A Case Study On The Toyota Recall

What we are first come up to your head when you are ready to buy your very first vehicle? Safety? Price? Warranty? Color? Or something else? As one of biggest auto manufactures, TOYOTA has announced the recall of vehicles in the US, Europe and China over concerns about accelerator pedals getting stuck floor mats. Its recalls that started last September have involved millions of cars around world. 1.1 million cars in the US have been recalled a day after saying it was suspending sales of eight popular US models. According to a report of China’s quality control office, it wants to recall 75,552 RAV4 vehicles there. Safety concerns over TOYOTA cars have mounted, in the US particular, after a sudden uncontrolled acceleration killed an off-duty highway patrolman who was driving a Lexus ES350, along with three members of his family, in California last August. In the past 10 years, according to some analyses, there have been 19 deaths in TOYOTA vehicles connected to some form unintended accelerator.

TOYOTA first orders a large recall of rubber floor mats in the US last September because the company claimed that they were at risk of trapping the accelerator pedal and certain models. Around 5.3 million vehicles are recalled because the gas pedal could get hung up on the car’s floor mats. Some US drivers also said the accelerator pedal was sticky which led to a massive worldwide recall because some peals are used in cars sold all over the world including North American, China, Europe and Middle East. Gas pedals in some of the recalled cars become sticky over time. At first, gas pedals just become a little harder to push down and, when people lift their foot off the gas. In the worst case, the pedal on these cars can become stuck party way down which will keep the car accelerating or going even when you take your foot off the gas. The third issue of TOYOTA is the brakes in the latest Prius and Hybrid cars. According to YOTOTA, Prius models with an antilock brake system will stop 0.06 seconds later than cars with conventional brakes if the car is running at 20 kph on the icy road and the driver hits the brakes gently. Gas pedals in some of the recalled cars become sticky over time. At first, gas pedals just become a little harder to push down and, when people lift their foot off the gas. In the worst case, the pedal on these cars can become stuck party way down which will keep the car accelerating or going even when you take your foot off the gas.

For the floor mat problem, the vehicles under recall in US are the 2007-2010 Camry, the 2005-2010Avalon, the 2004-2009 Prius, the 2005-2010 Tacoma, the 2007-2010 Tundra, the 2008-2010 Highlander, the 2009-2010 VENZA, the 2009-2010 Matrix, the 2006-2010 Lexus IS 250, the 2006-2010 Lexus IS 350, and the 2007-2010 Lexus ES 350, according to the Toyota recall information Web site.

To fix sticky accelerator pedals problem, the manufacturer announced the recall of eight models: the 2009-2010 RAV4, the 2009-2010 Carolla, the 2009-2010 Matrix, the 2005-2010 Avalon, the 2007-2010 Camry, the 2010 Highlander, the 2007-2010 Tundra, and the 2008-2010 Sequoia.

The third-generation Prius and 2010 Lexus HS 250h will be recalled to upgrade their brake systems.

In Europe, the vehicles affected are the 2005-2009 AYGO, the 2008-2009 iQ, the 2005-2009 Yaris, the 2006-2010 Auris, the 2006-2009 Carolla, the 2009-2010 Verso, the 2008-2009 Avensis, the 2005-2009 RAV4 and the 2010 Prius.

In Japan, four models including the latest Prius, the Lexus HS250s, the Sai compact sedan and the plug-in Prius hybrid which all have a similar braking system are under recall.

Analysis

People used to indicate “Made in Japan” as a symbol of high quality, cheap price, efficient gas usage in the auto market. But now people begin to wonder why the price is so cheap and is this how they cut down the operating cost by installing the low quality auto assembly.

Below are three graphs showing Top 10 Car Sold in Canada in March 2010, 2009 and 2008

By studying these graphs, Toyota has some product lines which are Corolla, Yaris, Matrix and Camry in the top 10 car sold in 2008. However, after the recall, Honda has taken the first place as 62,654 cars sold in 2009. Because of the financial crisis, total auto sales has been dropped compared to the past sales. Especially in the latest March 2010, TOYOTA has been dropped to the third place with monthly sales of 4,705 units TOYOTA Corolla. At the beginning of the economic downturn, people who are going to buy a car or replace the old one choose TOYOTA car because of the cheap price and efficient oil using. However, with the development of recall event, more and more people start to turn around and look at other auto brands which can be Toyota’s competitors. As the three graphs showing above, Honda has more sales than TOYOTA ever since the recall. We can predict if Honda continues to grow up sales with this development trend, it will occupy more market share in the auto manufacturing industry. Rather than Honda, other auto brands have also promote their marketing strategies to gain the market share. This recall of TOYOTA can be a turning point for the entire automotive industry, and also a warning sign for the quality issue. Especially Toyota paid the $16.4 million fine for failing to properly notify US federal authorities about a dangerous pedal defect. The fine is the largest-ever penalty paid by automaker to the US government which is connected to a January recall of 2.3 million vehicles with sticking accelerator pedals. In global economic, suppliers of auto comonets is not only for Toyota itself but for the other automaker. This is exactly why this recall event has been processed worldwide. The whole industry should pay more attention to the quality and safety instead of the high sales and more market share.

“My name is on every car” said by Mr. Akio Toyota, who is the CEO of the Toyota, this statement used to be a strong marketing slogan to give customer confidence on cars produced by Toyota. But nowadays it is more like a satire. Toyota lost the loyalty of current customers due to this recall event and suspicious attitude coming from Toyota customer service. Based on the survey below, this graph shows the factors that car owners consider the most important when buying a new car. The number is based on the number of respondents who said the factors was among their top three priorities.

Safety is becoming the priority consideration when buying a new car. The next one is quality which is related to safety in a way. Without safety, customers are unlikely to think about buying. If the customers are not confidence and satisfied with the product, company will lose the customer loyalty. Although Toyota has established a well known brand and customer loyalty which is high quality and efficient gasoline usage, recall event can be marketing crisis for Toyota. How to let people continue to buying and interested in this brand again can be an important topic no matter in Canada or other countries. However, the sales in 2010 is very dramatically changing from January to April. As graph showing below: (sales here is the combination of Toyota and Lexus vehicles)

For the year of 2010, Toyota Canada had its best incentives ever, such as offering customers 0% financing for 60 months and 0.9% over 48 months lease rate. Furthermore, Toyota issued four more recalls and got slapped with a “Do not Buy” rating from Consumer Reports for the Lexus GX 460 in April. Could this be a customer back lash against Toyota in Canada for the recent recalls? Time will tell. Toyota also provided rebate on several models to generate the sales gain. However, these incentives can only work for a short term to attract customer but will not be favorable for the further customer contribution. These marketing strategies may lead to huge market promoting cost which can be pressure to working capital of Toyota. In order to increase the profit and keep these marketing strategies, Toyota need to cut down other operating cost in order to make up the cost such as employee salary and benefit which will influence the working environment and employee loyalty badly and have long term barriers. What’s more, partly cost of losing the customer loyalty are bear by current customer who actually owns Toyota vehicles. Because the price of resale Toyota will not be as much as usual and even the trade in price will be impacted with the continuing recall event growing and value of Toyota vehicles dropping. One strength of Toyota is its hybrid technology which is the best within the industry. Toyota can develop a series marketing plan to promote the hybrid cars.

Conclusion

This recall event is definitely a huge impact to Toyota, but is an opportunity for further development. Actually, other auto manufacturer companies have the same quality issues as Toyota, Toyota need to use its strengths to get over this crisis. Toyota needs to keep its former high quality and develop strong customer loyalty. Short term market promotion strategies can only work temporarily and make company bear the huge marketing expense. Developing a long term and achievable marketing plan can be urgent mission for Toyota.