $($Toyota; see Exhibit $1),$ a subsidiary of Toyota Motor Corporation Japan, was founded in $1958$ in Port Melbourne, Victoria, Australia. It started assembling vehicles in Australia in $1963$ in the Melbourne factory of Australian Motor Industries. The first Toyota model assembled in Australia was the Tiara. Between $1964$ and $1968,$ Toyota began assembling three more models $$the Corona, the Crown and the Corolla. At its new Altona plant in Melbourne, it started producing engines in $1978,$ and car body panels in $1981.$ In $1986,$ for the first time, Toyota started exporting. In $1987,$ Toyota began the local

manufacture of the Camry, which replaced the Corona, at the Melbourne plant. In $1988,$ Toyota$$s local operations were unified to form Toyota Motor Corporation Australia.

In $1994/95,$ Toyota stopped manufacturing in its Port Melbourne plant and shifted all its operation to its Altona plant in Melbourne. The Corolla was the first model to be built there. As a strategic shift, in $1996,$ Toyota expanded its reach to foreign markets by exporting the Camry to the Middle East, where it became the area$$s number$-$one selling car. From the Altona plant, Toyota also started producing the Avalon model in $2000.$ Its journey with innovative products continued in the subsequent period. In $2010,$ it released the Camry hybrid, the first hybrid car manufactured in Australia. It launched the New Generation Camry Model in $2011.$

Toyota emerged as the market leader in Australia for the first time in $1991.$ It registered record sales of more than $186,000$ cars in $2003$ and remained the overall market leader for the subsequent $11$ years $($see Exhibit $2$ and Exhibit $3).$ The company also registered a huge success in the export market, and emerged as the leader in this segment. It exported almost two$-$thirds of its production $($see Exhibit $4)$ from the Altona plant to $13$ countries worldwide. In $2011,$ Toyota Australia, the country$$s biggest automotive exporter, exported nearly $60,000$ units worth $$1\mathrm{.}004$ billion$6($including parts and accessories$)\mathrm{.}7$

As per a poll conducted by Readers$$ Digest Australia in $2013,$ Toyota was the most trusted automotive brand in Australia$\mathrm{.}8$ A balanced business model and innovative quality products were the keys to Toyota$$s past success and had helped to build its brand.

BUSINESS MODEL

Toyota Australia followed a balanced business model $($see Exhibit $5),$ which included a three$-$pronged strategy of manufacturing vehicles domestically, exporting some of its domestically manufactured vehicles and importing some components from cheaper sources.

In the domestic manufacturing process, Toyota followed the $$just in time$9$ approach to production, which allowed the entire production process to be regulated by the natural laws of supply and demand. Customer demand stimulated production of a vehicle, which, in turn, stimulated production and delivery of the necessary parts. The just in time approach resulted in the right parts and materials manufactured and provided in the exact amount and place where they were needed. Along with the just in time approach, Toyota also followed $$Kaizen$,10$ the practice represented by employees making day$-$to$-$day improvements in their working practices and equipment. $$Jidoka$,11$ automation with a human touch, was another process adopted by Toyota. Such approaches to the domestic manufacturing process strengthened Toyota$$s brand image by contributing