GECON200-Topic #2: Toyota Gas Pedals

Recently Toyota recalled some 5 million plus cars, including the Camry which is the most popular car in America. The problem with many of these cars were either floormats that became caught underneath the accelerator, or an accelerator pedal that became stuck and led to out of control vehicles. It should be pretty obvious that this recall will impact not just the demand for Toyotas, but also the demand and supply for all different models of cars and trucks. Toyotas and other brands of cars are substitutes for one another. In a response to Toyota’s production shutdown and recall, other auto manufacturers like GM and Ford are trying to attract some Toyota drivers to their brands. Volkswagen has explicitly argued against the practice of trying to lure customers away.

Now, if you carefully think about the effects of the recall, you might notice that production costs for Toyota will not necessarily change. However, at the margin, there are some more expensive to produce models that Toyota manufactures. A problem similar to the sticking accelerator pedal has been linked to Prius software, where Toyota makes very little (if any) profit.

Questions you might try to answer:

  • What should the overall impact be on the car market because of the Toyota recall? By ‘market’ you should be referring to Supply/Demand/Price/Quantity and you can differentiate between different types of cars. Try to think deeper than just “This will lead to a decline in Toyota’s demand” which doesn’t really say much. Do you expect Toyota to change their prices, and if they do, what should be the impact on their firm?
  • What impacts do large recalls like this have on competitors? Is this recall necessarily a good thing for all other car makers?
  • Might GM’s strategy of attracting Toyota consumers backfire? What might happen if GM is faced with a large recall in the near future?
  • Can you compare the large recall of Toyota cars and trucks to a large recall in a highly differentiated market like this? If so, can you draw any inferences from previous recall experiences?

23 thoughts on “GECON200-Topic #2: Toyota Gas Pedals”

  1. The recent Toyota recalls could send profound shockwaves through the automobile industry. Because Toyota is known for its high quality manufacturing, these recalls are especially harmful to its reputation (1). These recent events would obviously cause an inward shift of the demand curve of Toyota automobiles. Some consumers may not buy a new car or truck while others would begin looking elsewhere for a replacement automobile. These decreases in demand would almost certainly force Toyota to cut the prices at which it sells its automobiles. The GM and Ford incentive policies are designed to lure former Toyota customers to their company, shifting outward their own demand. The expected impact of these policies exists because of the income effect. Essentially, GM and Ford are making it cheaper to buy their product by giving rebates and no-interest loans. As a result, these companies are enabling consumers to buy more with the same amount of money, than they could with Toyota. As a result of all of these recent happenings, Peter DeLorenzo of AutoExtremist.com states that “Toyota is in serious trouble, because now there are too many competitive models from savvy competitors… [presenting] real alternative[s] to the consumer.”

    The incentives from GM, with its fair share of recent financial problems, and Ford are not sure bets of succeeding. The incentives that include waiving up to $1,000 in payments, giving loans with 0% interest for 60 months, or giving customers up to $1,000 for trade in are radical, especially considering the state of the auto industry today (2). It is possible that the incentives don’t actually attract Toyota’s customers, and other competitors such as Hyundai and Honda grab them instead with less voracious techniques. If this happened, Ford and GM would actually lose money by having these incentives for the same customer base that existed before the Toyota recalls.

    In the near future, it is possible that the effects of these recalls are felt by the entire auto industry. The flaws that have been found in Toyota products are now in the national spot light. The NHTSA has already scolded Toyota publicly and will likely not take any chances with similar problems in the future (1). Legislation could be passed requiring higher quality materials for these and other car parts could raise prices across the industry.

    (1) http://www.usatoday.com/money/autos/2010-01-21-toyota-recall-gas-pedal_N.htm
    (2) http://www.foxbusiness.com/story/markets/industries/transportation/general-motors-pounces-toyota-sales-halt-new-incentives/

  2. The January sales of Toyotas have dropped almost 16% most likely due to the recall of eight popular models. (1)The recall of several models of Toyotas will obviously lead to a lower demand for these 8 Toyota models. I believe it will also lead to a lower demand for other Toyota models as well because the brand name has been tarnished. This will lead to a higher demand for similar cars by manufactured by other companies. This would make one think that other manufacturers would be able to sell their comparative models at a higher price. But companies like GM and Ford are offering huge incentives such as $ 1,000 rebates and loans that don not begin to accumulate interest for 60 months. (2) Why would this be? One answer is that GM does not have the same reputation as other companies such as Honda , so GM needs the incentives to make sure it gets the new customers that GM is losing. (2) Another conclusion is that Toyota knows that it’s potential customers might be wary due to the recall. In response it may cut prices, attracting even more customers than before the recall. GM and Ford would need the incentives to keep their original customers. So the recall may not necessarily be a good thing for other car manufacturers. It could end up lowering profits for all car manufacturers across the board. In such a complex market it’s difficult to predicts the effect of the recall early on.

    (1)http://www.marketwatch.com/story/toyota-jan-us-sales-down-158-to-98796-units-2010-02-02-1353350?reflink=MW_news_stmp
    (2)http://www.bloomberg.com/apps/news?pid=20601101&sid=a0Ay4eaUtjDQ

    1. I don’t think that GM and Ford are offering rebates because they are trying to keep their current customers. Instead, they are giving out rebates to those who currently have Toyota’s. This rebate would allow them to trade in their current Toyota for GM or Ford models. I think that the recall is good for companies like Ford and GM but what they need to do is to be able to maintain their current consumer base while trying to attrat Toyota customers. One way they can to this is create incentives for their current customers to trade in their old models for new models through rebates.

  3. Although Toyota is quickly working to prepare a correction remedy for its acceleration problem, I find it highly unlikely that Toyota will ever be able to sell cars like it has in the past. Corolla, Camry, and Prius were included in January 2010’s top-selling cars. All three of those Toyota models are currently under recall. Toyota’s reputation for quality and steadiness has become tarnished. The fact that Toyota has been disregarding the possibility of software issues just makes this situation even worse (1). Toyota’s recall history has caused a domino effect in the entire automobile industry. If Toyota’s sales continuously shrink, it will affect the market by facilitating rival automakers’ (substitutable competitors) taking the lead in selling their cars.

    Taking the top spot in the best-selling cars in the US is the Honda Accord, followed closely by the Nissan Altima. In the short run, the incentives that competing automakers are providing will generate unanticipated sales glory (2). As for the domino effect, Toyota’s problems impact other automakers as well: France’s PSA Peugeot Citroen says to recall nearly 100,000 Peugeot 107s and Citroen C1s made in the Czech Republic at a plant where Toyota and PSA jointly make cars. This month, Toyota has announced that 216,000 cars in Germany, Europe’s biggest car market. 180,000 in Britain are included in the mass recall to fix an accelerator pedal problem. Some 8.1 million Toyota vehicles are now up for repair globally, which includes the floor mat issue. Overall, the unintended acceleration issue has been linked to up to 19 tragic crash deaths in the United States (3).

    Sources:
    1) http://abcnews.go.com/Blotter/RunawayToyotas/apple-founder-toyota-problem-software/story?id=9728007
    2) http://www.zimbio.com/Toyota+Camry/articles/2C22vXGdwN1/TOP+10+BEST+SELLING+CARS+AMERICA+JANUARY+2010
    3) http://www.reuters.com/article/idINTRE6141OU20100205

  4. Automobile recalls are no new occurrence. Over the past decade a long list of factory recalls has accrued and a majority of the leading car manufacturers have reluctantly been forced to join it due to problems as trivial as a defective accessory that affects only a few customers or as serious as a system malfunction such as a sticking accelerator pedal that poses a threat to millions as in Toyota’s case. It is difficult to make a comparison but consider Ford Motor Company’s recalls in 2001. Ford issued twelve recalls on the Ford Explorer that year for problems that could have affected anywhere from 5 to 13,000,000 customers depending on the specific issue; the 13,000,000 potential malfunctions were due to separation in tread in Firestone tires used on the Explorer (1). Yet Ford survived these hits and this January enjoyed a 25% increase in sales as well as a two point increase in market shares over the past year (2).

    Ford’s rebound gives Toyota, an overall reputable company, good hope. Yet while Ford took the traditional remedy of offering free inspections and replacing defective parts, Toyota is taking a risk by freezing production of the eleven recalled models entirely and increasing hours at selected dealerships to work 24 hours a day in order to correct these problems(3). This plan will have significant effects. Such a major cut in sales plus the costs of paying employees for extra hours will leave a gaping whole in the company’s wallet. The recalls in themselves have the likelihood of affecting customers’ preferences and decreasing the demand for not only the models involved in the recall but any Toyota vehicle. Therefore Toyota is making a wise decision by addressing the issue and correcting it for their customers which will earn them respect and protect the company name ensuring rebound. Nevertheless, this rebound will not be easy and since they are taking more drastic measures to correct this problem than Ford did in 2001, they will experience a more difficult recovery.

    (1)http://www-odi.nhtsa.dot.gov/cars/problems/recalls/results.cfm
    (2) http://www.marketwatch.com/story/ford-posts-25-jump-in-january-us-sales-2010-02-02?dist=afterbell
    (3) http://www.toyota.com/recall/?srchid=K610_p277905772

  5. The recent recalls on several of Toyota’s cars will not only shake Toyota’s business, but the entire automobile industry as well. Eight out of sixteen Toyota models have been declared hazardous. This includes “the 2005-10 Avalon; 2007-10 Camry and Tundra; 2008-10 Sequoia; 2009-10 RAV4, Corolla and Matrix; and 2010 Highlander” (1). Because of these recalls, the most important aspect potential car buyers will be looking for are cars’ safety features. This puts Toyota in an even worse position because they will have to invest in more safety tests and screenings to receive superior safety ratings. Due to this, the supply curve will shift to the left, resulting in a decrease of cars and a boost in the selling price. Will consumers want to pay more for these cars? I don’t think so. It’s highly unlikely that a buyer’s reservation price will increase for cars that were recently recalled.

    Obviously, the demand for these cars will decrease, but in my eyes that does not mean that the demand for other cars from different manufacturers, like GM and Ford, will increase. “Toyota’s pain wasn’t a gain for other automakers. They saw more Toyota owners browsing in their showrooms but few sales despite incentives offered by GM, Ford and some New York-area Honda dealers.” (2). With this fact in mind, will consumers want to see excellent safety features from these car manufacturers as well? You betcha. All car manufacturers will probably have to increase their spending in safety testing. Since they will have to increase the prices of their cars to cover the costs of testing, this will cause a shift in supply for the entire auto industry. This is definitely not what the auto industry needs, what with their already past and ongoing battles with the economic recession. However, one can certainly not predict how the recall will affect the market at such an early time. So I guess we will just have to wait and see.

    Sources:
    1. http://www.nytimes.com/2010/01/22/business/22toyota.html
    2. http://www.msnbc.msn.com/id/35200833

  6. The recent recall in eight Toyota models by the company will most likely mark a significant yearly decline in sales from what was predicted at the outset of the year. The impact on other car makers is somewhat straightforward, given that other brands are sufficient substitutes for Toyota models (which they are), and consumer trust has fallen low enough that the average car buyer will reconsider their purchase based on the recent news. It is predicted that Toyota’s market share will decline by 2-4 percentage points(1), but a Wall Street Journal online poll reveals a trend for a large portion of current Toyota customers to stay with the brand and not divert to competitors so hastily(2). Even though the poll reveals consumer preference, the pocket book will speak louder to consumer choices if the difference in prices between automobile brands are high enough.

    GM and Ford’s move to price based on Toyota’s failure is a decision that will create a negative atmosphere for business. A car maker issuing a recall is not a matter of “if” but “when.” Capitalizing on the short term folly of Toyota is not something that will cripple Toyota in the end. Toyota can bounce back if they follow through with the promises made to their customers (as evidenced by the WSJ poll), but if the emphasis for increased sales is focused on the failures of other firms versus the accomplishments of one’s own firm, the end losers will be the consumers and the reputation of the industry as a whole.

    The immediate benefits of a recall are felt most by a firm’s competitors, but Toyota can shape the debate in their favor by citing years of quality manufacturing.

    (1) http://www.marketwatch.com/story/toyota-recall-cant-reverse-quality-gains-2010-02-05
    (2)http://i.mktw.net/_newsimages/polls/toyota.html

    1. Evan- you say that ‘consumer trust has fallen low enough that the average car buyer will reconsider their purchase based on the recent news.’ The thing is, we don’t really know that consumers are willing to reconsider and look elsewhere based on this news.

      1. To clarify, I was presenting a possible outcome given the two conditions are fulfilled. The second condition is somewhat hard to validate and measure, i agree with you. But the consumer response seems to be less traumatic than expected based on the poll I cited.

  7. Over the years Toyota has risen to the top through its reputation for high quality vehicles. However, the company has recently recalled over eight million vehicles worldwide because of sticky gas pedals and gas pedals becoming stuck on the edge of the floor mat. In addition, there have been problems reported with the brakes on the 2010 Toyota Prius, but as of now there has not been a recall. Following the suspension of eight models, Toyota’s January sales slumped 15.8% to 98,796 vehicles. Consumers are now looking into substituting other brands for Toyota, such as Honda, Ford, and GM. Ford and GM are offering incentives to Toyota owners to switch brands. These incentives include $1,000 rebates and no-interest loans for up to 60 months. While these offers may increase the demand for a Ford or GM vehicle by a few percentage points, this increase in demand is not likely to last (1). The demand will not last because right not Toyota users are upset and frustrated with Toyota. Once Toyota has fixed the problems there will be less incentive to switch brands.
    GM and Ford have both had their fair share of bad press and recalls in the past, maybe even more so than Toyota. In the past year GM has had to declare bankruptcy and in April of 2009 recalled 1.5 million vehicles due to an oil leak that could cause an engine fire (2). Also, Ford recalled 7.9 million vehicles in 1996 to repair a faulty ignition switch that could cause a fire in the steering column. In addition, since 1999, Ford has announced seven separate recalls, affecting 14.9 million vehicles, for a defective cruise-control deactivation switch that could cause spontaneous fires, even when the car was off. Then in June 2001, Ford recalled 13 million tires for multiple vehicles (3).
    While Toyota will certainly see a decline this year, I do not believe that this will hurt them in the long run. Even with the recalls and news about the problems with the Prius’ breaks, buyer interest in the Prius has grown. Among those who seemed ready to buy a compact car, 10.1% were looking hard at the Prius before the news. After the news broke, 11.2% seemed serious about the Prius (4). Within a year or so I believe that, if no more problems occur, Toyota will have gained back a majority of its business.

    1. http://www.bloomberg.com/apps/news?pid=20601101&sid=a0Ay4eaUtjDQ
    2. http://www.automotiveaddicts.com/3732/gm-recalls-15-million-vehicles-due-to-oil-leak
    3. http://www.forbes.com/2010/02/04/toyota-prius-ford-gm-business-autos-recalls.html
    4. http://money.cnn.com/2010/02/05/autos/prius_deals/index.htm?postversion=2010020517

  8. As expected and already seen to some degree, the Toyota recall will affect the automobile market greatly. What makes this recall so detrimental for Toyota is that as a company built on the constant strive for perfection, their customers have come to expect this and have, in the past, had absolute trust in the company and now that trust has been undermined. (4) Also, to make matters worse, the company’s response has been the “worst example of crisis management in the history of the auto industry”. (4) Still, the response of other car companies is not necessarily something to be admired. GM is now offering no-interest loans for up to 60 months to anyone who has a Toyota trade-in. (2) Ford is offering $1000 rebates to Toyota and Honda owners. (2) One can definitely see why companies, especially ones such as these, might see an opportunity to lure customers away from the No. 1 car producer in the world as one that cannot be ignored. However, there is a risk involved in this. VW has the right idea. They say that they have no intention of participating in these “predatory practices”. (3) Their plan to remain a strong competitor in general and not to target a single producer is a better strategy.

    The recall affected 7.6 million vehicles world-wide (3) and close to 60% of Toyota’s total inventory (1). Therefore, there is no way that competitors are not going to receive some benefits from the situation, whether or not they offer rebates or incentives. The real flaw is in targeting Toyota owners specifically. This really is predatory and could backfire. If, in the future, companies such as Ford and GM have to face what Toyota is facing now, the market may not be kind to them either. Neither of these companies is a stranger to bad press and should realize that if they react to Toyota’s recall in this manner, they may face the same circumstances in the future. Both GM and Ford are lagging in the automobile market and, though these incentives and rebates may have temporary benefits, they could be unprofitable in the long-term if such unfortunate circumstances were to befall them. Companies such as Toyota and Honda may turn against them in the very same way and offer the same sort of benefits to customers who trade in Ford and GM models. Though I believe Toyota will be able to regain the majority of its former business in the long run, companies such as GM and Ford, who have already faced a great deal of bad press, may not be able to recover quite so well.

    1) http://www.marketwatch.com/story/toyota-jan-us-sales-down-158-to-98796-units- 2010-02-02-1353350?reflink=MW_news_stmp
    2) http://www.bloomberg.com/apps/news?pid=20601101&sid=a0Ay4eaUtjDQ
    3) http://www.businessweek.com/news/2010-02-02/vw-says-u-s-discounts-aimed-at-toyota-predatory-update2-.html
    4) http://www.nytimes.com/2010/02/06/opinion/06debord.html?scp=7&sq=toyota&st=cse

  9. Recalls throughout any market have always contributed to more than just a disruption in the one firm’s production. It is the basis behind all market transactions that one change will cause an effect in another. In the case of Toyota’s recent recall on its eight vehicle models, the substitution effect occurs, causing the demand for Toyota models to shift down and to the left, and for the demand for all other competing companies to shift out and to the right. As this recall occurs, Toyota will also stop producing some of their models while they fix the problems. Toyota has temporarily halted production at some of their North American plants to focus their resources on remedying the vehicles that have been recalled (1). This causes the supply curve for Toyota vehicles to shift up and to the left. They now have a decrease in demand, and a decrease in supply. They are now selling less quantity, at a similar price (depending on the magnitude of the equilibrium change). The models accounted for 56 percent of the automaker’s U.S. sales last year(2); therefore, it is suggested that the Japanese carmaker will lose around 100,000 unit sales per month all the time the stoppage is in place (3).
    This change in production and demand for Toyota manufacturers directly affects the market for common competitors such as GM, Ford, and Volkswagen. All demand curves for any substitute for Toyota cars will shift up to the right (increase). Customers now have a new preference over Toyota cars, because they value safety, and Toyota now has a damaged reputation. GM, Ford and Volkswagen have different approaches to undertake this change. GM is offering no-interest loans of as long as 60 months for purchases of one of its new models with a Toyota trade-in, and Ford plans to offer $1,000 rebates to Toyota and Honda Motor Co. customers to encourage them switch to its models (3). Volkswagen will continue to focus on retaining existing Volkswagen owners and introducing new customers to their brand, regardless of the brand of vehicle they currently own (4). In my opinion, Volkswagen is making the right decision. Not only is it a more ethical business practice to not directly feed off of another’s misfortune, but I also think that GM already has a bad reputation, and this will put a negative outlook on their business incentives. Previous Toyota customers are going to base their new preferences on the safety aspects of vehicles since their cars were recalled due to safety malfunctions. I think that the best competitive strategy in this situation would be for other car manufacturers to start campaigning new safety features to attract Toyota customers. Either way, yes the demand will increase for all competitors, but it may backfire if GM is too focused on attracting new customers rather than improving their models. I do agree with some of the previous posts however, when they state that this is only temporary. Toyota is an extremely acclaimed business, and once they fix the problem, I believe that their sales will increase back up to the original percent over time.
    (1) http://www.toyota.com/recall/
    (2) http://www.bloomberg.com/apps/news?pid=20601101&sid=a0Ay4eaUtjDQ
    (3) http://www.product-reviews.net/2010/01/30/toyota-and-honda-recall-ford-and-gm-sales-gain/
    (4) http://www.businessweek.com/news/2010-02-02/vw-says-u-s-discounts-aimed-at-toyota-predatory-update2-.html

  10. In my opinion, the recall of the Prius is one of the biggest blows to both Toyota’s reputation and its market share. Toyota has always been recognized as one of the top car producers, but having 11 of its models on the recall list is taking a heavy toll (1) on how Toyota owners and potential customers see the company.

    Although Toyota has responded quickly to this issue, its efforts may not be enough to quell the worries of both car owners and purchasers. The company says it has already fixed vehicles that went on sale since last month (2).

    Having to go through all of the PR efforts, including litigation issues, in addition to supplying the repairs, Toyota will lose a lot of money through this issue. Also, Toyota’s recall sent its stock skidding – and boosted shares of Ford (3), which makes sense. Buyer reaction to the recalls is uncertain, which explains GM’s response to the situation, as it is a good opportunity for them to gain share that they may have lost to Toyota previously. While I wouldn’t necessarily say that this is a morally sound approach, it does make good business sense in one way or another. If I were GM, however I would be on the same ground as Volkswagen, because if GM suffers any recall issues, their reputation could potentially suffer more damage than Toyota.

    http://www.toyota.com/recall/?siteid=OM_SLA_AID1792905_CID4251074
    http://www.msnbc.msn.com/id/35278742/ns/business-autos//
    “Parts supplier puts pedal to the metal for a fast fix; New assemblies are heading to Toyota factories.” USA Today 28 Jan 2010

  11. GM seems to be much too overconfident and trusting of their own brand. Susan Docherty, the head of GM’s marketing, even said “Everyone realizes that we are now equal to the best in the world, including Toyota.” (1) GM is making all kinds of deals and incentives to attract previous Toyota customers, but the company will not want to keep these in place when they could be making so much more money doing otherwise. There is a high opportunity cost for implementing all these deals and trade-ins. Instead of expanding and creating new products to attract even more customers, Ford is focusing on attracting the consumers that are already in the market and will want to buy a new car regardless of what Ford offers. They don’t feel safe with Toyota and the demand is high so they’re going to buy cars from other dealers no matter what.

    The 8 Toyota models that were recalled accounted for 56% of Toyota’s sales last year. (1) This is a huge chunk of profit and Toyota will lose a lot of money, especially since they have halted production. So since Toyota is supplying less and customers are demanding less, they will be forced to lower the price of any vehicle they still have on the market.

    GM instead should look to Volkswagen as a guide. “We will continue to focus on retaining existing Volkswagen owners and introducing new customers to our brand, regardless of the brand of vehicle they currently own.” (2) VW is bringing in new customers by focusing on the positive in their own company rather the unfortunate happenings of another, which is one of GM’s faults.

    (1)http://www.bloomberg.com/apps/news?pid=20601101&sid=a0Ay4eaUtjDQ
    (2)http://abcnews.go.com/Blotter/RunawayToyotas/apple-founder-toyota-problem-software/story?id=9728007&page=2

  12. It is the basis behind all market transactions that one change will cause an effect in another. In the case of Toyota’s recent recall on its eight vehicle models, the substitution effect occurs, causing the demand for Toyota models to shift down and to the left, and for the demand for all other competing companies to shift out and to the right. As this recall occurs, Toyota will also stop producing some of their models while they fix the problems. Toyota has temporarily halted production at some of their North American plants to focus their resources on remedying the vehicles that have been recalled (1). This causes the supply curve for Toyota vehicles to shift up and to the left. They now have a decrease in demand, and a decrease in supply. They are now selling less quantity, at a similar price (depending on the magnitude of the equilibrium change). The models accounted for 56 percent of the automaker’s U.S. sales last year(2); therefore, it is suggested that the Japanese carmaker will lose around 100,000 unit sales per month all the time the stoppage is in place (3).
    This change in production and demand for Toyota manufacturers directly affects the market for common competitors such as GM, Ford, and Volkswagen. All demand curves for any substitute for Toyota cars will shift up to the right (increase). Customers now have a new preference over Toyota cars, because they value safety, and Toyota now has a damaged reputation. GM, Ford and Volkswagen have different approaches to undertake this change. GM is offering no-interest loans of as long as 60 months for purchases of one of its new models with a Toyota trade-in, and Ford plans to offer $1,000 rebates to Toyota and Honda Motor Co. customers to encourage them switch to its models (3). Volkswagen will continue to focus on retaining existing Volkswagen owners and introducing new customers to their brand, regardless of the brand of vehicle they currently own (4). In my opinion, Volkswagen is making the right decision. Not only is it a more ethical business practice to not directly feed off of another’s misfortune, but I also think that GM already has a bad reputation, and this will put a negative outlook on their business incentives. Previous Toyota customers are going to base their new preferences on the safety aspects of vehicles since their cars were recalled due to safety malfunctions. I think that the best competitive strategy in this situation would be for other car manufacturers to start campaigning new safety features to attract Toyota customers. Either way, yes the demand will increase for all competitors, but it may backfire if GM is too focused on attracting new customers rather than improving their models. I do agree with some of the previous posts however, when they state that this is only temporary. Toyota is an extremely acclaimed business, and once they fix the problem, I believe that their sales will increase back up to the original percent over time.
    (1) http://www.toyota.com/recall/
    (2) http://www.bloomberg.com/apps/news?pid=20601101&sid=a0Ay4eaUtjDQ
    (3) http://www.product-reviews.net/2010/01/30/toyota-and-honda-recall-ford-and-gm-sales-gain/
    (4) http://www.businessweek.com/news/2010-02-02/vw-says-u-s-discounts-aimed-at-toyota-predatory-update2-.html

  13. The car market, for all manufacturers, will more than likely experience a leftward shift in the demand for vehicles. Because Toyota has been associated with high quality and high safety in the past, it does other companies no good to see Toyota fall because it is not just confidence in Toyota that will have fallen, but confidence in vehicle manufacturing in general. This recall can be compared to breeches in national security; because one airline is targeted for a terrorist attack does not mean than people will suddenly feel as though another airline is safer, total ridership on the whole will decrease.

    Ford and GM have made gains at the expense of Toyotas 16% sales slide, approximately 25% and 14% respectively, but their predatory tactics may fail them in the long run (1). Creating a large new consumer base puts pressure on GM and Ford to maintain and increase the quality of their products, but if a similar recall occurs, their gains will plummet and confidence in their product, deemed “high quality” by their sales teams, will be severely damaged (2).

    The best thing Toyota can do is not to make excuses for their faulty equipment and let buyers know that the problem is being addressed as best as it can. Trying to fight back against the predation by GM and Ford would prove futile and childish. Maintaining an image of responsibility and dignity in the face of adversity shows consumers that a company has staying power. GM and Ford may, on the other hand, damage their reputations in a seemingly desperate attempt to scramble for Toyota’s for business.

    (1) http://www.businessweek.com/news/2010-02-02/toyota-u-s-sales-fall-16-after-recall-as-gm-ford-post-gains.html
    (2) http://www.bloomberg.com/apps/news?pid=20601101&sid=a0Ay4eaUtjDQ

    1. Actually, in direct response to the Toyota recall, GM has already “halted sales of the Pontiac Vibe, which was included in the [Toyota] recall because it was nearly identical to the Toyota Matrix.”

      So it would seem that GM is employing a tactic that will also distract from the actual fact that they too are already considering one of their vehicles as suffering from an identical problem.

  14. Quite simply, without an unseen dire consequence of proportions along the lines of detonating fuel tanks being present in every Toyota model, this slump in demand is something that Toyota can and easily will overcome. While the sales will be immediately affected, a large-scale recall of a product will eventually be forgotten and the products re-instated upon their being corrected. In the case of the recent outbreak of lead-based paints being present in children’s toys, the company Mattel had to recall nearly one million products that were produced by a Chinese contract manufacturer (1). Mattel was also a dominating manufacturer, producing such products as Barbie dolls, Hot Wheels cars and all Fisher-Price toys, outsourcing production to over 50 manufacturers (1). Today, the company still produces millions of toys, including some products that were a part of the recall; it is simply a matter of time for the problem to be isolated and fixed.

    In actuality, what happens following such a widespread recall is an increase in safety procedures at several levels, from the original factory building the product to a number of commissions that review the product before it will be placed on the market. In the case of the lead paint outbreak, several third-party monitors were formed to “check up on all of the companies that make toys under its brands” (1). For Toyota, a company that has long had high safety ratings and actually won more Insurance Institute for Highway Safety awards than any other in 2009, it will only improve their overall ratings following a longer period (2). Following a “crackdown” on safety ratings, such as those employed by the unbiased magazine Consumer Report, which incidentally reported a mere 52 complaints addressing the problems that were the sources of the recall, Toyota will again return to its place at the top of the automobile industry (2).

    [1] http://www.nytimes.com/2007/08/02/business/02toy.html
    [2] http://www.washingtonpost.com/wp-dyn/content/article/2010/02/05/AR2010020504247.html

  15. In isolation, the Toyota gas pedal recalls would really have no long-term impact on Toyota or the rest of the automobile market, because people will always be buying cars. But after further probing, Toyota has now recalled over 8.5 million vehicles including the best-selling hybrid, Toyota’s Prius, do to other issues found in Prius software that make the brakes unreliable in snow and on bumpy roads (1). All the bad publicity that Toyota is receiving will most definitely hurt their image, but after awhile I think everyone will forget about it and any demand curve shifts for Toyota will return to normal.

    In the short term, Toyota’s sales have been hurt tremendously. They fell 15.8% in January compared with a 25% gain by Ford and a 14.1% gain by General Motors (2). This provides a much-needed boost for American automobile manufacturers, and it would be naive for Ford/GM not to capitalize off Toyota’s mistakes. But, after this massive recall, all car companies may soon be subject to more scrutiny by the NHTSA. As all car manufacturers are trying to cut costs across the board due to the recession, attention to detail and possible safety issues may be easily overlooked during production (3). Since January 13, 2010, the NHTSA has started investigating the Chevy Cobalt (2005-2009), the Ford F-150 (2004-2006) and the Ford Escape/Mazda Tribute (2001-2004) for various design flaws (3). As these probes continue, car companies could soon see more strict government regulation of quality control and the overall safety of their products.

    (1) http://www.foxnews.com/story/0,2933,585163,00.html
    (2) http://www.usatoday.com/money/autos/2010-02-02-auto-sales-january_N.htm
    (3) http://www.usatoday.com/money/autos/2010-02-02-nhtsa-cobalt-steering-complaints_N.htm

  16. When I first heard of the Toyota recall, it reminded me of,”Fight Club” (one of the greatest movies of all-time) and how companies determine whether a recall should be initiated: When the # of vehicles in the field x the probable rate of failure x the average out-of-court settlements is greater than the cost of a recall, then the company will issue a recall. According to this formula, it seems that a recall was in the best interest of Toyota. Although it damages its honorable reputation for its excellence in performance and price, greater damages would have come if a recall was not issued. There have been many companies in the past that have rebounded from maintenance problems in the past and it would be safe to assume that Toyota will do the same. In fact, “every major carmaker receives occasional reports of sudden unintended acceleration (SUA)”, a problem that Toyota is currently having. (1) Despite these major setbacks, Toyota still maintains a relatively low price for their almost impeccable vehicles. With necessary advertising and more resources spent towards rebuilding its image, Toyota will regain its prior success.

    As a result of Toyota’s current problems, companies like GM are taking advantage and creating incentives by offering $1000 rebates to consumers who choose to make the automotive switch. (2) Although in the short run there will be a boost in sales, this incentive for new customers will result in a disincentive for current customers who may have been looking to purchase a GM model. These customers might feel that they are not getting the best deal on their purchase. In their attempt to expand their customer base, companies like GM may be neglecting current consumers. Further, companies like GM, who are still financially supported by the government, may not have the necessary resources to be producing at the level that they wish to produce at and supply vehicles to those who are willing and able to buy them, especially when GM has vowed to repay $6.7 billion bailout money by June. (3) And finally, with Toyota experiencing these dangerous maintenance problems, there could be “tighter regulatory standards for critical automotive components” (4).Thus the cost in production for these firms might increasing, dwindling revenue, and in essence, profit.

    (1) http://www.popularmechanics.com/automotive/new_cars/4345385.html
    (2) http://www.bloomberg.com/apps/news?pid=20601101&sid=a0Ay4eaUtjDQ
    (3) http://www.csmonitor.com/USA/2010/0125/GM-vows-to-repay-6.7-billion-in-bailout-money-by-June
    (4) http://www.ft.com/cms/s/0/b77ab32c-15e3-11df-b65b-00144feab49a.html

  17. Because the eight widely varied models recalled by Toyota—including the more recent models of the Camry and Corolla as well as its popular trucks and SUVs—are substitutes with popular models (for example, one review site compares Honda Civics to Toyota’s Corollas (1)) sold by other top companies, it makes sense to presume that other automakers will pick up extra business while Toyota is working out its problems. And the situation will certainly give other companies, such and GM and Ford, an opening to expose themselves to a number of buyers who would otherwise be looking into Toyota models (2). However, I do not believe that the recalls will drive away all customers and drive their sales into the ground. Many people bewail the problems of tarnished reputation, but considering that less than half a year ago Ford had its own negative media coverage after a recall of 4.5 million vehicles containing faulty cruise control switches that could lead to fires(3), but is already leaping forward into the new year with a 43 percent increase in car sales, a 20 percent increase in crossover sales, an 8 percent increase in SUV sales and a 26 percent sales increase for the entire Ford brand (4), I think people are overinflating the possible of Toyota’s recall on their reputation and buyer attraction. Considering all that Toyota is doing to rectify the situation—“dealerships have extended their hours – some of them working 24/7 – to fix your vehicle as quickly as possible,” halting production, and considering the public relations situation very carefully (5;2)—and considering the reputation for quality that it has had up to this point, I do not foresee the recall affecting Toyota’s sales negatively in the long run.

    (1) http://usnews.rankingsandreviews.com/cars-trucks/best-car-deals/Honda-Deals/
    (2) http://www.bloomberg.com/apps/news?pid=20601101&sid=a0Ay4eaUtjDQ
    (3) http://money.cnn.com/2009/10/13/news/companies/Ford_recall/index.htm
    (4) http://media.ford.com/article_display.cfm?article_id=31945
    (5) http://www.toyota.com/recall/

  18. I feel like people are reacting as severely as the experts (and probably many of us) expected. Like was said in class, car manufacturers have recalls all the time. Yes, Toyota is known for superior quality and maybe because of that, one recall compared to more frequent ones from other companies may not hurt their reputation as much as expected.

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