Is Toyota Seeking a Massive Reduction in Parts Costs?

A report from Reuters indicates that Toyota Motor (TM) plans to cut the price of its car parts by 30%. Toyota is facing considerable pressure from competitors like Hyundai and Volkswagen, which have improved the quality of their small cars while keeping costs low. The competition is particularly intense in the rapidly growing markets of India and China.

Toyota is also faced with the fallout of its global vehicle recalls which are having a sales impact. In a recent J.D. Power initial-quality satisfaction survey of U.S. consumers, the Japanese manufacturer fell to the No. 21 spot.

"Compared with Korean cars, our vehicles are roughly 30% more expensive globally," Takeshi Shirane, senior managing director in charge of purchasing, told Reuters in an interview on Friday. The new Toyota program, called RR-CI, will encourage engineers and product designers to use local materials and even designs for parts to bring down prices.

The plan faces two hurdles. The first is that almost every other car company in the world is slashing manufacturing costs. U.S. companies have do it through layoffs and lower pay scales for factory workers. Jaguar and Land Rover were sold to India's Tata Motors, a low cost producer. Hyundai and Kia already have extremely low expense bases -- like those Japanese car companies enjoyed a generation ago.

The other problem Toyota will have is that suppliers can only be squeezed so much in terms of prices. Several U.S. car companies found that out when they drove down prices only to find that some of their parts companies went out of business during the recession.