Consumer Fraud

Strong Yen + weak dollar = more Toyota cost cuts

The strong Yen may feel great to Japanese consumers buying imported products or traveling to foreign destinations with a weaker currency, but it’s causing Toyota and other Japanese manufacturers a lot of pain. As the Yen continues to grow in strength against the weak dollar, Japanese exports such as Toyota and Lexus vehicles grow more expensive to the American consumer.

This dilemma poses yet another challenge to Toyota, which is facing hundreds of personal injury, wrongful death, and economic loss lawsuits over the sudden unintended acceleration defects in its vehicles. The company also has paid millions of dollars in civil penalties to the U.S. government for violating safety regulations, and has invested millions more in marketing campaigns to restore its image while it drastically slashed finance rates to lure consumers back to its dealerships. Then, a massive earthquake hit Japan and interrupted the flow of supplies, leading to cuts in production across the globe.

Toyota’s executive vice president Atsushi Niimi told the Wall Street Journal that his company is poised to make hefty cuts to cost in order to stay competitive. “If we can cut costs by around 20 percent, we can fully compete, even at ¥80 (to the dollar),” he told the Wall Street Journal. “By 2013, new models made in Japan have to be competitive at that level.”

Toyota operates 17 Japan plants, which produce half of the world’s Toyota and Lexus vehicles. If the automaker can’t meet its 2013 goal, it will likely have to boost production in plants outside of Japan where production isn’t as expensive.

Relying on China for more parts is another cost-cutting measure Toyota may take. The Wall Street Journal says that the automaker “currently uses a minimum amount of Chinese parts,” but that could change. Changes in the production process are also on the drawing board. Another money-saving technique would lower the number of steps involved in producing key parts.

Of course it’s too early to tell how much these cost-cutting efforts will affect the overall quality of Toyota and Lexus vehicles, but Toyota has cut corners in the past in its bid to become the world’s leading automaker, and the result proved to be a disaster for the company.

Inside employees began lamenting the new business model implemented by former Toyota president Atsuaki Watanabe, which they claimed eroded the brand’s legendary quality to boost profits. Watanabe outsourced key designs and made drastic cuts in parts and production.

The result? Toyota became number one in sales, but it also became number one in the number of safety recalls from 2009-11.