Section 2. Toyota Motor Co., Ltd., Toyota Motor Sales Co., Ltd. to Form Toyota Motor Corporation

Item 1. Background to Merger Decision

Following the second oil crisis of 1979, the global economy moved into a low-growth phase. With disposable incomes shrinking in the wake of rising commodity prices, there was a gradual tail-off in domestic demand for new vehicles, which until then had enjoyed an expanding trend. Amid increasingly fierce sales competition, the number of new Toyota vehicles registered in Japan in 1980 fell 7.2 percent from the previous year to 1.49 million units. This was 37.3 percent of the domestic total, a fall for the second consecutive year.

In overseas markets, the worldwide economic recession led to intensified trade friction, resulting in the introduction in fiscal year 1981 (ended June 1982) of voluntary restraints on the export of Japanese-made passenger cars to the United States and voluntary measures to limit exports to the European Community. The growing seriousness of the trade friction issue meant that Toyota faced a situation in which it would be difficult to avoid producing in the United States and other developed markets, which it had supplied until then through exports. Additionally, two successive oil crises had increased momentum toward energy and resource conservation in all industrial sectors and competition to develop relevant technology began in earnest in the automobile industry as elsewhere. Having grown into one of Japan's core industries with the expansion into overseas markets in the 1970s, the automobile industry of the early 1980s found itself confronted with difficulties and ended up grappling with a range of issues.

At this historical turning point, demands were high that automakers effect improvements, including swifter decision-making and more-efficient use of economic resources. As such, the senior management of Toyota Motor Co., Ltd. and Toyota Motor Sales Co., Ltd., which shared a keen sense of the impending crisis, took decisive action to deal with a longstanding issue. That issue was the merger of their two companies, which had existed as separate entities since Toyota's production and sales functions were forced to separate in 1950 as a condition for business reconstruction at the time.

Since the separation, the two companies had expanded their operations in their respective sectors, acting as paired wheels on a vehicle. This two-company structure, unknown among its rivals, was admired from outside the company as a Toyota strength. However, in order to achieve fast-reacting stewardship of its business in the face of difficulties such as the intensifying trade friction and the transfer to local production overseas, it had become vital for Toyota to return to being a business entity unified both in name and in practice.

On January 25, 1982, the two companies agreed to merge and signed a memorandum of understanding. To get to that point, however, carefully planned steps were taken at the human and organizational level. To start with, in June 1981, Toyota Motor Co., Ltd. Executive Vice President Shoichiro Toyoda was appointed president of Toyota Motor Sales Co., Ltd. and at the same time two directors of Toyota Motor Co., Ltd. became directors of Toyota Motor Sales Co., Ltd. Next, in July, a similar measure was applied at managerial level, when two section managers of Toyota Motor Co., Ltd. were transferred to Toyota Motor Sales Co., Ltd.

On his appointment as president of Toyota Motor Sales Co., Ltd., Shoichiro Toyoda commented as follows:

With the slump in demand since the second oil crisis, trade friction with the countries of Europe and North America, and intensified worldwide competition in the compact car market, the automobile industry of today faces an extremely challenging situation. Our very survival is at stake in the severe struggle that is unfolding. To make it through this difficult situation, we need to enhance our marketing capabilities and create even closer coordination with Toyota Motor Co., Ltd. In doing so, I believe that it is essential we exploit the strengths of our two companies in an organic fashion and to the maximum degree possible. At the same time, we must relentlessly pursue two eternal questions for Toyota: how to meet user expectations; and what measures to deploy to benefit our dealers.

Additionally, he identified the following three management tasks:

  1. 1.Accurately identify market needs and reflect them in attractive products.
  2. 2.Reinforce the unity of relationships among the two Toyota companies and the dealers and build a system for annual sales of two million units.
  3. 3.Actively implement an overseas strategy based on a long-term perspective.

Following his appointment, President Toyoda made energetic visits to dealers in all regions of Japan - as required by the principle of genchi genbutsu (going to the source to find the facts) - in order to listen to people at the frontline of sales and to build a solid relationship of trust. During this time, as well, groundwork in preparation for the merger of Toyota Motor Co., Ltd. and Toyota Motor Sales Co., Ltd. continued steadily below the surface.

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