Just last year, it was announced that Toyota had passed General Motors to become the number one car company in the world, something no car company had managed to do for 77 years. Toyota has long been known for its superior quality and its long-term value retention compared to the Big 3 car companies. Recently, however, Toyota seems to be announcing a new recall every day.
These recalls force one to wonder if any of Toyota’s cars are free of defects. Consumers have reported gas pedals sticking, gas pedals getting caught on floor mats, spontaneous accelerations which appear to have nothing to do with the pedals, and most recently, electric power steering problems in the 2009 and 2010 Corolla. According to Toyota’s website, a total of 11 models have been recalled, ranging from model years 2004 to 2010. The latest update on Toyota’s website states that they are sending out letters to owners affected by the recall, extending dealership hours (some to 24/7), and training technicians to make repairs. The website also says that production has been halted on all affected models. Adding to these problems is the threat of lawsuits by Toyota owners because of their sudden lost resale value.
Toyota’s recent failures come at a great time for the Big 3, specifically Ford Motor Company, which turned its first profit since 2005 last quarter, and General Motors. Marina vN. Whitman, Professor of Business Administration and Public Policy at the University of Michigan, as well as vice-president, chief economist, and group executive to General Motors from 1979 to 1992, says “it couldn’t have come at a better time; [the recalls] have already positively affected both GM and Ford which have good quality cars right now,” which they have not had in the past.
Many have begun to question if this timing is too convenient, considering the government take-over of GM last year. Has the U.S. government been perpetuating Toyota’s problems, making them seem worse than they actually are? According to Whitman, this is doubtful; “the government is a majority owner, but once they established a board of directors, they…have been, in general, pretty hands off.” Still, it is enough of a concern for four governors with Toyota plants in their states to write a letter to the government asking for a fair response that is not affected by the government’s financial interests in a competitor.
The most important question to ask, for Whitman, is how long it will take for Toyota to recover from this setback. While it is difficult to predict, she says, “it will take a long time to gain back their reputation, and will not be overnight recovery.”
So what does this mean for the future of the auto industry? Ford is currently the top domestic automaker. Much of this has been attributed to their decision to not take bailout money. Whitman says this decision has given Ford “a positive boost, but in the long run, they will have a load of debt which GM has shed.”
Another possible source of Ford’s profit $2.7 billion profit last quarter is their shift to fuel-efficient cars. Says Whitman, “usually, when gas prices go down, large vehicle sales go up, but in the middle of a recession,” fuel-efficient cars are still being purchased in high quantities. The auto industry is facing a lot of uncertainty at the moment. It is hard to say whether the increase in sales of fuel efficient cars is being caused by the recession or by an increased concern about global warming. Public concern about global warming is decreasing ever since the climate-gate scandal, and the recession is hopefully ending. The future of the auto industry is hard to predict, but for now, things are going well for Ford and GM.
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