Toyota
Toyota’s growth had been increasing steadily for the past few years. If it had continued like that it would have risen above GM to become world’s largest motor manufacturer. The Just in Time production and enhanced systems of quality assurance led to its delivering high quality products and meeting the consumers demand on time. This also saw its sale volumes skyrocketing between 1998 and 2003 for its various brands (Anonymous, 2004).
But things changed upon the appointment of the new president Watanabe. Things may not have started going bad since the presidency of Cho, but the new president, more than any other, seemed more focused on cutting costs and with time this had caused the quality of its products to diminish.
Cutting Costs and Rapid Expansion
The company started by forming a committee to assist in its cutting of costs. The company has been shedding down the temporary as well as some permanent workers, cutting on its production costs up to 40%. Inside workers are encouraged to minimize utility costs such as power and miscellaneous expenses.
The rapid expansion had started. “The company has added production capacity of around 500,000 vehicles every year, building new assembly plants from China to the Czech Republic,” (Rowley 2005). After developing the Prius hybrid it went on to open an enormous pickup plant in Texas. But with the expanded capacity, experts say that it needs to operate 80% of the time if it is to make profit which is slightly higher than the level of rival companies. This was also the beginning of the decline of its profits.
Cutting costs for Toyota meant, with the increased prices of raw materials, getting suppliers who will provide the materials for lower prices. “It asked suppliers to design parts for its Camry midsize sedan that were 10% cheaper and 10% lighter,” (Ohnsman et al, 2010).
And despite warnings of deteriorating quality from the executive and later the U.S. senate, Toyota still continued with its ambitions. The new Camry had its own defects “in its headliner, the fabric and composite lining that covers the inside roof of the car,” (Ohnsman et al, 2010). Apparently, the supplier decided to use a carbon material that was not approved by Toyota engineers.
The Warning Signs
Toyota still pushed harder but, eventually, the cost cutting might have been too much. The first sign of this was seen within the factory on things that might have been ignored as the machinery igniting small fires during manufacturing process. Soon, the crashes caused by the runway acceleration would lead to a massive destruction of brand reputation “with 8 million cars recalled due to mechanical failures linked by U.S. regulators to 51 deaths,” (Ohnsman et al, 2010).
The Aftermath
Later Toyota tried to deal with the problem, but when the next supplier in line expressed his shock at how much the quality of Toyota fabric had watered down over the years to form bare-boned cars. “The padding in the ceiling of the car, though compliant with safety regulations, had been thinned out to save money.
A tray for sunglasses used a flimsier type of plastic than previous models,” (Ohnsman et al 2010). It was discovered that Toyota was violating the safety regulations and did not report the defects within the stipulated time of five days. It was also slow in managing crisis and responding to customers leading to ruined customer relations and diluted goodwill.
Toyota executive maintain that the reduction of costs and the rapid expansion has not in any way affected consumers. The argument is that reduction of costs does not automatically transpire into reduced quality. But faced with around 140 suits instituted against it, tells us something different. In addition, not only has its vehicles been recalled from the market but the company had to pay a fine to the tune of 16.4 million imposed on it.
It also lost its advertisers such as the newspapers, websites and television commercials. Some of its best selling cars were suspended and production shutdown leading to financial losses. This is a sign of a company so engrossed in realizing speedy growth, increased market share and more profitability that it slowly forgot its duty to ensure quality products. The continuous cutting of costs and pressure for rapid global expansion had resulted to its downfall.
Reference
Anonymous, (2004), In Malaysia, Toyota, Honda and Hyundai Experience Rapid Sales Increase: Toyota and Honda with New Models and Hyundai with National Vehicles, Marklines Co. Ltd
Rowley, I. (2005). The Man Driving Toyota, Business Week. New York. Web.
Ohnsman, A. et al. (2010). The Humbling of Toyota, Business Week. Web.