Toyota Revamps Plants for ShiftTo Exports if Local Markets Fail
By Lisa Shuchman

10/07/1998 The Wall Street Journal Page A17

TOYOTA CITY, Japan -- Toyota Motor Corp., applying a lesson from the Asian crisis, is forging a new strategy to protect itself: Revamp Toyota factories around the world so that they can quickly switch to making exports if local markets go sour.

Japan's No. 1 auto maker learned the lesson in Thailand and the Philippines last year. After demand for cars plunged in September 1997 with the onset of the currency crisis, and Toyota's sales in Thailand dropped more than 50% in one month, the company turned its Bangkok factories into export bases for cars and auto parts. But first it had to close those factories for two months to retool them.

Toyota's plan now is to insulate itself from future international crises by redesigning its plants so that they can much more quickly be shifted to exports aimed at markets that are still strong -- a strategy it calls global complementation. "We learned a precious lesson in Southeast Asia," said Akira Yokoi, Toyota's executive vice president of international operations. "We now know we need to be flexible globally, not just regionally."

If Toyota successfully introduces this kind of flexibility to its world-wide plants -- Mr. Yokoi says this will be a gradual process that will "take time" -- the auto maker will once again demonstrate how it consistently learns from its troubles to remain one of the world's most competitive companies. "Toyota has a basic ability to turn crises into opportunities," said Takahiro Fujimoto, a Tokyo University economics professor and an auto-industry expert.

Before the Asian financial crisis, Toyota's global strategy called for factories to produce primarily for local markets. Its Thai plants, for example, produced the "Soluna," a sedan designed for Asia's emerging middle class. After the makeover, the Thai plants geared up to ship vehicles and parts elswhere. In the first three months of this year, it exported 2,190 Thai-made engines to Japan, and later this month will begin shipping pickup trucks to Australia. Toyota also quickly applied the lesson elsewhere in Asia. It now ships Philippine-made transmissions to Japan and South Africa. It is considering exporting steering links from Malaysia to South Africa.

But Toyota would be much better off if it had had a contingency plan before the crisis stuck; it is still looking for markets for its Southeast Asian output to make up for fallen regional sales. In the first seven months of this year, Toyota's sales fell 77% in Thailand from a year earlier, while in Indonesia they fell 78%, in Malaysia 79% and in the Philippines, 52%. "If we'd had a global complementation plan in place," Mr. Yokoi says, "we wouldn't have had a problem."

Now Toyota's goal is to match its factories in one part of the world with markets in which demand exceeds supply in another.

For example, Toyota makes a Corolla model in Brazil, and also makes a version in Canada and the U.S. While the outward appearance of the cars differs somewhat from country to country, the platforms and power trains are the same. If sales in South America were to slow substantially, said Toyota spokesman Koki Konishi, Toyota could quickly retool the body-stamping operations and produce Corollas there for export to North America.

Toyota later this year will begin producing engines for the Corolla at its plant in West Virginia. The plant will start making about 36,000 automatic transmissions a year in 2001."Those parts could logically be transferred from West Virginia to Brazil or Canada," Mr. Konishi said. The transmissions used in Toyota's North American and Latin American plants are currently shipped from Japan.

Toyota's global-complementation strategy can't insulate it from a world-wide economic slump, of course. While it enables Toyota, in effect, to move capacity around the globe, it doesn't address the problem of capacity exceeding world-wide demand.

The one true bright spot is North America, which accounts for 43% of Toyota's overseas sales. U.S. sales rose 43% in September from a year earlier.

If the U.S. economy slows and the yen strengthens, Toyota could take a hit even there, says Christopher Richter, an auto analyst with HSBC Securities in Tokyo. "There really is no fallback position if auto sales in North America weaken," he says. "North America was the fallback."