Toyota Says Environment Surrounding Japanese Manufacturing is Tough

July 13, 2011
Will merge subsidiaries in face of strong yen

Toyota on July 13 said that in order to boost productivity in the face of a strong yen that is eroding its profitability, it will merge car-making subsidiaries in northeast Japan.

Toyota Auto Body and Kanto Auto Works will be turned into 100% units through share exchanges by January 2012, with both becoming more involved in vehicle development and production.

In addition, Kanto Auto, Central Motor and Toyota Motor Tohoku will begin discussions with Toyota for the units to be converted into wholly owned subsidiaries by July 2012.

By integrating the three, Toyota will create a large manufacturing center for the Tohuku region in Japan's northeast, its third in Japan following bases in central Chubu and Kyushu in the southwest.

"The environment surrounding the Japanese manufacturing sector is tough," said Toyota President Akio Toyoda.

"We would like to implement what we can now for the future. Toyota believes the latest move will raise the company's global competitiveness."

The recent strength of the yen has raised fears that more Japanese manufacturing will be shifted abroad. The strong domestic unit erodes the overseas earnings of Japan's exporters when repatriated.

However, Toyoda pledged: "Toyota is determined to maintain (annual) domestic production of 3 million automobiles," or roughly half of the automaker's total.

Last month Toyota said it expected net profit in this fiscal year to drop 31% on-year on a strong yen and the effect on production of the March 11 disasters.

The Japanese unit is currently trading below 80 to the dollar, having hit a postwar high of 76.25 in the aftermath of the March 11 earthquake.

Recent sessions have seen it surge on safe-haven demand as a deepening debt crisis sweeps through eurozone nations.

"Toyota finds it very hard at the current currency levels. We can manage up to levels at 85 yen for the dollar. Toyota is making utmost efforts to compete at 80 yen for the dollar," Vice President Atsushi Niimi said.

The automaker said the reorganization is unrelated to the March 11 earthquake and tsunami, a disaster that left more than 20,000 dead or missing and caused massive disruption to Japanese production.

However, a loss of electricity generating capacity -- including the Fukushima Daiichi nuclear plant, which has suffered reactor meltdowns as a result of the disasters -- has led to power-consumption curbs, complicating the efforts of big users such as manufacturers to recover from the disasters.

Toyota said it will work to secure the jobs of permanent employees at the companies, but did not mention the fate of temporary workers.

Copyright Agence France-Presse, 2011

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