Q1 What are the various demand and supply side factors affecting Toyota's profitability.

What should
toyota do to address these in order to improve its profitability?

Ans: Toyota was affected by various demand and supply factors. Some of the factors are:

1. Competitive and Fragmented Market: Toyota was the top selling brand in the Australian market.
But the competition not only from domestic manufacturers like General Motors Holden , Ford
Motor company the brand also has to compete with other brands from other countries. This was
because of the Australia’s low-tariff barriers and highly open trading environment. This provided
the domestic consumer with an easy access to imported cars. With approx 65 brands and 365
models among various car segments, made the Australian market highly competitive and most
fragmented in the world.
2. Changes in the demands of Exporting countries: Toyota Australia’s exports accounted to roughly
73% of total production. But due to the slow recovery of global financial crisis, demand in the
automobile sector, in developed countries, remained low. Also the major demand were shifted to
emerging markets such as China, India and Brazil. Also the demand change in favor of small
fuel-efficient cars, was contrary to the type of cars currently manufactured by Toyota.
3. Small Scale of Operations: Toyota Australia manufacturing unit had an annual installed capacity
if 150,000 cars whereas it operates on just above 100,000 units per annum. This small scale of
operations led to an adverse impact on the scale at which the component manufacturers
operated and the cost at which they could supply the components, Hence, Leading the average
cost of production for Toyota at a higher level.
4. Exchange Rate Movement: With the Australian dollar strengthening over USD, and Australia's
essential fares being to GCC nations, and being submitted in USD, the general productivity of its
fare, additionally declined.
5. Taxes and Government Policies: Various taxes such as carbon tax and the luxury tax added to
the high cost of manufacturing for car companies in Australia including Toyota. The Australian
govt. under its opening-up strategy, brought down the tariffs to 5% by 2010. To help the
automotive industry to adjust to the declining tariffs, the govt. provided direct assistance to the
manufacturers, it was linked to investment and to research and development activities. More
assets supposedly was diverted to exports– focused field – instead of the assembling,
expanding the accentuation on fares.
6. Free Trade Agreements (FTAS): Australia had signed various FTAs such as Thailand Australia
FTA, The association of South East Asian Nations-Australia-New Zealand FTA and the Australia
Gulf Cooperation Council FTA. But The FTA signed by Australia with Thailand, Korea, and Japan
turned out to be bad for car companies including Toyota. Some did not impose tariff on
imported cars but instead imposed an engine size duty that was as high as 80% (Thailand),
while others imposed tariff on foreign cars (Japan, South Korea) , imposed stringent technical
specifications for the foreign cars (Japan), or making the registration process tough. Overall, it
hampered Toyota and other Australian car makers export to these countries.
Things that might increase Toyota’s Profitability:-

 As two major car manufacturers (Ford and Holden) are leaving the Australian market, this will
provide an opportunity for Toyota to capture their market share. The sales in the segment its
rival were operating can be captured in the long run by increasing the scale of operations.
 Being export driven, Toyota Australia should look out for the demands of its main exporting
countries. It should launch a car in a small fuel-efficient segment or in an electric car segment
which are demanded and gaining popularity in South –East Asian Markets.
 Keeping in mind the changes in the foreign currency and strengthening of the Australian
currency to USD, it should change its cash policy of accepting payments in another currency
either to pound or Australian Dollar to enhance the overall profitability.
 Along with potential dealings with the laborer's association, to help lessen out expenses; and
potential exchanges with the administration to further diminish overall expense of assembling,
for example, to decrease import obligations on imported components, or, pushing for
increasingly favorable FTAs and so on.