Free «Business for Economics: Will the recent mass recall of Toyota cars affect the demand for these cars» Essay Sample


In the recent past, Toyota has been involved in the recalling of 4.4 million cars. The recall is regarded as one of the biggest ever done by the Company. As such, it brings the total number of cars recalled by the company to 8 million. The 8 million cars represent the total number of cars recalled in the entire worldwide market for repair by the company commencing on November 2009. The move by the company to undertake the recall exercise has left various stakeholders and critics wondering about the subsequent impacts of the decision both in the short run and in the long-run. As a result of the recall, various impacts are expected to occur to both direct actors in the company as well as other persons who rely on the company indirectly. At the same time there is likely to be major impacts on the sales of the company. Presently, the recalls have been taken with unprecedented excitement and bewilderment (Barron's 2010). As a matter of fact, the manner in which the media has covered the issue demonstrates high expectation of major impacts on both demand and supply of the company's cars in the short and long term.

The United States of America has been in the forefront towards the campaign against protectionism. The case of Toyota has been one example of such that the United States has been highly involved into in order to highlight on the various evils of protectionism done by various nations. In an attempt to demonstrate the effects that foreign companies have brought into the auto industry, it has become the preserve of the several nations to view the recall as being imperative in the restructuring of the entire industry. There are obvious results of the recall that can be easily foreseen within the very same moment that the recall has been done. Such impacts will be witnessed within the short term. Similarly, there are other impacts that will be witnessed after the whole exercise has been carried out. Impacts of an action in an industry can be sudden or slow. The impacts that are not immediately experienced are the ones that are normally termed as being long term. For these impacts, a wave of factors gets into play before they can be completely isolated. Long term factors may require that the market goes through a series of experiences and alterations before it can become fully translated in the entire industry. A look into the action taken by Toyota therefore brings into open the matters that are soon likely to be experienced in the market. The transformational impacts in the market are related to the massive recalls; a practice that entirely affects the entire industry in multifarious ways.

Analysis of the difficulties facing Toyota as a result of the recent mass recall

Truth be told, Toyota is facing various problems as a result of the massive recall of initially produced cars. Since the commencement of the global economic crisis, so much information has been circulating around the entire world in relation to the problems facing Toyota (Anonymous 2010). Media houses across the divide have particularly articulated on the issues with extreme regard of the issues affecting the company in its entirety. The media has particularly highlighted on the inferiority and inefficiencies of the cars produced by the company. As a matter of fact, it has been seen that the cars produced by the Toyota have particularly demonstrated extreme signs of poor production and maintenance of quality. The recalls are generally a reaction to the intense pressure on the defects that the Company's cars have shown. As a result of the poor quality of the cars, Toyota now faces a disastrous moment in its decision to recall the cars already produced and dispersed for purchase. The devastating impacts on the auto industry can be attributed to the protectionism impacts seen in various actions of the government to have the company shielded against any foreign competition.

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The fact that the company has been covered from the truth by the government is one major reason leading to the negative look at the foreign firms as being the cause of the recall. Protectionism is one major cause of maintenance of poor standards and production of defective products in an industry.

Genuine safety risks have been brought forward by clients already using the cars. Particular concern has been focused on the presence of uncontrolled production. Thus the vast majority of the cars produced have been seen to be defective and particularly posing a major safety threat to the consumers of the products. Accidents occur out of several reasons; some of which can be prevented while others cannot (Barron's 2010). In the case of defective cars produced by Toyota, occurrence of an accident can be termed as an accident that can be put under control. If the company pays more attention on production of reliable and high quality cars, it can be in a position to prevent the occurrence of accidents to the users of the cars. The recall on the cars already sold is due to the realization that Toyota cars are in a position to suddenly accelerate. The impacts of such a characteristic can be dangerous as the lives of the driver and the passengers are at stake. Since time immemorial, Toyota has built its name on high quality products. It is no wonder that the company has been the identified as the largest auto producer in the entire world. The fact that Toyota maintains its operations on high quality standards and insistence on production of nothing sort of best, an individual worker has the mandate of shutting an entire line incase of a compromise on quality.

Far from the shutting of a line, the recall affects the entire firm. As such, the decision to shut; if applied, would be on the entire corporate (Anonymous 2010). Innumerable complaints have been brought forward concerning the quality of the cars made by the company. In fact, the car models made by the company have been known for the drastic and unexpected acceleration. When complaints were first launched, the company was of the view that the problem resulted from gas pedals which were trapped by mats of the floor. Soon after the complaints, the first call was issued so as the problem could be corrected. Even after the first recall was issued, there has not been an end to the complaints from consumers on the dangerous acceleration of the cars. The issue of the recent recall is a major challenge for the company. Apparently, there has been continued and incremental pressure from the various parties involved such as the National Highway Traffic Safety Administration. The company has been pressured to look into the issue of safety threats facing the drivers and their occupants resulting from the dangerous acceleration. In the recent past for example, there have been witnessed several fatal accidents caused by acceleration related issues. The recent recalls have been generally a response to the immense pressure for the company to correct the problem within the shortest time possible. On its part, Toyota has undertaken on ordering new parts that dealers can use in fixing the accelerator problem.

Analysis of the problem facing Toyota through relevant economic terms

In the face of sudden growth of an industry and for a firm in particular, it is apparent that it might be a very difficult task maintaining the initially observed standards. The essence of the recall for Toyota cars can be attributed to rapid growth of the firm leading to extreme challenges on the part of the manufacturer to maintain quality on all cars produced (Sanders 2010). The insistence of the safety of the product, prevention of risk as well as the quality of the product is factors that should offer the guidelines to the company throughout its production process.

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Toyota is a company that has built its name over many years due to the quality of cars that it produces. As such, it is the role of the company to undertake relevant measures that are aimed at transforming the prospects of the company in such a manner as to restore back the confidence that consumers have had for the products in the past. There are various aspects that affect the success of a firm in an industry. To start with, a firm needs to maintain consistently high quality products. Any deviation from the normal quality production may completely alter the prospects of the firm. It is also a critical thing to respond to any deviation from the normal practice within the shortest time possible (Anonymous 2010). Sometimes, taking a bold action such as the recall done by Toyota might go a long way into restoring the confidence that consumers have for the products.

The short run and long run effects of the move taken by Toyota to recall the 8 million cars can be analyzed through consideration of the impacts of the move on the economy. Generally, it is the propensity towards maintenance of quality and best credibility for the company that has made the company acknowledge the importance of recalling the cars. When it comes to general matters, it is apparent that Americans usually demonstrate some sense of forgiveness; but not their cars. Issues to do with their cars usually remain vivid in their memories long after the issue lapsed. This may pose a major challenge for Toyota Company in the long run. A good example of a culprit of the American consumers' reactions is the German car producer Audi. For this company, there was a report aired in 60 minutes on the fact that the cars were associated to having rapid acceleration which was not intended. The report was aired in 1986. Nevertheless, the company still bares the brunt of the report as consumers have ever since shunned its cars. Even with some form of discredit on most of the report offered, there has not been any major change. As evident in the case of Audi, loss of consumer trust may be a very detrimental thing for Toyota. It is no wonder that news on the recalling action undertaken by Toyota have become more or less national emergency. Consumers have for a long time trusted Toyota for the quality of cars that it has been producing (Sanders 2010). Thus it is a major shock fro most consumers to believe that such a company can produce poor quality products.

It is somewhat difficult to tell the immediate as well as longer term responses that consumers will have towards the recall action undertaken by Toyota. The auto industry is generally composed of various large companies who are in continuous competition. As such, Toyota operates under Oligopoly (Gallaway 2000). In such a market structure, there are a number of characteristics that may affect the company's output and price determination. In order to gain a full insight into the impacts that are likely to occur to the company both in the short run and in the long run, it is imperative to delve into the characteristics that make up such a market structure. To start with, an oligopolistic market structure is characterized of few firms that have a reasonable level of influence on the decisions on output and price. Oligopolistic market is not easily ventured by new firms due to the immense requirements. As such, it becomes easy for the existing firms to maintain economic profits both in the short and long run. For oligopolistic market, the percentage of market concentration for the dominant firms is extremely high. The firms have to choose to cooperate or maintain their own strategies in the market. This is where the concept of game theory perfectly sets in.

Firms in oligopolistic market generally show interdependence. The actions undertaken by one firm directly affects the other firms' decisions. As such, when a firm makes investment and pricing decisions, it is imperative that it considers the likely reaction by other firms. As a matter of fact, uncertainty is very rife in such a market (Barron's 2010). It is these uncertainties that at times make firms behave in such a way to eliminate their competitors or celebrate the failure of the competitors. By the use of game theory, economists model the market and aid in getting the characteristics of the firm completely understood. The pursuit of all firms; whichever market structure they are is the maximization of profits while minimizing costs. Therefore, a firm will undertake several measures in order to not only survive the competition in the market but also be successful through profit maximization. Due to the uncertainties in the market, it is very difficult to conclusively come up with the right decisions on how to achieve the desired result- profit maximization. This is actually true for Toyota. The fact that the company has had an impressive performance and good consumer reputation means that the company can do anything possible to maintain the name. The recall on cars for inspection and probably repair on the accelerator is a move mainly meant to maintain the reputation of the company to the consumers. As many consumers would agree, Toyota is known for the quality cars it produces.

The oligopoly market on which Toyota operates is wrought with multifarious complexities (Gallaway 2000). For instance, the current recalls have been met with unprecedented debate and responses from both the consumers and the competitors. For Toyota, the challenge is on how to still be successful even in the face if such difficulties and challenges. A successful firm in oligopolistic market has to consider various aspects of economic analysis and concepts. Some of the common theoretical economic concepts that the firm needs to consider include interdependence of the producers, prisoner's dilemma, price and non-price adjustments, price elasticity, price leadership as well as the application of the concept of entry barriers. For oligopolistic firms, there is competition on prices. This eventually makes the prices and profits similar to those attained in perfect competitive markets. The prices and profits acquired by firms in oligopolistic markets are often indeterminate due to the challenges and difficulties that often arise in the process of developing a specific price for the entire market. Pricing and output decisions are therefore very difficult to completely make. The decision by Toyota to recall several of its cars initially produced as well as the temporary restriction on production has very major effects on the auto industry (Gallaway 2000). The diagram below illustrates the kinked demand curve that Toyota may face on the cars produced as a result of the reactions of the competitors due to the calling action and the halted production.

Not only will the demand for the available units increase but also that demand for cars from other manufacturers will increase. Critics have their say that the immense media coverage of the recall is move by GM and other companies to diminish the reputation of the company which stands at a better place than the rest of the pack. The past weeks have seen the real effects of the recall on Toyota shares in the stock market. The pain reflected in the deposited receipts from the American Toyota stocks show a major decline. In less than three week, the stock receipts from the company have been down for approximately 10%. Analysts predict that the decline in the stock is likely to continue in the short term until the issues are corrected. After that it is hoped that there will be a trend towards the normal. The halting of Toyota sales has to first be returned to certainty before the stocks can put on a positive trend. Similarly, it is hoped that more negative impacts are likely to be experienced as more information continue to hit the masses through the massive media coverage and investigation.

As seen in the analysis of the struggles, the desire of the Toyota is to bounce back to the position and level of consumer confidence it enjoyed initially. This is also the longer term desire after the company has. Apparently, there is a likelihood that the company will eventually go back to the position it enjoyed before the appearance of such issues as they are now. The suspension of sales for entire 8 major models is in the short run a major blow for the revenues of the company. This is also in consideration that the company has to undertake the free inspection of the recalled cars at its own cost. To be sincere, immense and losses are being experienced in the company (Anonymous 2010). The amount of revenue that is being channeled to other companies is immense. Such huge amounts of income may have been used in meeting the needs of the company both in the present and in the future. All the actions taken by Toyota in the present are likely to lead to extremely negative impacts in the short run. The move is worth it. Consumers already have the feel of Toyota products. They very know that the cars are efficient and strong. Thus the negative impacts experienced are not likely to remain forever. By undertaking such a bold move, Toyota is not only demonstrating that it is a reliable company but also that the company values quality and would do anything to give nothing short of the best quality. Apparently, all the negative impacts experienced are likely to be transformed into negatives the moment confidence is restored back.


In view of the circumstances surrounding the recall by Toyota, it is prudent to say that there are major problems within the production lines. Similarly, the bold move is a positive show to the consumers of the company's regard for consumer safety and maintenance of quality production. The response can yield positive impacts in the long run if Toyota is able to convince the consumers that it not out of its own willingness to produce such kind of goods. Based on the reputation of the Toyota it is likely that consumers will not listen to the exaggerations of the competitors whose aim to see the collapse of the company. Similarly, if Toyota will maintain the high reputation in the long run which in the short run has completely withered, occurrence of such mistakes should be very minimal in the future. Finally, all is not lost for Toyota in the long run in spite of the present negative impacts.


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