Toyota’s European Operating Exposure

1. Why do you think Toyota had waited so long to move much of its manufacturing for European sales to Europe?

By 2001 Toyota’s operating losses in Europe had reached 9.9 billion Yen. Most of the loss was because of Toyota’s operating exposure accompanied by a sliding value of the euro with respect to the Yen. The Japanese Yen rose against the Euro which made it more expensive for Toyota to produce cars in Japan and sell to Europe. The Yen and the British pound were strong currencies against the Euro at that time. Toyota had to absorb most of the exchange rate fluctuation. The cost of production and final price of Toyota’s cars were increasing significantly. Toyota could no longer support exports for more than 76% of manufacturing from Japan Toyota. Toyota had to wait to move the majority of its manufactures for European sales to Europe because of its complex and expensive costs to build and maintain a whole new factory. Automobile manufacturers are financially demanding. Keeping manufacturers already established in Japan was less expensive for the company. 

After realizing that exchange rate volatility was hurting Toyota’s business in Europe they decided to relocate manufacturing plants to Europe in order to preserve competitive prices. Toyota launched a new car model called Yaris, a small car designed to meet the European market needs. They built a new factory in France to be the main manufacturer of the Yaris. The number of parts imported from Japan decreased. Toyota reduced its costs, final price and also losses suffered from exchange rate changes. Furthermore Toyota would be minimizing its currency risk exposure with the new manufacturer running in France. Toyota penetrated the European market successfully with the Yaris.

2. If the British were to join the European Monetary Union, would the problem be resolved? How likely do you think it is that Britain will join?

The British pound in rising against the euro would be the same as the yen. If the...