With demand for Toyota products decreasing, according to Times in the UK Toyota sales have had decrease five percent comparing with the same period in 2009, when the UK was facing recession, and the company's shares went from 5.5 per cent to 5 per cent, in contrast with the car industry in the UK that has grown 26.4 percent. The UK is not the only market were Toyota is facing a reduce in their sales in the US sales fail eleven per cent in comparison with the same period last year, China who have had become the biggest car market and even had took over the US showed a reduction in sales of 16.3 percent in the month following the announcement of the recall. Toyotas sales by region show that their biggest market are the US and Japan, between both of them they represent half the sales of the company as it can be seen in figure 1. But last year China overtook the US as the biggest auto market.
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The demand for goods is based in different factors, for the market analysis the most important are: Price, Taste, Income, Complements, Substitutes and Expectation. Basing our analysis on these factors it can be infer that Toyota have failed to fulfill its costumer's expectations, because when people used to buy a Toyota car they thought they were buying a good quality product and a consumer safe product.
The consequences that the recall will bring to Toyota for the short term is that the demand for the products will decrease dramatically, as it have been since the recall was announced in January, as the economy in some countries is improving and peoples incomes are raising they are starting to buy automobiles again, after the car industry faced recession during the economy crisis in the pass years, but a majority of people will go for substitutes to Toyotas automobiles since they do not feel safe or do not trust the brand at the moment.
An example to this can be seen in the UK were the government gave a "Scrappage", a government subsidy scheme to save the motor retail industry, Toyota had an increase of only 5.5 percent in comparison with the automobile market that register an increase of 26 per cent last February.
Toyota's supply curve is facing also a decrease, after the recall Toyota decided to temporarily closed some of their fabrics because of the low volume of sales, furthermore all the new models they have already sold won't be delivered until they have install the new part in the accelerator. Some other facts that have had affect Toyota's supply curve is the increase in the cost of production since they will be working extra hours to be able to repair the affected vehicles also they will have to bring in more technicians and more staff. Toyota will have to face this increase in their cost at the same time they faced a major decrease in sales.
All this leads to a change in the market equilibrium were the quantity demanded for Toyota cars has decreased and the quantity supply is over the demand quantity. Furthermore Toyota has had already to cut production in some of their vehicle models because of the decrease in sales, that's the case of the Toyota Prius production that was cut by 10 percent, another model that have been affected is the Lexus GX 460 which sales have been suspended because of high probabilities of roll-over.
As for demand elasticity it can be infer that the demand, in the case of price change, for Toyota automobiles won't be very elastic because people doesn't trust Toyota and a majority of consumers will prefer security rather than price, so even when Toyota might try to catch people by reducing their vehicles prices they might still not attract a lot of clients, this will result in cross elasticity demand because the decrease in the demand for Toyota cars have led to an increase in the demand for substitute brands of Toyota .
In the short run Toyota will also have to face lawsuits from the costumers that were affect by the accelerator pedal problem, in the US a panel of Federal Judges have said that more than 200 lawsuits were filed against Toyota, and also the First consumer protection Lawsuit in the US was filed against Toyota accusing them of endangering the public by selling vehicles with accelerators defects. Toyota has answer to all of this by promising to build safer vehicles in the future.
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For Toyota the recall won't affect the company bottom line but it will affect mainly the Toyota dealers and suppliers because they won't be able to sell neither cars nor car pieces, also the recall will affect costumers that are trying to re-sale their Toyota cars because they have lost value in the market, even new Toyota cars are being sold at lower prices and dealers are given consumers lots of financing facilities.
In the long run Toyota will have to deal with the losses that result from the economic crisis that hit the automaker industry in 2008 and also face the 2 billion that the recall is costing the company, but what really is going to affect the company in the long turn is the PR scandal that the company image is facing, as millions of customers have lost their trust in the Toyota products it might take them years to rebuilt consumers trust in the brand.
But this could not last long as Toyota has take immediate actions to repair the damage they have cause, and have publicly apologize to its consumers they will recovered from this crisis in a short time, as it was the case of Tylenol in 1982 when it made a recall of all its pills after it was discovered that their products had been laced with cyanide by a criminal and this had lead to several death in Chicago, this incident affect the brand severe, but their quick and dramatic actions make costumers regain trust in the brand and the result was that they recovered market dominance within a year.
The actions that were taken by Toyota have lead to an increase in sales by 40 percent in Japan between February and March of 2010, which means that the domestic brand image survived the recall crisis, furthermore exports of cars in Japan doubled in February 2010 comparing to the same period in 2009. In Britain Toyota has become the fourth biggest selling marquee since the scrappage scheme began, where they sold more than 102,000 cars during 2009 and inclusive after the recall was announced Toyota sold nearly 3,439 cars in February which meant an increase of 5.5 percent on a year ago.
The recall has affect some markets more than other as it can be seen sales in Japan are already starting to recovering while in the US Toyota still faces lawsuits and in Europe the lost of a part of its market share but a survey done in the UK to 600 costumer show that 96 percent were satisfied but the actions taken by Toyota in the recall process.
Another Fact that Toyota will have to face is the weakness of the economic which not only has made the company loss over 4 billion dollars but also have made the company need to borrow over 3 billion dollars from the Japanese bank for international corporation as an emergency loan to being able to survive the 2008 economic crisis.
How the company is going to be able to cover all the debs the economic downturn, the bank loan and the recall are leaving Toyota is one of the major enquires economist have. One of the answers to this can be that the company might use part of the 13 billion yens they have in their internal reserves.
Another important aspect in the market is that the economic downturn have lead to sales been made mainly by private buyers market and not by the fleet market, which is the one needed for the economic grown to be sustained, in the UK since the Scrappage ended the first of April prices increased by 20 per cent because of the VAT and sales are expected to reduce in the following months.
Toyotas market competition is an Oligopoly which means that there is a few numbers of firms that compete in the market, the entrance to the market is restricted, the products are similar and there are substitute's products available in the market. Toyota has been the number one vehicle manufacture company with 9,237,780 vehicles manufactured during 2008, its main competitors were General Motor, Volkswagen, Ford, Honda, Nissan between others, and in recent years brands such as Hyundai and Kia are taking over part of the market share. As the automobile market is an oligopoly changes in it are very difficult to predict because actions taken by one firm affect the others and vice versa, as for the case of the Toyota recall this had lead that other brands have take part of Toyotas market.
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As for what is going to happened with Toyota in a the future it can be infer that the recall crisis have affect the company in the short run, their sales have reduce in almost all their markets, their dealers have suffer a reduce in the demand of Toyota cars, furthermore the company is having to face the cost of repairing the automobiles that show design flaws and delay the delivery of already sold vehicles. But what is going to affect the most the company is the damage to the Toyota image, in a near future they will be facing incredibility from part of their costumers as some of them do not believe the brand builds safe vehicles or do not trust the brand any longer.
In the short run Toyota has had to dismiss non-regular employees because of the reduction in the demand of vehicles. While at the same time they have had to hire more technicians to be able to deal with the car recall. Also the company will have to face lawsuits from clients that were affected by the accelerator defect in the Toyota cars and also the company is facing a fine impost by the US government for selling cars that have technical problems.
Furthermore Toyota is now facing the loss that the economic crisis of 2008 cause the company, the cost of the recall and a debt the company have with the Bank of Japan of 3 billion dollars at the same time their sales all over the world decreased.
As for the long run Toyota will have to face the loss of market shares, as a result of the recall Toyotas shares grown only slightly, from last year, in comparison with the market in general, also as the economic face a small recovery from the 2008 crisis people are starting to have an increase in their incomes and are able to buy a new vehicle but with the internal crisis that the company is facing and as not being able to assure the safety of their vehicles consumers have decide to go for substitute brands of Toyota and because of this the market for other car brands have had an increase in their sales.
In conclusion Toyota, their suppliers and dealers will face a decrease in their sales in a near future but because of the companies reaction and the solutions they have offered to their clients Toyota will be able to recovered their market share and the trust of their costumers in time, as it has already be seen in some markets were the demand for Toyota products has already increase, furthermore Toyota posses a reputation that have make them become the number one car maker in the world and this recall just might be a warning sign for them so that in the future they will be more careful with the quality of their products.