Japanese automakers lost steam in 1990s due to a stronger Yen and weak domestic demand. The
Japanese currency, which traded in ¥140–¥160/$ range in 1990, quickly appreciated to around
¥100/$ by 1994, greatly increasing the relative competitiveness of the U.S. manufacturers.
Meanwhile, some observers argued that U.S. manufacturers had narrowed the quality gap and had become very competitive.36
Japanese domestic sales (excluding mini vehicles) peaked at 6.0 million units in 1990 and dropped about 18% to 4.9 million units by 1993. Toyota’s domestic sales declined faster than the overall
Japanese market; its share dropped from the peak of 42.7% in 1988 to below 40%, and its share for the month of December 1994 was 36.5% (excluding mini). Net profits shrank from ¥441 billion in
1990 to ¥126 billion in 1994, while revenue declined 17% (see Exhibit 5).
Toyota withstood the adverse environment by cutting costs and these cost reduction efforts went beyond the factory floor. In September 1992, Toyota reorganized its 12,000 engineer R&D division to create four centers and consolidate administrative functions. This reorganization reduced coordination time, thereby reducing product development time.
During this time, Toyota was criticized for its proliferation of look-alike cars. Its clientele tended to be older, and its products were less appealing to the younger generation. Toyota’s products were perceived to be following rather than setting the trend. Corolla was Japan’s bestselling car, but customers chose the car because of its value. In contrast, Honda cars were popular among younger generation, and their customers kept buying Honda cars as they grew older. In October 1994, Honda introduced a multi-purpose minivan named Odyssey into the Japanese recreational vehicle market, a market in which Toyota had a large market share. Odyssey won the car of the year award and sold over 10,000 units per month, far exceeding its initial target of 3,000 units. This “creative mover,” combined a driving performance equivalent to that of a passenger car with a spacious interior and a large storage space.