A Tow Hold in the Market

Toyota Industrial Equipment Manufacturing has added production of the diesel tow tractor at its Indiana facility as part of a push into the North American market.

An industry characterized by a struggling economy and cash-strapped customers presents a daunting test for companies looking to push a product into a new marketplace.
Toyota Industrial Equipment Manufacturing Inc. has found itself in such a precarious position. The company announced in March 2008 that it would add production of its diesel baggage and cargo tow tractor to its Columbus, Ind., production facility in a push to further infiltrate the U.S. market.

Since the announcement, the market has seen a dramatic shift in its operations. Capital availability has become an elusive concept due to the financial hardship of the airlines and the search for alternative-fueled equipment has become increasingly important.

Toyota has found itself in a challenging situation as it strives to become formidable competition among the established North American tow tractor manufacturers.

The company has relied upon its philosophy of limited production and the reputation of its brand name to grow its share of the market.

A New Market
Toyota has been in the business of producing cargo and baggage tow tractors since 1979 in Japan, when the product line was developed to serve the Asian GSE market. The tow tractor line was made available to North American customers in 1986 on a special-order basis.

Its tractor product has since evolved into two models: diesel and electric. The diesel model features a 2.4 liter Toyota 1DZ-III diesel engine and a 5,500 pound drawbar pull capacity.

Having gained a solid customer base with United Airlines and FedEx emerging as the largest domestic customers, the company decided that added production would present a local appeal to other potential buyers.

“Our basic idea is that we are interested in producing that product in the markets where it is being used throughout the world, so we have manufacturing facilities located throughout the world to be able to manufacture locally as best suited for that individual marketplace,” says Tom Lego, senior manager, purchasing and sales administration at Toyota Industrial Equipment Manufacturing.

To accommodate the production of the diesel model in the United States, the company added 20,000 square feet to its already 850,000 square-foot U.S. manufacturing facility, which has been in use to produce the company’s line of lift trucks.

The company completed manufacture of the first tow tractor in the United States in May and moved into production in July 2008. Following the business philosophy of “less is more” when it comes to the manufacture of products in a new marketplace, Toyota has kept production on an order-only basis.

“The reason for that is so we can have a better handle on the inventory in the field, because we’re trying to run a very level production from the factory, and we don’t want to flood the field with orders that are not destined for retail users,” Scott Redelman, manager, production control and business system planning at TIEM. “That way we can more aptly see what the actual market conditions are. We feel like our lead time is short enough that we can do that and kind of go with the flow with the surges on the market.”

The market has seen a dramatic downturn in demand for new GSE, which the company has seen firsthand. “I think if you look at the overall U.S. and world economy, I think that we’ve certainly seen some major changes during the course of this year and the tow tractor is not any different than any other product that is being offered right now in that it’s feeling the tough economy,” Lego says.

The combination of small-scale production and the lack of market demand has produced modest, yet expected results for the company. Since the tractor was brought over for manufacture in the U.S., the company has received orders for less than 100 tractors and production of the product is a very small percentage of the total manufacturing activity at its Indiana facility.

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