Toyota Won’t Raise Prices to Help Rivals


Toyota Won't Raise Prices to Help Rivals

There was a surprising headline yesterday that said Toyota *was* considering raising prices to “help” Ford and GM. Here is a link to an Auto Blog discussion of that. According to the Wall St. Journal, Chairman Hiroshi Okuda told reporters that Japan's auto industry needs to give Detroit “time and room to catch a breath.” When asked about the U.S. auto industry last week, though, President George W. Bush said: “I think they're going to have to learn how to compete.”

Today, however, a Toyota spokesman says that “the market” sets prices.

That's a reminder of the old formula — for a mass producer, Price = Cost (plus) Profit, as if profit is an entititlement (and it wasn't for GM last quarter). The lean model, however, says Profit = Price (minus) Cost, where the price is set by the market. A lean producer will focus on reducing costs to hit profit targets, not insisting that they need to raise prices to hit those pre-ordained profit targets. I hear the latter from executives at my company, which always bothers me. We need to be cutting costs internally and helping our suppliers cut costs through lean methods. What do you see at your company?


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