Will Toyota's Production Pause Go Global?

Following last week’s announcement where Toyota explained its need to scale back Japanese production by 20 percent this April, the automaker has outlined planned slowdowns for the foreseeable future. It’s citing all the usual problems. Countries are still employing various COVID-19 restrictions that are upending supply chains, semiconductor production for automobiles remains insufficient, and there’s a war in Eastern Europe that’s creating all-new troubles while exacerbating some of the more familiar ones. But scaling back output might not be the death sentence it sounds like.

With last year resulting in 10 million deliveries worldwide, Toyota actually managed to improve its sales against 2020’s year-over-year global production decline of 12 percent. And the last two years have also yielded enhanced profitability for the automaker, despite it having expressed repeated concerns about procuring enough components to keep popular models (like the RAV4) in stock. In 2021, Toyota saw $249.4 billion in revenue and even became the best-selling automaker in the United States, dethroning former top-dawg General Motors.

In fact, there is a coalition of automakers that have started suggesting that it might be more lucrative to scale back output, reduce overhead, and focus on achieving broader margins per car. Though this isn’t necessarily true for all markets. While automakers have been trying to suss out how to tweak the business for Western markets, most have continued bolstering volume in China (which is viewed as a growth region). We just saw Volkswagen announce its intention to prioritize assembly in Asia for that very reason. But Toyota has likewise seen better sales growth in China than in other parts of the world.

That’s not to suggest China doesn’t pose some problems, however. When Toyota announced plans to scale back production in Japan, Chinese suppliers that had to be shut down due to ongoing pandemic restrictions were said to have played a relevant factor. Though its talk on launching planned reductions were left vague and focused on the bigger picture, which the company would remain uncertain.

“In addition to the shortage of semiconductors, the spread of COVID-19 and other factors are making it difficult to look several months ahead, and there is a possibility that the production plan may be lower,” the company explained. “However, we will continue to closely examine the situation of parts supply and suppliers, and make every effort to reduce the scope of sudden production cuts as much as possible, to normalize the production plan, and to reduce the burden on suppliers.”

From Toyota:

Under these circumstances and in light of a review of past developments, we have revised production plans to be more reasonable in line with recent realities. Specifically, we have positioned the three-month period from April to June as an “intentional pause,” and we will create plans based on the personnel structures and facility capacities of suppliers. By doing this, we will establish healthy workplace environments that place the highest priority on safety and quality, rather than exceeding the capacities of facilities, pushing people to their limits, and making do through overtime work. We will then inform our suppliers of plans that incorporate production reduction risks and other factors up to three months in advance, review production plans on a monthly and three-monthly basis, and share these plans with our suppliers.

Based on the above, our global production plan for April including overseas production is approximately 750,000 units (250,000 units in Japan and 500,000 units overseas). Although the number of units we provided to our suppliers at the beginning of the year includes recovery from previous production cutbacks, due to the impact of semiconductor shortages, we have adjusted our production plan by approximately 150,000 units globally. The global production plan average from April through June is around 800,000 units.

Thus far, those reductions will only be targeting Japanese facilities — specifically the Tsutsumi, Tahara, Kyushu-Miyata, Iwate, and Fujimatsu Plants. But the company has stated on more than one occasion that additional cuts could be forthcoming and there are credible rumors suggesting there’s already a plan for slowdowns at facilities located in other countries, should the existing cuts be deemed insufficient. Considering how often Toyota’s release mentions global output, those rumors should probably not be discounted.

Though, even if Toyota’s output remains totally unchanged in other regions, there will still be ramifications for North America. Despite the overwhelming majority of its lineup being produced locally, its luxury arm still has a bevy of models that have to be shipped in from Japan. While Lexus has the RX and ES are produced in Ontario and Kentucky, respectively, other models have to be imported from the aforementioned Miyata and Tahara plants.

“We would also like to extend our sincere apologies once again to those customers who have been waiting for vehicles to be delivered,” the company stated. “By normalizing the production environment, we hope to deliver vehicles with high quality as many as possible. We continue to make every effort with concerned parties such as production, procurement, and sales.”

[Image: Andrii Medvediuk/Shutterstock]