If the British pound were to join the European Monetary Union would the problem be resolved?

It was January 2002 and Toyota Motor Europe Manufacturing (TMEM) Show more Case 2: Toyotas European Exposure It was January 2002 and Toyota Motor Europe Manufacturing (TMEM) had a problem. More specifically Mr. Toyoda Shuhei the new President of TMEM had a problem. He was on his way to Toyota Motor Companys (Japan) corporate offices outside Tokyo to explain the continuing losses of the European manufacturing and sales operations. The CEO of Toyota Motor Company Mr. Hiroshi Okuda was expecting a proposal from Mr. Shuhei to reduce and eventually eliminate the European losses. The situation was intense given that TMEM was the only major Toyota subsidiary suffering losses. Toyota and Auto Manufacturing Toyota Motor Company was the number one automobile manufacturer in Japan the third largest manufacturer in the world by unit sales (5.5 million units or one auto every six seconds) but number eight in sales in Continental Europe. The global automobile manufacturing industry had been experiencing like many industries continued consolidation in recent years as margins were squeezed economies of scale and scope pursued and global sales slowed. Toyota was no different. It had continued to rationalize its manufacturing along regional lines. Toyota had continued to increase the amount of local manufacturing in North America. In 2001 over 60% of Toyotas North American sales were locally manufactured. However Toyotas European sales were nowhere close to this yet. Most of Toyotas automobile and truck manufacturing for Europe was still done in Japan. In 2001 only 24% of the autos sold in Europe were manufactured in Europe (including the United Kingdom).The remainder were imported from Japan (see Exhibit A). Toyota Motor Europe sold 634000 automobiles in 2000. This was the second largest foreign market for Toyota second only to North America. TMEM expected significant growth in European sales and was planning to expand European manufacturing and sales to 800000 units by 2005. However for fiscal 2001 the unit reported operating losses of 9.897 billion ($82.5 million at 120/$). TMEM had three assembly plants in the United Kingdom one plant in Turkey and one plant in Portugal. In November 2000 Toyota Motor Europe announced publicly that it would not generate positive profits for the next two years due to the weakness of the euro. Mr. Shuhei with the approval of Mr. Okuda had also initiated a local sourcing and procurement program for the United Kingdom manufacturing operations. TMEM wished to decrease the number of the main components imported from Toyota Japan to reduce the currency exposure of the U.K. unit. However again the continuing problem of the British pounds value against the euro as shown in Exhibit C reduced the effectiveness of even this solution. Case questions 1.Why do you think Toyota had waited so long to move much of its manufacturing for European sales to Europe? 2. If the British pound were to join the European Monetary Union would the problem be resolved? How likely do you think this is? 3.What measures would you recommend Toyota Europe take to resolve the continuing operating losses in the short run? 4. What steps would you recommend Toyota Europe take to resolve the ongoing operating losses over the long term? Show less

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