Toyota in Europe has undergone fundamental changes that have changed the way it operates and focused the company on efficiency and meeting the needs of the consumer, according to Toyota Europe chief Didier Leroy.
Speaking at the Automotive News Europe Congress in Brussels, Leroy said that the company in recent years has faced major challenges to profitability caused by recession in Europe, the fallout from major recalls in 2010, the 2011 natural disaster in Japan that damaged Toyota’s suppliers and the impact of the high yen.
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“While the financial crisis forced us to rethink the meaning of growth, the recall crisis taught us one of the best lessons that large companies can ever learn: don’t ever lose sight of the customer and your products,” he said.
Leroy took his position as head of Toyota in Europe in 2010 and the forecast at the time was that Toyota in Europe (for its auto operations) would endure another five years of losses. Sales and production in Europe were in decline.
“We had to change to recover. It was up to us in Europe to make our own plan, build our own future,” he said. “We made a new plan to return to profitability as soon as possible.” The revised plan was to have free cash flow by 2011 and return to profit in 2012. “Our strategy was to stop the downward spiral and give confidence back to employees and suppliers. We chose to create profitable growth, not to simply cut costs to reduce losses, but to improve the competitiveness of our factories and to fight for every sale. And we chose to have more responsibility in Europe, not less, to make more sexy product for the European market.”
Toyota in Europe met its target to return to profitability in 2012. “And we did that while the yen was strong,” said Leroy. Toyota sales in Europe fell from a peak of 1.2mm units in 2007 to 808,000 by 2010. They have since recovered to 847,000 units in 2013 despite a declining overall market. Leroy cites the company’s focus on hybrids as a key factor in European sales growth. “Today, nearly 20% of our sales in Europe are hybrids and 70% of those are made in Europe,” he said.
Leroy also told the audience that the company wants to be selling over 1m units a year in Europe. “With nine factories in seven countries, with those kinds of roots, we cannot be doing less,” Leroy said. “But, this will be one million profitable sales,” he maintained. “We will not chase a volume number.”
Leroy also outlined an ongoing effort at Toyota in Europe to transform the business and lower the break-even point. “We are well on our way,” he said, adding that the company as a whole has changed its decision-making processes to meet the challenges presented in recent years. There are centres of excellence around the word and regions have been given more responsibility for Toyota operations in their territories. “We are faster, much closer to the ground and much more accountable for results.”
In Europe, Leroy has focused on competitiveness in all aspects of the company’s operations and avoided ‘just cutting costs’ he claims. “We could have decided to shut a Western European factory and move it east,” he said. “It’s always tempting, but what we did instead was challenge ourselves to become more competitive with our existing factories.” Voluntary headcount reductions were made in Toyota’s European operations. That produced a headcount reduction of 2,500 to Toyota’s European labour force. Plant-model mix adjustments have also helped to improve competitiveness and capacity utilisation in Europe, Leroy said.
“And we are challenging everything. We now partner with others [eg BMW on diesel engines; PSA on LCVs] and that would not have happened in the past.”
Leroy also told delegates that Europe’s operations are now showing how successful the strategy has been. “Revenue was up 5% in 2013, but operating profitability was up by 75%,” he said. “We will continue to pursue our goal of sustainable and profitable growth in Europe by producing and selling small cars in Europe while also continuing to bring innovation and technology to this market.”
