In-Depth SWOT analysis for Toyota | Strengths Weaknesses Opportunities & Threats
“Toyota” is a Japanese word meaning “a wooden block” (落し物 “toroshi-butsu”). The word is pronounced to rhyme with “three-decker ship,” the kind of ship that sails on rivers. This name refers to the company’s beginnings as a woodblock production firm in Japan, which the founder of the company, Sakichi Toyota, had claimed was called Toyoda.
Toyota Motor Corp. was first founded by Sakichi Toyoda in 1937 as a spinoff from his father’s company Toyota Industries to create automobiles.
The company started as an auto repair shop but took a step into automobile manufacturing in the late 1930s when they began making the T1-type engine-powered truck, and then World War II military vehicles, including the Type A engine-powered rifle, and finally moved into the production of passenger cars with the Model G1 in 1936–1937.
After the war, the production of this model was moved to the Toyota Motor Co., which was founded in August 1937 by Kiichiro Toyoda.
After World War II, the company created manufacturing plants in Japan, including one at Toyota City in 1953 that still exists today as the head office of Toyota and other factories nearby. In 1964, Toyota Motor Co., Ltd., and Toyoda Automatic Loom Works merged to form “Toyota Motor Corporation” (TMC).
The company has been listed on Tokyo Stock Exchange since 1950. In the mid-1950s, Toyoda Automatic Loom Works (the precursor company to Toyota Industries) built a research and development facility in Nagakute, Aichi. On August 1, 2003, TMC spun off its auto parts division as a new corporation called “Toyota Motor Engineering & Manufacturing.”
The company’s Toyota Camry and other models have become common throughout the United States and other countries. It has been commented that this is because of the continuing drop in gasoline prices. The company also has a line of hybrid vehicles. Toyota makes Lexus and Scion vehicles, the latter a division of Toyota Motor Corporation in the US.
Toyota is one of the biggest spenders on advertising its products in the United States. However, the level of Toyota’s advertising spending in the United States has been declining in recent years, falling to US$1.44 billion in 2020.
In the financial year 2020, the company’s global operations generated more than 29 trillion Japanese yen in net sales. According to regional revenue streams, Toyota provided the majority of its annual revenue in Japan and North America during the fiscal year 2020.
SWOT Analysis for Toyota
Toyota Strengths Analysis:
#1 Innovative Approaches – Toyota has a strong interest in being innovative. It employs the use of R&D to conceptualize its new products. The company has been able to keep up with the innovations in other industries and expand its position as a global leader in automobile manufacturing.
#2 Effective Reputation Management – Toyota handles all its reputations well and provides excellent customer service to its customers all over the world. The company has a stellar reputation for the continuous production of quality vehicles.
#3 Strategic Investments – Toyota invests a large amount of money in developing innovative products that are meant to benefit the entire industry. The reason behind this approach is to increase market share and increase its profits.
#4 Cooperation – Toyota works closely with other car companies to help them enhance their business operations by supplying them with some of their new products. This way, Toyota’s reputation will be enhanced in the long run, and it will gain market share in the industry as well.
#5 Conducting Research – Toyota is leading the automobile industry in terms of research and development. This is because the company has a great research and development unit that focuses on improving its products.
#6 Brand Name & Equity – The company’s biggest asset is its brand equity. Toyota has been able to build high brand value over the years. Toyota, as a leading automobile manufacturer, has always prioritized gaining the trust of its customers. To maintain a positive brand image, the car industry must build trust with its consumers. Toyota is the world’s most trusted brand.
This brand is popular among many people all over the world and is regarded as revolutionary. Its performance can be seen in the vehicle’s product quality, customer service, and driver safety criteria. A high level of brand value implies greater customer satisfaction and a stronger image. Because of these optimistic facts, the brand has a good financial result.
#7 Net Profits – Net profits at Toyota have been one of the highest in the industry, resulting from its highly efficient manufacturing process. For example, in 2019, Its gross revenue was 30.23 trillion yen, whereas its net revenue was 2.47 trillion yen. The present profit has resulted from high operating margins and improvement in net working capital, which created a net profit.
#8 Cash & Quick Asset Management – Toyota is a leader in cash and quick asset management. The company holds a huge cash reserve in billions of dollars, which is often more than double the global steel industry’s reserves. The cash reserve gives Toyota an advantage in case the economy deteriorates.
#9 Internal Development – Toyota has always been a pioneer in implementing continuous improvements. It is a process that enables a company to keep itself updated with the latest technology and machinery. The company has a strong R&D unit that has produced innovative products like Hybrid Power Train, the Prius, and the Camry Hybrid. Toyota is also one of the first automakers to bring hybrid principles into its production.
#10 Brand Loyalty – Toyota has strong brand loyalty due to its many quality products that have earned its customers’ trust. The Toyota brand has achieved a high level of success compared to other automobile manufacturers in the same business. It is often compared with other prominent brands such as Apple and Microsoft.
#11 Customer Satisfaction – Toyota has always attracted customers because of its commitment to its quality and customer satisfaction. Toyota does not compromise with customer satisfaction, and it aims at providing comfortable and reliable vehicles to individual customers. The company offers a wide range of products that caters to a variety of customers in different categories.
#12 Smooth Supply Chain – The smooth supply chain at Toyota maintains the company’s high revenue rate. This process allows the whole production process to work effectively, which eventually results in higher product quality. Toyota’s production process allows for a seamless flow of all activities.
#13 Global Production – Toyota has the capacity to produce vehicles in more than 170 countries and territories. It has established many subsidiaries in different markets around the world. This strategy has helped Toyota earn a big market share.
This helps it earn high revenues and makes it a global leader in automobile manufacturing. The company is known for its quality vehicles, and its broad reach makes it an international brand.
#14 Technology Investments – Technology investments for Toyota are high because of its focus on R&D. The company invests about 6% of its revenue on research and development (R&D).
#15 Strong & Reliable – Due to its emphasis on meeting customer needs, the company aims to create durable and reliable vehicles. Toyota has always treated its customers with honesty and respect, and it has succeeded in building a good brand value.
#16 Risk Management – Toyota’s risk management policy makes it an attractive investment. The company is well known for its investment in different vehicles, which minimize risk. The financial risks along with the operational risks have been minimized by Toyota, which has resulted in a high revenue rate and high market share.
Toyota Weaknesses Analysis
#1 Crisis Management for Product Quality – The company has received negative media attention over its serious product quality issues, especially with regards to vehicles that are being recalled for safety issues. The car industry has recently experienced a huge crisis over the quality issues of its products.
Toyota is one of the leading automobile manufacturers in recent years, but it has suffered from cases where quality issues have been reported. In turn, this has affected the company’s reputation and is leading to a decline in its stock price.
#2 Expanding Production Capacity – The company struggles to compete with other automakers because of expanding production capacity. Japan’s production capacity is one of the highest in the world. However, because of its high automobile demand, Toyota cannot continue to hold onto this high production capacity.
#3 Increasing Labor Costs – Labor costs in Japan have been rising over the years. This has led to protests from labor unions due to low wages and longer hours. Toyota faces the challenge of increasing labor costs because of its high production capacity. The company had to implement a new pension system and raise wages for its employees to earn more profit.
#4 Capital Investments – Toyota has been investing over $100 billion in its plants since 2009. In the same period, it is estimated that U.S.-based car manufacturer General Motors has invested $46 billion in new production. The automobile industry is currently facing a $400 billion capital deficit. This capital deficit will have to be faced by Japan’s car manufacturers due to increased demand.
#5 Declining Sales in the U.S. – Toyota has been struggling to compete with other automakers over the past few years because of declining sales of its vehicles in the U.S., which is its biggest market. As a result, it is suffering a decline in its share price, which has resulted in decreased profitability.
#6 Nationalism in China – Toyota is facing nationalism in China, which has led to anti-Japanese protests and boycotts of its products. The protests were sparked by China’s dispute with Japan over a group of uninhabited islands. This has not only affected the reputation of Toyota but that of all other Japanese organizations as well.
#7 Inferiority in the Brand image – The company’s image is not as good as that of the German companies whose brand images are considered premium. This inferiority is because people perceive Japanese brands as untrustworthy and buy Japanese products; on the other hand, they choose German-based products over their Japanese counterparts.
#8 Less Innovative Products – Toyota’s products are not very innovative because they copy features from other car manufacturers. The company needs to have more creative products that are different from what other manufacturers are offering.
#9 Low-Quality Products – The quality of Toyota products is not very good, and consumers have lost confidence in the company. If the company expects to be successful in the future, it needs to improve its quality control measures.
Toyota’s product quality has been a matter of discussion in recent years. Some analysts say that the low quality is because the company has to make cars with high-quality components and at the same time efficiently. The competition is among top manufacturers in all industry segments. The outcome of this competition is that Toyota’s performance has been affected.
#10 Low Product Differentiation – Toyota has not adopted new strategies for achieving better product differentiation. The company’s products are very similar to products offered by other manufacturers, and consumers have less interest in buying them.
Toyota Opportunities Analysis:
#1 Competitive strength -The main competitive strength of Toyota is its brand, which has increased its performance while maintaining a reliable reputation. Out of the seven strategies for building a superior brand, Toyota holds a position in five strengths. Its weakness is the fact that its performance is not as high as it should be considering its brand name and equity.
#2 Globalization – As a global company, Toyota is entering new markets to expand its business. Its productivity is expected to increase with new growth. The company’s expansion into the world market also helps it improve its business by gaining entry into new markets and extending its global production network.
#3 Collaborations – The company has entered collaborations with other leading automotive manufacturers in order to expand its business. It entered collaborations with companies like BMW, Renault-Nissan, and Mazda in order to produce car parts.
Toyota has also entered into collaborations to produce and manufacture diesel engines. These collaborations are expected to increase the company’s market share in this competitive industry.
#4 Technological innovation/innovation – Toyota is considered a pioneer in technological innovation and innovation in the industry. The company attributes its success to its pioneering spirit and commitment to innovation.
It has developed hybrid cars, introduced fuel-efficient vehicles, introduced new technologies for manufacturing, and introduced an advanced communication system for automatic driving systems.
It has been able to expand its production capacity through its technological innovations. The company’s ability to innovate in the industry is one of the major reasons for its success.
Toyota Threats Analysis
#1 Stiff Competitors – Toyota is not very friendly with its top competitors. Because of this, the company does not advertise its vehicles globally to maximize profits. Toyota does this because it is concerned about its competitor’s strategies and products that are available locally and globally. The company is careful about its rivals and how they pose a threat to Toyota.
Another threat to Toyota is that many companies are entering the car manufacturing industry. This has increased the competition in the industry and has made it more difficult for Toyota to maintain its competitive edge.
#2 Stagnation – Toyota’s R&D process has not been very innovative for a long time now. The company has made several new products, but it does not implement its new product innovations in production. Toyota has remained stagnant in the past 5 years because of the things mentioned above.
#3 Poor Capital Management – Toyota has failed to manage its working capital effectively. Combined with the cash shortages, this problem needs to be addressed by the company urgently.
#3 Safety Defects – Toyota has a reputation for making poor safety choices, which has contributed to bad safety ratings.
#4 Environmental Disasters – Toyota is involved in environmental disasters. In September 2014, its California facility was involved in an explosion that killed two and injured twenty-two others. Public opinion of the company dropped considerably as a result of this accident.
#5 Safety Ratings – According to the NHTSA, Toyota has had 223 recalls for various issues related to their vehicles. This is a significant number of recalls when compared to both General Motors and Ford, who only had forty-five and forty-two recall issues, respectively, during 2013.
#6 Recession – As a car manufacturer, Toyota’s performance can be affected by economic cycles such as a recession. The financial crisis of 2008 has affected the company negatively.
#7 Fuel-efficient cars – The threat is competition from other fuel-efficient car manufacturers like Honda, who have more advanced technology than Toyota in this field.
#8 Electric vehicles – The electric car technology has been advancing at a faster rate than that of Toyota, which means that its electric vehicles are not as great as those of its competitors.
#9 Fuel shortages – Honda is one of the largest manufacturers and suppliers of fuel to the world. As a result, if there is a fuel shortage, it will severely affect Toyota’s business as well.
#10 New technologies – New technologies in the automobile manufacturing industry are causing Toyota to lose the competitive edge. The company has to increase its research in this area in order to sustain its performance.
#11 Demographic Changes – Toyota has to consider the demographic changes in the world before it decides on different strategies. There has been a significant change in the way people think and act in the last few years, and Toyota needs to respond to these changes or else it will have a difficult time competing with other car manufacturers.
#12 Cost Overruns – Toyota’s cost overruns are huge, and the company does not monitor them very well. The company’s cost control practices need to be improved urgently, and there is a risk that it will increase its losses.
#13 Patent Litigation – Toyota is involved in patent litigation with other car manufacturers. The company’s past litigation with Volkswagen has hurt its reputation, and it has been a strategic mistake to take such a step.
#14 Cash Flow – Toyota is facing financial difficulties. In 2014, the company reported deficient cash flow that was not in line with Toyota’s restrictions on its capital spending programs.
#15 Depreciation of Yen – The yen’s depreciation does not favor Toyota because its products are made and sold in Japan. The company is also facing pressure to sell cars in China, which is affected by the yuan’s depreciation.
The dollar value of vehicles has been increasing, which means that Toyota will have to import more vehicles. This makes it more difficult for the company to overcome its crisis.
#16 Natural Disasters – The biggest problem in recent years that Toyota has encountered is natural calamities. The company has suffered losses in the 2010 earthquake, followed by typhoon Taichung and the flood in Thailand. The company is also affected by the natural disasters that have been experienced in other parts of the world.
#17 Taxes – Toyota has been paying taxes for years. The car maker’s corporate tax rate is 37.2%. This may indicate that one reason for the weak performance of Toyota performance is that it has to pay too much taxes and pay employees high wages.
Toyota’s Market Share:
Toyota’s market share was reduced from 19.1% in 2010 to 18.0% in 2011.
Toyota led the list of the world’s largest automobile brands in 2019, with a market share of approximately 10. 24 percent. Volkswagen Group was the world’s second-largest automobile maker, with a 7.59 percent market share.
Toyota’s share of new car registrations in the EU market was 5.3 percent in December 2020. Toyota-branded automobiles are sold by Toyota Motor Corporation, one of the world’s largest car manufacturers.
Toyota’s Brand Market Value & Revenue:
Toyota is Toyota Motor Corporation’s flagship brand. Toyota was the most profitable automobile brand in the world in 2019, with a market value of more than US$ 29 billion.
Toyota sold approximately 9.5 million vehicles globally between January and December 2020. Between the calendar years 2019 and 2020, the company’s revenues decreased by approximately 11%—the majority of the annual revenue in Japan and North America during the same fiscal year.
Toyota’s sales in the US market:
Toyota’s sales in the US market have been on a decline since 2008. This is due to the increased competition from other car manufacturers. Toyota has lost some of its consumers to other companies such as General Motors, Ford, and Honda.
The customers have switched brands because other companies are offering better deals on new cars. This has also resulted in increased competition for Toyota from these companies.
In 2020, General Motors had the largest share of the US car market at 17.3 percent, followed by Toyota Motors at 14.4 percent. General Motors remained the most profitable automobile manufacturer in the United States. Still, its market share declined between 2004 and 2019, while Toyota’s grew as a result of a greater emphasis on light truck models in the lineup.