The Automobile Industry Toyota - Research Paper Example

Toyota Brake Problem Analysis Toyota Motor Corporation is one of the leading automobile manufacturers in the world. It is founded inAugust 28, 1937 in Japan. Akio Toyoda is the current president of Toyota motor company. As of March 31, 2009, the capital of Toyota is estimated as 397.05 billion yen. The major business undertaken by Toyota is Motor Vehicle Production and Sales. It has been estimated that around 320,808 employees working at present in Toyota and its affiliated companies all over the world as of March 31, 20091 In the automobile industry Toyota do not need any introduction. They are the leading automobile manufacturer in the world for the last few decades. Even in America, Toyota cars are selling more than what the local automobile manufacturers were able to sell. Quality and reliability are the major features of Toyota vehicles. Competitors are struggling to compete with Toyota because of the superior quality, excellent supply chain, and very good after sales support, offered to the consumers by Toyota. It is difficult to compete with Toyota individually and therefore competitors are forming regional blocs to compete with Toyota. For example, “DaimlerChrysler and BMW accepted GM's invitation to cooperate in joint development of hybrid technology, in part to gang up on Toyota”2. In short, the competitors were struggling to compete with Toyota till recent times. However, Toyota suffered some major setbacks in recent times and forced to recall some of its cars because of technical problems like brake problems accelerator pedal problems etc. This paper briefly analyses the impacts of such problems caused to Toyota at present and in future. Some owners of the 2010 Prius have reported their brakes do not always engage immediately when they press the brake pedal, or that the brakes have an inconsistent feel. The National Highway Traffic Safety Administration said it would assess the scope of the problem and the safety risk to about 37,000 cars that could be affected3 Brake problems and accelerator pedal problems were the major technical problems which caused Toyota to recall millions of vehicles from America, Europe and Asia for repairing and replacing. The Prius, a hybrid-powered (gas and electric) sedan introduced in American market as the most environmental friendly car by Toyota, suffered major brake problems which forced Toyota to recall around 37000 cars from American market alone. This vehicle was manufactured strictly in accordance with the demands of President Obama. Obama earlier declared cash for clunker program for replacing old cars from American roads and to encourage Americans to use more environmental friendly and fuel efficient cars. Many of the Americans utilized the cash incentives offered by Obama to replace their old cars and they purchased Prius because of the claims put forward by Toyota. However, the brake problems of Prius affected the images of Toyota as a trusted brand in America. Toyota Motor Corp extended its safety recall of millions of its most popular cars to Europe and China in a further blow to the reputation of the world's largest auto maker. The scale of the fix for potentially dangerous accelerator pedals emboldened rivals and could land the Japanese carmaker with hundreds of millions of dollars in extra costs per month. Toyota, a byword for quality and reliability, said it had not yet determined how many vehicles in Europe would be recalled, or when, but media and analysts believe 2 million may be affected on top of some 6 million in North America. In China, the world's biggest auto market in 2009, the carmaker said on Thursday it had submitted an application to recall over 75,000 RAV4 vehicles4 It is estimated that around 8 million Toyota were so far recalled from the global market because of accelerator and brake problems. Toyota engineers are working day and night to rectify the problems and to regain the lost confidence of the public. Nobody has any doubt about the abilities of Toyota in bouncing back from this crisis; however, it is harder for Toyota to regain the customer confidence immediately. It is difficult to estimate the financial damages caused to Toyota by the accelerator pedal and brake problems. It is also not clear when can Toyota resume its normal production activities. The recent tsunami caused another severe blow to the ambitions of Toyota to settle the problems as quickly as possible. Edgerton,( 2010) has mentioned that “A new Kelley Blue Book survey says 27 percent of car shoppers who had been considering Toyota now won’t buy one, due to the recalls”5. The above information clearly shows the decline of Toyota brands in the global market. The competitors are exploiting the opportunity very well. Competitors even modified their advertisements to humiliate Toyota. Edgerton, (2010) has pointed out that Nissan’s TV ads are all about “safety” and “quality at present”6 . Earlier, Nissan advertisements were focused on the features of their products whereas at present they are trying to prove two points; Nissan brand is a reliable brand with respect to safety and quality and some of the other brands lack safety and quality. Toyota advertisement campaigns were focused on safety and quality earlier and now such claims were not easy to digest to the customers. The following illustrations reveal the impacts of recall caused to Toyota. . (Mora)7 The above illustrations clearly show that the expectations of the customers about Toyota brand were severely affected by the recent recall incidents. The 10k report or the annual report released by Toyota on 18 March 2011 shows that the sales of Toyota vehicles in Japan, North America, Europe, and in other regions steadily declined from 2008 onwards. The following table gives some idea about Toyota vehicle sales by geographic location (Thousands of unit) Year ended March 31 2008 2009 2010 Japan 2188 1945 2163 North America 2958 2212 2098 Europe 1284 1062 858 Asia 956 905 979 Other 1527 1443 1139 Overseas Total 6725 50622 5024 Total 8913 7527 7237 XNYS:TM Toyota Motor Corporation ADR Annual Report8 Speaking in terms of microeconomic principles we can say that the monopoly enjoyed by Toyota vehicles in the global market has suffered lot of setbacks as a result of the recall incident. In other words, the demand for Toyota vehicles has come down drastically because of the brake and accelerator pedal problems. Moreover, the doubts about the Utility of Toyota vehicles have increased a lot after the recall incident. Utility of a good controls the economic activities with respect to that good in the market. It depends on the satisfaction and benefit associated with a good to a particular customer. It is not necessary that the utility of a good might be the same for another consumer using the same good. In the case of Toyota brands, the utility seems to be on the decline as far as a consumer is concerned. “Opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action”9. Lots of substitute or alternate options are available to the current customers and nobody wants to go after the problematic Toyota cars. In other words, after purchasing a Toyota car, the customers may force to spend more money for the repairing costs. If they purchase another brand of car, they can avoid the repairmen cost. The above thinking about the opportunity cost forced current customers to think twice before purchasing a Toyota car. The direct cost to Toyota of its initial recalls of 3.8 million cars has been put at $US2 billion. Toyota has already slashed more than 6,000 jobs at its Japanese plants since the onset of the global economic crisis. This is only part of the story. The company’s production wind-back has resulted in tens of thousands of jobs being lost in the auto parts sector that supplies its production lines. Toyota City, the company’s headquarters town near Nagoya, saw mass unemployment during 2008 for the first time ever10 Thousands of people are employed in Toyota plants worldwide. The vehicle problems and subsequent recall incidents resulted in many people losing their jobs. In other words, unemployment problems increased a lot of the current recall incidents in Toyota. Moreover, the associate industries of Toyota like the spare parts division also faced severe shortage of business and loss of jobs. Toyota is such a big company that any problems occurred to it may affect many other associated companies. Apart from financial and image loss, Toyota is currently facing several law suits across many regions and countries. More than 30 lawsuits were reported already as a result of the brake and accelerator pedal problems of Toyota vehicles. Prius was introduced with lot of expectations and many people witnessed it as the car of the future. However the brake problems made this car a mysterious one at present. Similarly, Lexus was the favorite car of the Europeans before the crisis started. The recall problems cause severe damages to the growth prospects of Lexus/Toyota in Europe. Creamer (2010) has mentioned that Toyota’s car sales in Germany, Europe’s biggest, may shrink by 1 million vehicles in 2010 whereas Volkswagen AG’s sales may go up to 2.9 million during the same period11. Amidst all the setbacks and humiliations suffered as explained above, Toyota never remained silent. They did everything possible to come out from the current crisis and to regain the lost customer confidence. They have launched massive campaigns in different parts of the world to regain the lost customer confidence. 8 million vehicles were recalled from the market which shows the commitments of Toyota in helping its valued customers on crisis situations. Toyota has already declared that they successfully corrected the software programming glitch which caused the braking problems in Prius vehicles. Moreover, “the chairman of the Toyota Company, Toyoda assured the public that they will redouble their commitment to quality as the lifeline of our company”12. Toyota never cheat the public with false offers and the words of Toyota’s chairman can be seriously considered while taking a purchasing decision about Toyota vehicles. Toyota delivers more than what they promise. Public know that when Toyota says something, it will materialize. Lexus dealers began contacting customers as soon as details for the VSC update were available. Virtually all of them were contacted by their dealers within a few days and an estimated 75 percent of GX vehicles have already been updated. In the process, they’re providing free loaner vehicles, remote repairs, pick-up and delivery service, and fuelling and washing customer cars. They continued to provide a courtesy vehicle to anyone who has purchased a 2010 GX 460 and has concerns about driving it until the recall work has been completed13  The above facts clearly show the commitments of Toyota towards its customers. It is already reported that Toyota is providing a courtesy vehicle to the customers who faced problems in their Lexus brand in Europe. In other words, Toyota does not like its loyal customers to face any additional spending in the form of renting a car until the recalled vehicles were being repaired. The above strategy was worked out by Toyota was successful enough to regain the lost customer confidence. Moreover, the pickup and delivery of the recalled vehicles were done free of cost to the customers. In short, Toyota customers may not face any personal inconvenience or financial liability for repairing their vehicles. The effectiveness of Toyota campaign to recall the defective vehicles made huge impacts in the automobile market. This was the first time any automobile manufacturer accepted their faults and showing signs to help the customers. Earlier, when such problems were occurred, most of the automobile manufacturers remained silent or put the blame on the customers for unsafe driving instead of accepting their mistakes. However, Toyota showed a different way of exhibiting their social responsibility. At the same time their campaign is not succeeded fully because of the problems in contacting all the Toyota customers with defective cars. Toyota recently announced in a press release that it has begun mailing letters to owners of recalled vehicles to let them know when to bring their vehicles into a dealership. Owners will only receive a letter if their vehicle is involved in the recall. Upon receipt of a notification letter, owners will be asked to contact a local Toyota dealership to schedule an appointment to have their vehicle fixed. The press release did not address the very practical problem that Toyota’s database cannot contain accurate mailing information for all Toyota owners affected by the recall. Car sales between private owners as well as mailing address changes as consumers move within the country will impact the effectiveness of a Toyota national recall notification mailing. According to the US Postal Service website:- 17% of Americans change addresses annually; 43 million people move each year and One out of every six families move each year14. Even though Toyota has taken every steps to help its customers, some of the practical problems in establishing contacts with the customers, prevented Toyota from achieving 100% success in the recall campaign. It is quite possible that some of the customers repaired their vehicles at their own expenses instead of waiting for the call from Toyota. However, the sincerity of Toyota in helping the customers cannot be questioned. To conclude, Toyota is facing several challenges at present because of the technical problems of some of its vehicles. Brake problems and accelerator pedal problems were reported to some of Toyota’s newest cars introduced across the world. The recent tsunami aggregated the crisis further. However, Toyota is currently doing everything possible to regain the customer confidence with the help of massive campaign to recall, repair and deliver the defective vehicles free of cost. It is an accepted fact that Toyota sales declined a lot as a result of the current crisis; however, many people believe that Toyota may bounce back and regain the lost market segment in near future itself. Works Cited 1 Cremer Andreas. “Toyota Faces ‘Very Tough’ German Market After Recall, CEO Says”. 2010. BusinessWeek, Web. 22 May 2011. 2 Edgerton Jerry, “Safest Alternatives for Toyota Buyers”. 2010. Web. 22 May 2011. 3 Messenger Alex, “Toyota Recall Highlights Crisis in Global Auto Industry”. 2010. Web. 22 May 2011 4 Mora Michaela. “Brand Tracking Studies – How To Design Them”. 2010. Web. 22 May 2011. 5 “Opportunity Cost”. 2009. Investopedia. Web. 22 May 2011. 6 Sinha “Toyota Recall Notification Letters Could Miss Over 500,000 Owners”. 2010. Web. 22 May 2011. 7 “Target, Toyota: Competitors Try To Trip Up the Carmaker on Its Way to No. 1”. Web. 22 May 2011. 1. “Toyota”.2009. Web. 22 May 2011. 8 “Toyota Safety Recall Spreads to Europe, China”. Reuters (Jan10, 2010), Web. 22 May 2011. 9 “Toyota Issues Global Prius Recall”. 2010. Web. 22 May 2011. 10 “Toyota: ‘Too soon’ to decide about Prius recall”. 2010. Web. 22 May 2011. 11 “XNYS:TM Toyota Motor Corporation ADR Annual Report”. 2010. Web. 22 May 2011. 12 “2010 Lexus GX 460 Passes Consumer Reports’ Retest – “Don’t Buy” Label Lifted”, 2010. Web. 22 May 2011. Read More