Financial Risk Management at Toyota

Abstract

Toyota Motor Corporation (Toyota) is Japan''s largest and the world''s fourth-largest automobile manufacturer. The company offers well-known car models like Camry, Corona, Corolla and Lexus. Though a late entrant, compared to General Motors and Ford, Toyota has become one of the strongest players in the automobile industry. Toyota has continued to set new benchmarks for providing value to customers more effectively than competitors. Toyota is exposed to market risk due to changes in currency rates, interest rates and certain commodity and equity prices. In order to manage these risks, Toyota uses various derivative financial instruments. These instruments are in general executed only with creditworthy financial institutions. The case outlines the various financial risks Toyota faces and how the company manages them.

INTRODUCTION

Toyota Motor Corporation (Toyota), Japan's largest and the world's fourth-largest automobile manufacturer offered well-known car models like Camry, Corona, Corolla, and Lexus. Though a late entrant, compared to General Motors and Ford, Toyota had become one of the strongest players in the automobile industry. In an industry, generally considered to be mature in terms of technology, Toyota had continued to set new benchmarks for providing value to customers more effectively than competitors. Toyota had also redefined the rules of the game in various areas - product development, manufacturing, vendor management and human resources management. A recent Business Week issue had Toyota on the cover with the caption "Can anything stop Toyota?"

After Sakichi died in 1930, Kiichiro faced stiff competition from Ford and General Motors, who had set up their manufacturing units in Japan. Family members including brother Risaburo showed little interest in Kiichiro's plans. In spite of these difficulties, the articles of association of the company were amended in 1933 to permit automobile manufacturing.

It was under Eiji Toyoda, a cousin of Kiichiro that the efforts to develop a car accelerated. In September 1934, the first engine was produced. The company's first few vehicles had a very high import content. Toyota had to compete by undercutting the prices of established players, Ford and General Motors.

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        Case Code   FINA012
   Case Length    17 Pages
              Period    2004
 Organization     Toyota
        Pub Date     2004
Teaching Note    Not Available
     Countries    Japan
      Industry    Automobile

Issues

Toyota, Financial Risk Management

Toyota Motor Corporation; Toyota; Financial risk management; Sakichi Toyoda; Camry; Corona; Corolla; Lexus; US GAAP (generally accepted accounting principles); FAS 115; Hedging; Credit risk; Market risk; MBA case study; Strategy

Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.