Assignment 5

Export Marketing
Case – Toyota

Syeda Tasbeeh e Fatima

Sec G
17U00390

Case study 2.2 Toyota Motor Corporation

(This case was written by Mitsuko Saito Duerr and Edwin C. Duerr, San Francisco State
University)
Toyota’s vehicle recalls: responses, problems and concerns
Introduction
Between October 2009 and July 2010, Toyota Motor Corporation recalled
8.5 million cars and trucks. The design and quality problems that caused the
recalls, and expenses related to the recalls, were obviously of great concern to
the company. Repairing defects will cost several billion US dollars and it is
not clear whether the company will suffer serious long-term effects due to the
recalls. Its reputation for quality had become well established over several
preceding decades, particularly in North America (its largest and most profitable
market). Media attention to its problems has now been somewhat lessened
by the BP disaster discussed in Case 2.1.
While recalls are relatively common in the automobile industry, Toyota’s
problems gained widespread attention because of: (1) the number and size of
the recalls; (2) the company’s longstanding reputation for producing high
quality vehicles; (3) the company’s slow and inadequate responses to the
problems; and (4) concerns that Toyota’s commitment to quality may have
been impaired by its rapid expansion and emphasis on profits.
Of the 8.5 million recalls, the majority was related to unintended acceleration
problems (Nation, 2010), or failures to respond to pressure on the brakes.
At least 52 deaths were linked to these problems (Thomas and Krisner, 2010).
The unintended acceleration problem was largely solved by securing loose
floor mats that could snag gas pedals. The problem of accelerators that could
sometimes stick required a design change.
Separately, Toyota recalled some of the hybrid Prius automobiles because
the company found a design problem with the brakes that could cause poor
performance on slippery or uneven roads (Sobel and Simon, 2010). Other
problems were claimed to be due to failures in the electronic control systems.
Following a number of complaints regarding vehicles that sped up, another

one came from a Prius owner who said his accelerator stuck while he was
driving on a Southern California Freeway. Investigators from the US National
Highway Traffic Safety Administration and from Toyota found no problems
with the vehicle (Spagat and Thomas, 2010). In July 2010, it was disclosed that
at least some of the reported cases of unintended acceleration were caused by
driver error rather than defects in the Toyota control systems. In these cases, a
preliminary investigation by a US government agency has indicated that onboard
instruments showed that the drivers had their feet on the accelerators
rather than on the brakes at the time of the crash. Figures or estimates of how
many of the problems were due to driver error will not be available for some
time (after further investigation and analysis).
Some of the many recalls during the period were required because of a
wide range of other problems.
Two other examples of the reasons for and scope of the recalls
In China in December of 2008, before some of the more massive recalls,
Toyota recalled 120,000 Crown, Reiz, and Lexus cars produced there between
2005 and 2006. The Chinese Administration of Quality Supervision, Inspection
and Quarantine said a manufacturing defect could cause the electric
power-steering systems to fail (Toyota, 2008).
On Friday, July 2, 2010, Toyota recalled a total of 270,000 Lexus and Crown
vehicles, their luxury brands. This recall affected their vehicles worldwide,
and was to fix valve springs that could cause the vehicle to stall in traffic. Of
this number 138,000 were in the US; 91,903 in Japan; 15,000 in Europe; 10,000
in the Middle East; 6,000 in China; and 8,000 elsewhere. About 200 complaints
had been received, but no accidents or injuries reported. This covered models
produced between July 2005 and August 2008. On Monday, July 5, 2010,
Toyota began recalling another 90,000 Lexus and Crown branded vehicles,
though this time only in Japan (Kageyama, 2010).
Poor communications and slow responses
Of great concern to many Americans was Toyota’s slow, and in US culture inadequate,
initial responses to reports of problems with the company’s vehicles.
The company was fined a record $16.4 million by the US government for
responding too slowly to the crisis. Even 9 months after the recalls began, an
analyst with Nomura Securities in Tokyo said the company is not doing a
good job in communicating with the public about what it is doing to improve
quality checks, and thus it is difficult for people to believe that the company is
taking the customers’ view as it promised it would do (Kageyama, 2010).
Outside observers, and eventually Toyota officials themselves, blamed
poor communications upward for the slow response to problems. Managers
in Japan responsible for overseeing American operations received many
warnings from Toyota’s top US management about complaints. But they were
slow, or failed entirely, to pass on these warnings to top management in

Japan. An eventual response of top management in Japan was to remove one

intermediate level of managers between top US and top Japanese management
(Sobel, 2010), assumedly transferring the middle managers to other
positions or allowing them to retire.
An additional problem may have been a feeling in some large Japanese
companies that the Chief Executive Officer should not become directly involved
in details of operations. Akio Toyoda had been appointed as CEO of
Toyota in June of 2009, but until February 5, 2010 he had not made any public
comments about the quality problems that had been occurring since before he
took the top position, or even about the major recall of 2.3 million US cars on
January 21, 2010 after he became CEO. He finally ‘emerged from seclusion’ on
February 5, 2010 (Kageyama and Foster, 2010). Toyoda said: ‘I personally
regret that we have caused worry for so many people’ and ‘I apologize from
my heart.’ He said that the problem had created a ‘crisis situation’ for the
company, but did not explain what had gone wrong (Sobel, Simon and Reed,
2010). In Japan, an apology goes a long way toward being forgiven, but in the
US people are generally more concerned about what will be done to correct
the problem. Even in Japan his message is not getting through. Complaints
about confusion are coming from even ‘ultra-loyal Japanese suppliers’ (Sobel
and Reed, 2010).
It has also been suggested that the people who run Toyota had been ‘unable
to comprehend that its cars could be less than perfect.’ Its marketing
group continued to refuse to accept that its cars might have problems, though
some accounts indicate that acceleration problems may have come to light as
early as 2002. This lack of awareness of the problems, especially by top management,
may have been what led the company to continue selling cars with
faulty accelerators and brakes (Pilling, 2010).
Concerns about Toyota’s commitment to quality: effects of rapid
growth and stress on cost-cutting
Of even more concern to some is the surfacing of information that Toyota’s increasing
emphasis on continually controlling/reducing costs, coupled with
very poor upward communication, has actually threatened quality. An independent
study by J.D. Power and Associates in the US, based on 82,000
responses regarding the number of problems new car owners found after
having their cars for 90 days, indicated that Toyota owners now report more
problems than Ford owners (Simon, 2010).
In 2006 Katsuaki Watanabe, then Toyota’s CEO, was increasingly worried
that quality was slipping, that Toyota’s engineering practices and factories
weren’t efficient enough, and that the company was losing its competitive
edge. In the US in 2005, Toyota had recalled more cars than it sold. Watanabe
wanted radical change to reduce the number of components used in its cars,
and to build new more efficient and more flexible plants. His objective was to
cut costs by about $4,000 per vehicle. Additionally, he pushed rapid expansion

overseas. The rapid growth, as Toyota attempted to overtake General Motors,

also led to excess capacity and eventually to losses in the recession in 2009.
In his previous positions before becoming CEO, Mr. Watanabe had introduced
innovations that did make the company much more efficient
(Shirouzu, 2006). Complete redesign did not prove to be attainable, and rapid
growth was causing rapidly increasing quality problems. Part of Toyota’s
present quality problem is believed to be due to the increased complexity and
use of electronics, and the need to buy more components from outside suppliers.
Engineers have become more specialized and fewer people understand
how everything works together (Harding and Sobel, 2010).
One analyst has suggested that the company’s pressures on suppliers to
keep costs low, and to keep the costs of its own labor down by using more
part-time labor, have compromised quality (Pilling, 2010). An executive in a
US supplier company said that Toyota required that his firm reduce prices by
10% for each new generation of parts. This led some analysts to conclude that
scrimping by suppliers has caused quality problems for Toyota vehicles
(Welch, 2010). In recent years, some Japanese workers have felt underpaid,
overworked, and less loyal to their companies, thus contributing to production
line problems. Part of the labor troubles in Toyota’s plants in China was
due to the fact that their workers there felt they were underpaid relative to
what workers at plants operated by other foreign companies were receiving.
They also felt that their grievances were not being responded to within a reasonable
amount of time. Of course, the local Japanese managers could not
make any changes without approvals from Tokyo. These took a long time to
obtain – if they could be obtained at all.
In 2010, Toyota announced that they would reduce their labor force in
Japan by 15%, on top of a previous 15% cut, in order to move more production
to lower-cost overseas plants. This was a great change for a company
that years ago wanted to keep as much of its production as possible in
Japan to maintain employment in the country and to maintain strict quality
control.
Concluding comments
Toyota should of course attempt to determine the underlying causes of continuing
quality problems, and methods for fixing them. Toyota also needs to
provide faster and more well thought-out responses to reports of potential
quality problems. This involves improving internal communications, and
improving communications with customers and the public as to the extent
of problems and what is being done about them. It has even been even suggested
that if the recalls are a result of serious problems in the company’s
procurement policies, labor policies, and/or manufacturing policies, Toyota
may need to overhaul its design, engineering and manufacturing systems
(Welch, 2010).

Q1. What do you think the long-term effects of the recalls will be on Toyota?
The long-term effect would be that the consumer will start to doubt the company and its cars
performance because of the previous recalls. This can result in loss of sales worldwide.
Customers lose faith in a brand if they no longer believe what the company is saying is true.
This will eventually result in loss in the profit share. The company’s economic value will fall and
the company’s image will be damaged heavily. The impact of the recall problem on Toyota’s
long-term financial performance will be more damaging than expected.