Report: Toyota’s Limited Price Hikes Highlight Internal Differences in Strategy

26 August 2008

The Nikkei reports that Toyota Motor Corporation’s (TMC) restriction of price increases in Japan to hybrids and commercial vehicles (earlier post) resulted from internal dissension in the company over whether to prioritize sales or profitability.

Focused on improving earnings, Toyota’s planning and finance divisions pushed for price hikes. Barely profitable domestic sales have taken a bruising from sky-high materials prices. And in the US and Europe, sales are in the doldrums. With group net profit for the April-June quarter plunging 28%, Toyota risked missing its full-year earnings target if nothing was done. The two divisions insisted that a markup was essential because of limits to cost-cutting efforts.

The sales division, on the other hand, was wary. It feared plummeting sales if prices were raised on a wide variety of models. Even without upping prices, the domestic market has been sluggish. Toyota’s domestic sales have fallen for three straight years, and the company had just trimmed its sales outlook for 2008. Some dealerships also opposed the hikes, recalling the huge drop in sales after prices were raised during the first oil crisis.

The decision was made to limit price hikes to models such as the Prius that face little competition.