Unprecedented declines in our current global economy have provided endless stories as to how manufacturers have had to initiate drastic cutbacks in people and resources, and if you are like me, you tend to just want to stop reading much of this endless negative news.  However, when a world class provider such as Toyota is affected, we all have to take notice.

The latest news regarding Toyota reflects that the drastic downturn being experienced in the automotive industry is deteriorating at a rapid clip.  Toyota is on-track to post an operating loss of nearly $5 billion for the year ending March 31.  Sales have dropped 24 percent overall, including 31 percent in North America, 14 percent in Europe, and 8 percent in Asia.  The latest estimates of operating losses reflect a magnitude to be three times as much than the company forecasted just three months ago.  Since its founding in 1937, Toyota had never reported a full-year operational loss, that is until the downturn of 2008-2009.

More challenges lie ahead for Toyota, particularly in the areas involving supply chain management.  As the Herald Tribune story points out, Toyota had implemented aggressive global capacity expansion in the midst of insatiable demand for its products, but now finds itself with a glut in overall production capacity. Inventory remains a problem since Toyota was not immune to the steep drop in consumer confidence and financing options.

Toyota continues to press forward, guided by an Emergency Profit Improvement Committee, which is, no doubt, a super Kaizen team.  What’s important to note is that Toyota will attack the problem from multiple perspectives: cost reduction, supplier and dealer collaboration, and as a revenue enhancing opportunity.  The global product line-up is under review to tag products that will be beneficial, as well as attractive, to consumers within the current economy.  Investments in hybrid technology will reportedly continue, perhaps at a declined rate. A recent article in Automotive News  (sign-up required) provides readers the perspective from Toyota’s U.S. automotive dealers, who feel very confident of Toyota’s ability to listen and foster teamwork. Another news report penned by Jim Forsyth in Reuters outlines measures that the company will apply to U.S. assembly plants and parts operations, including cutting salaried employee bonuses, slashing executive pay as much as 30 percent, and cutting back on factory hours.

It may be painful, and there may be more bumps along the road, but I remain convinced that Toyota will prevail and be a predominant global player when recovery finally comes.  Just like every other problem or opportunity in the past, Toyota has the where-with-all to analyze root cause, attack with speed, and seize opportunity. Perhaps along the way we will all learn some new lessons in supplier collaboration, lean methods and adaptive supply chain management, and I look forward to purchasing another new Toyota product sometime in the next few years.

What’s your view? How much will Toyota be impacted by the current worldwide economic downturn?

Bob Ferrari