Financial Risk Management at Toyota ( Page 2)

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.

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Background Note contd...

Meanwhile, the Japanese government, realizing the strategic significance of the automobile industry decided to extend support to TALW. Restrictions were placed on the expansion of the operations of Ford and General Motors in Japan. The government also made it compulsory for all new manufacturing facilities with a capacity of more than 3000 vehicles to leave the majority shareholding in the hands of Japanese nationals. Tax reliefs and exemption from duties in the case of imported parts also came in handy for TALW.

But various restrictive covenants were imposed. The company was downsized and restructured into separate manufacturing and sales divisions. Kiichiro held himself responsible for the crisis and resigned in 1950.

The Korean War proved to be a major boon for Toyota. The US forces had little time to order vehicles from America. As a result, Toyota was able to obtain major orders. By 1952, Toyota’s financial health had been largely restored. In 1953, car-making activities were revived and Toyota produced 3572 cars. However, the trucks division, which sold 12,422 vehicles still made bulk of the profits.

A turning point in Toyota’s history came when Taiichi Ohno who had earlier been in the Toyoda family’s textile business was entrusted with the responsibility of streamlining the operations and reducing costs. Ohno quickly realised the whole system was rife with muda, (waste). None of the specialists beyond the assembly worker was actually adding any value to the car. .....

        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.