Toyota Corp. Fears Cash Now is tighter than Ever After Recall
Toyota fears that its situation with cash now is worse than ever. Company VP Shinichi Sasaki stated that the common perception over the recent faulty gas pedal recall is that the company moved too slowly. Although the company made fixing the issue a priority, it still took a considerable amount of time to make the announcement. The Japanese automaker is now bracing for financial problems since history has shown that sales normally drop 20% the very first month after a company’s recall.
The recession and the automobile industry
The recession has been chronically difficult on the automobile industry and having this type of recall at its tail end is not good news for the Japanese automaker. According to Toyota’s released statistics, the recall is affecting over 4.4 million cars worldwide, with 2.48 million of them in the US. It includes some of the best selling brands like the Camry and Corolla. The issue involves the floor mats catching the gas pedals to create potentially dangerous situations. Part of the reason for the vastness of the problem is due to the similar parts the Japanese automaker uses for various brands of its cars. To cut costs, it creates similar parts in mass quantities and then uses them for a wide variety of its vehicles.
Did Toyota lag in responding?
Critics believe the company was inefficient with dealing with the recall. Masaaki Sato, author of various books reviewing Japanese automakers, told the Associated Press that he believes company president Akio Toyoda should have immediately given a public explanation of what happened. Sato (see http://www.huffingtonpost.com/2010/02/02/toyota-recall-could-have_n_445531.html) said, “He should have rushed over to the US or called a news conference in Tokyo. Toyota underestimated the seriousness of the problem.” In fact, looking back Toyoda largely ignored the issue and the media’s persistent request for some response. Since the time the issue was discovered, the company has made an announcement. In Davos, Switzerland, president Toyoda finally addressed the issue in hopes to repair customer perception and increase fast cash with new revenue.
Pressure from the US National Highway Traffic Safety Administration
The fix for the pedal-mat issue is to install a steel shim several millimeters thick in the pedal assembly. This should create a buffer and eliminate excessive friction between the two pieces. Though the solution is so far effective, Sasaki acknowledged the company lagged in decision making. He added, “We put our customers first. But what happened as a result may have been unfortunate. But we stuck to our view to the end.” He also confirmed that the decision to have a recall came with pressure from the US NHTSA. The company has known about the recall since 2007, and that is what caused the highway authority to increase its demands.
The recall in 2010
Though it took three years for the recall to happen, it has yet to be seen what consumer perception is now that it finally is happening. Auto manufacturers experienced a particularly difficult recession and monitoring cash now is more important than ever. Hopefully in the future companies will know how to handle issues like recalls more tactfully.
(Photo Credit: http://www.flickr.com/photos/danielctw/ / CC BY 2.0)