Scarcity can be a sign of exclusivity. A three-year waiting list is common for Bugatti buyers. Now Japanese automaker Toyota is asking some customers to be just as patient. Would-be buyers of its new Land Cruiser may have to wait as long as four years.
Part of the explanation lies in burgeoning demand. Japan’s pandemic-led camping boom has sharply increased demand for sport utility vehicles such as the Land Cruiser.
But Toyota also faces supply-chain disruptions. Chip shortages have already resulted in steep production cuts. A new wave of coronavirus infections is making matters worse. Production at many of its Japanese plants has been suspended for several days. Suppliers exposed to lockdowns in south-east Asia over the past year are running short on components. Expected February output is now a fifth lower than the guidance it gave last month.
Toyota is also made more vulnerable to disruptions by what was once its biggest strength and edge over global rivals: lean manufacturing. Toyota pioneered “just-in-time” production decades ago, having started inventory controls in the 1970s.
The strategy, which has helped it cut costs and improve efficiency, is based on having as little inventory as possible and relying on frequent, small deliveries of exactly the amount of components required for production.
The persistent disruptions in the global supply chain and rising inflation will now require automakers to do the opposite: stockpile parts to manage costs. Typically for automakers the size of Toyota, a day of lost production can cost up to $10m. Savings from just-in-time manufacturing, like warehouse costs for example, would not offset those losses.
Toyota shares are down 5 per cent this week, reflecting looming disruptions. Even so, at 10 times forward earnings, that represents a nearly two-thirds premium to peer Volkswagen. The longer its plants are halted, the faster that gap should close.
Source: Economy - ft.com
