Toyota Australia in Peril

TOYOTA AUSTRALIA IN PERIL

Toyota’s announcement on February 10th that it would join Ford and Holden in pulling out of car-making in Australia, closing its assembly line in 2017.

ANALYTICAL AND NUMERICAL ANALYSIS

The industry has been in decline for years. A decade ago Australia produced 400,000 cars a year; in 2013 it churned out just over 200,000. Although Australians bought a record 1.14m cars in 2013, the market is small in global terms, and fragmented, with the three most popular models each clocking up just 40,000 sales. Sadly, none of these was assembled at home.

Australia makes the wrong sort of motors. For cheap mass-market vehicles, on which profit margins are slender, high-volume, low-cost production is vital. But Australian factories are small: the biggest, Toyota’s, makes just 100,000 cars a year. As a rule, plants making mass-market vehicles need to turn out at least 200,000 a year to have a hope of making them cheaply enough.

Australian plants lack economies of scale but not employees with bulging wage packets. Only German car workers earn more. The lack of scale works its way down to local component-makers. These are also small by global standards, so parts are pricey. The result, according to both Ford and Holden, is that manufacturing costs are four times those in Asia and even twice European levels. That is a death sentence in a global market with plenty of spare capacity, even before considering the added burden of Australia’s strong currency, buoyed by commodity exports. This hits locally made cars’ competitiveness both at home compared with imported ones and abroad, where two-fifths of production ends up

POSSIBLE SOLUTION AND VALUE LESSON

Here we can see that since Toyota was a mass producing car they had to make atleast 200,000 so that it is produced cheap. The strict safety norms and high average wage doesn’t help either. As a global manager I would request the government to reduce the import taxes on the materials that need to be imported. Or the course taken by Toyota is the best course.

CHEVRON TAKES A HARDER PUNCH ON LOW OIL PRICES

PROBLEM

The problem faced by Chevron is that seeing the rising prices in oil it started to invest heavily in oil fields. The sudden drop in the price took a heavy toll on the company’s revenue. Thus causing huge loss

ECONOMIC ANALYSIS

Chevron’s losses were somewhat larger than expected. Its revenue fell more than 30 percent, to nearly $23.6 billion, in large part because of losses in its exploration and production operations in the United States. The company announced it would cut 1,000 more jobs this year, bringing total cuts to 8,000 employees.

 Industry investment will total roughly $400 billion this year, a decline of nearly half from the $700 billion invested in 2014, when oil prices climbed to over $100 a barrel before tumbling at the end of the year.