Emerging business management crisis

The transition to free market sales in October 1949 turned the automobile market into a buyer's market, causing upset in the automobile sales industry, which had been used to the seller's market that had prevailed under the controlled sales system. One result was that vehicle purchase by monthly installment became more common. As the conditions for monthly installments became gradually less favorable, this led to a rapid deterioration of the sales situation.

As soon as the free market sales began, Toyota dealers began monthly installment sales. For regular trucks, monthly installment sales accounted for 85 percent and 87 percent of sales in November and December 1949, respectively. The figure for compact truck sales rose sharply from 47 percent in November of that year to 61 percent in December. Moreover, the average payoff period for monthly installment payments showed a lengthening trend.

These factors led to a large number of payment defaults, with Toyota Motor Co., Ltd. having to make up for the deficit and unleashing a serious business management crisis.1

Even at the end of September 1949, when rationed distribution was still in place, the vehicle payments collected amounted to around 200 million yen, less than 60 percent of the 350 million yen value of shipments. These payment arrears and the increase in costs caused by the distorted controlled price system sparked a sharp deterioration in the business position of Toyota Motor Co., Ltd.

Despite strenuous rationalization efforts with the cooperation of the labor union, the iron and steel price rise could not be absorbed, and in November 1949 an operating loss of 34.65 million yen was recorded. The extent of the loss continued to increase thereafter, jumping to 198.76 million yen in the next month. At the end of the year, Toyota found itself forced to borrow 200 million yen to cover the shortfall for part payment of December's wage bill, payments to cooperating plants for goods supplied, repurchase of vehicle sales bills, repayment of debt, and other commitments.2

On December 23, 1949, Toyota Motor Co., Ltd. and Toyota Motor Co., Ltd.'s labor union (All Japan Automobile Workers Union Toyota Koromo Branch), signed a memorandum in which they undertook to cooperate in overcoming the crisis. Among the main points of the agreement were that labor and management were to cooperate in implementing concrete proposals for rationalization aimed at cost reduction and that the company was at all costs to avoid job cuts as a means of overcoming the crisis, in return for which the labor union was to accept a 10 percent cut in the basic wage.

As mentioned previously, President Kiichiro Toyoda had reluctantly faced employment issues at Toyoda Automatic Loom Works during the Great Depression of 1930, and had been determined never to allow the same situation to arise. His entry into the automotive industry had in part been a strategy to diversify the business and thereby avoid the recurrence of employment problems. Therefore, in the face of the present business crisis, he retained his resolve to avoid job cuts at all costs, and it was natural that this intent should be reflected in the memorandum.

Following the signing of the memorandum, a loan syndicate supported by 24 banks was formed through the mediation of the Bank of Japan, which provided a loan of 188.2 million yen to cover year-end payments on condition that Toyota Motor Co., Ltd. agreed to formulate a business reconstruction plan.

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