Exercise 4: Assessment of Toyota’s Current Regional Production Strategy; North America
During the 1960’s the United States began to place stiff taxes on imports which caused a stir among European automobile manufacturers. This heavily impacted their market. In order to manufacture cars locally and avoid U.S. import tariffs, Toyota built its first manufacturing facility in North America in 1972 in Long Beach, CA. Following in 1985, a second facility was erected and opened in Canada. It wasn’t until 1988 however that manufacturing facilities were built to both manufacture and sell cars. The first two facilities opened in 1988 and were located in Ontario, Canada, and Kentucky respectively. Currently there are two facilities located in Canada, ten in the United States, and in 2002 Toyota opened their first manufacturing facility in Mexico (Toyota, nd).
The Japanese exchange rate was a major factor that needed to be considered when moving production facilities to North America. During the 1970’s, the YEN was at an all-time low following the 1973 oil crisis. During the 1980’s the YEN failed to climb, but in the 1990’s the YEN reached its peak in 1995.
An evaluation of the production facilities currently located in North America finds the TMMC (Canadian manufacturing facility) to be among the top 5 global manufacturing plants. They produce over 500,000 vehicles annually. Next the North American facilities combine to produce 1,644,661 vehicles last year, and have 10 operating plants. They spend 1 million dollars annually on R&D, have created 365,000 jobs, and produce 9 models of Toyota vehicles. The North American plants have received significant investment from Toyota and are operating exceptionally well.

Our team believes that Toyota has chosen to produce vehicles in North America in this current fashion for several reasons. There are currently 10 manufacturing facilities located in the United States. The United States has shown a drive to purchase and own vehicles based on quality. Since Toyota markets their cars to be high quality vehicles, and testing and reviews have proven this to be the case, the United States was a wise choice for the current automotive market. The market has done well, with financial statistics improving despite the setback experienced by Toyota in 2011. Another choice for Toyota manufacturing facilities is that of the Canadian locations. Canada experiences a much colder climate allowing for the building and testing of the Toyota products in the tougher climate. Although the Canadian economy remains at number 11 behind the US at number 1, it is still competitive and public transportation is not as vast as most countries in Europe. Opening the facility in Mexico was also a wise strategic move for Toyota to serve the vast Mexican population. While Toyota can still import vehicles into Mexico from the United States and Canada, the production costs in Mexico are much lower. Additionally, vehicles manufactured by the Mexican facility can be imported into the United States and Canada tax-free through NAFTA, which makes another benefit of opening this new facility.
A potential drawback of a Mexican focus is that public transportation in the inner cities of Mexico is much more developed than those of the United States and Canada. This could be seen as lowering the purchasing power of the Mexican population as compared to the Canadians and United States citizens. This reduced demand, however, is offset by the production and tax savings realized by operations based in Mexico.
Our team would recommend establishing another manufacturing facility in Mexico based on the evidence that the facility currently established has flourished. Taking advantage of the lowered production costs in Mexico will be an added benefit. While we should pay caution to the tenuous political situation in Mexico, we want to remain friendly with the current government. Opening a new facility would bring many jobs to the country and open global relationships not to mention serve the sizeable population of Mexico. Furthermore, such a move could extend Toyota’s reach into the Central American market and present the opportunity for different vehicle demands such as all wheel drive trucks and SUVs. Toyota’s Tundra has been a top-ranked car in the U.S. If produced in Mexico, the savings on production and distribution to Central America could be applied to the Tundra’s selling costs and entice a new market.