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Video #28: How Toyota and GM Differ

Wednesday, March 22, 2006

sources | lesson plan


BACKGROUND INFORMATION

Most of the time since its founding in 1908, General Motors (GM for short) has been
the largest automaker in the United States. Initially famous for its line of trucks, by 1955,
it was the first corporation to earn over a billion dollars a year. Since then, it has held its
position as the leader of what’s known as the “Big Three” American car companies
(the other two being Ford and DaimlerChrysler).

However, in recent years, GM has been squeezed by foreign companies that have won
a larger share of the US auto market. The resulting drop in its North American sales
accounted for a large part of GM $10.6 billion dollar loss in 2005. By contrast, Toyota’s
operating profits actually improved in its corresponding period, rising 14% to $4.1 billion
dollars (partially due to the weakening of the value of the yen against the dollar). Many
of GM’s domestic sales problems are attributed to its failure to foresee the drop in
demand for gas-guzzling SUVs, a slow entry into the hybrid car market, as well as the
reputation for higher quality earned by Toyota products.

Ironically, Toyota got its first foothold in the US through a joint venture known as “NUMMI”
with GM to build Toyota products in California. The joint venture began in 1984 when the US
created an import tariff on foreign pickup trucks. The joint venture with GM allowed Toyota
to avoid the tariff and build up a base in the U.S. NUMMI is still an active venture that
currently produces the Toyota Tacoma, Toyota Corolla and the Pontiac Vibe lines of vehicles.
However, Toyota now assembles cars on its own in the U.S. at plants of its own in Kentucky,
Indiana, and Texas. Some parts for the cars, such as engines, are manufactured in Toyota
plants in Alabama, West Virginia and Long Beach, California.

Additionally, because of a decreasing market for its products in Japan, Toyota has also
announced that it has plans to boost its sales in China in 2006, one of GM’s major foreign
markets. In fact, GM sales in China hit new records last year, with the company selling
665,390 vehicles there, a figure that was up 35.2% from the previous year. Toyota plans
to overtake GM’s by increasing its own sales in the country by 60%. It also says it will
surpass its rival in global production this year with 9.2 million vehicles (GM produced a
total of 9.12 million vehicles worldwide in 2005).

GM also is at a disadvantage to Toyota because of a significant difference in its cost of
manufacturing each car (almost $2300 more compared to Toyota). The company has
been trying to solve these issues by reaching a deal with the United Auto Workers
union to lower health insurance costs for U.S. workers and imposing 900 million dollars
worth of cuts on its non-unionized workers. GM has also announced plans to reduce its
U.S. production, threatening its position as the world’s largest employer, with over
340,000 employees.



SOURCES

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LESSON PLAN

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GRADE LEVEL/SUBJECT:

10-12 grade Economics, International Relations, World History, Geography,
International Baccalaureate Programs (IB), Current Events.

PURPOSE:

To present activities to be used in a variety of classroom situations in order to
enhance student understanding of the role of Japanese companies such as
Toyota in the worldwide automotive industry.

OBJECTIVES:
Students will be able to:
1. Develop an understanding of the impact of foreign competition and the
process of trying to break into a foreign market.
2. Learn how to analyze consumer tastes and create effective products
and marketing to cater to them.
3. Develop basic strategies on how to successfully run a multi-national company.

ACTIVITIES:

May be assigned as group activities or as individual tasks. They may also be
designed as preparation for related presentations either by individuals or groups.

1. Research and create a timeline of the history and growth of GM and
Toyota in the US and abroad.
2. Role play: Have the students represent a car company and develop
strategies to market its lines of cars/trucks/etc. in the US and other countries.
3. Split the students into three groups, a US car company, a foreign
car company, and a US car dealership trying to decide which to represent.
The dealer will decide after hearing both sides.
4. Have the students assume to role of GM’s management and GM Board
of Directors. The Board should listen to a presentation from the management
of how Toyota’s gains are cutting into General Motors’ sales, and a
recommended list of measures to make GM’s product line more competitive.
The Board should then vote on which of those measures to adopt.


EVALUATION:

Individual assignments should be graded by the teacher using established criteria.

Group activities, presentations and projects may be evaluated by teachers
and students using the following criteria and scale:


Content 1 = Superior (A)
Creativity 2 = Excellent (B)
Clarity 3 = Good (C)
4 = Fair (D)
5 = Poor (F)