MIE 480
Toyota Strategic Audit
Team 4
Jessica Chew
Matt Dupree
Shelby Westbrook
Chrissy Zirpolo
Executive Summary
Toyota has had many external issues to handle when devising and carrying out
their own strategy. The market has numerous automotive dealerships, leaving the level
of competition at a very high rate. They have to consider what their competitors are
doing to entice buyers and match or top their deals with the Toyota line of automobiles.
So far, they have been able to do this successfully. They are currently the leading car
manufacturer in the world based on the sales and production volume.
Several factors have risen as car buyers have become more demanding about the
safety features offered, miles per gallon the car can hold, and more detail-oriented aspects
like the color, leather in the interior, or if it has a ten-disk CD player. The car companies
have had to continuously enhance the features offered in their models, while trying to
keep the prices as low as possible to attract buyers. Toyota has been known for having
several cars on the “Top Safety Picks” list, until recently due to the large number of
recalls in the United States and Europe. However, Toyota offers the widest variety of
cars with the best gas mileage available. It has been their strategy to offer cars that are
affordable for first-time buyers, all the way up to the buyers that are looking for a more
luxurious model. This is where their ownership in Lexus comes in. They have prospered
for many years since they have been so versatile with their products.
Currently, Toyota, along with several other car companies is experiencing downturns in their margin. The automotive industry relies on whether buyers can purchase
cars. Since the falling of the economy in a number of countries, this has been hurt who
can afford to buy cars. Toyota has decided to offer a six year no interest financing. This
will severely decrease their income.
At the same time, Toyota has internal factors that have helped, as well as hurt
them as an organization. They are able to form relationships with suppliers that decrease
costs due to the large size of the company. The most pressing issue has been the recent
recall. Toyota did not immediately address the issue to the public and the CEO chose to
have a hands-off approach in this apology. On the other hand, Toyota appears to have
high level of loyal customers that stand by the brand and its value of the customers’
opinions and safety that needs to be tweaked in some vehicles. They are still the third
largest automotive maker but have been hurt by the recession, like many of their
competitors. It is projected that as the economy begins to raise again, so will Toyota’s
profits. However, they cannot change some people’s minds about the way the recall has
affected their reputation. They need to take every measure to kick-start a new brandimage for the people that have doubt in their company.
Toyota needs to make a public apology directly addressing the loss of confidence
in the car-maker. They pride themselves on having great customer loyalty, but the lack
of a public apology from the CEO in a timely manner could hurt their continued or future
customer base. It will be vital to have a commercial featuring the CEO or other
executives that includes an apology, along with what they plan to do to secure confidence
from customers. Currently, they do not have a marketing strategy that is in this form.
They need to endure the cost to further growth. Also, a prepaid maintenance plan should
be put in place for all Toyota owners. Recalled car-owners need to feel safe once again,
and we believe this can help in restoring Toyota’s reputation while making in more
convenient for customers to get their problems taken care of. Toyota must implement an
emergency protocol to handle situation such as the recent recall. No issue should be
taken lightly. They should have an open-door policy when owners experience any type
of problem, should be able to come straight in to any dealership. They will have to set up
a shuttle service and do everything possible that poses the least amount of inconvenience
on their customers.
Introduction
Toyota was founded by the Toyoda family in 1867, and was known as “Sakichi
Toyoda.” Today, the CEO is Akio Toyoda. He leads a company for 320,808 employees.
The majority of the company is focused on the automobile lines offered, including cars,
mini-vans, SUVs, and pick-ups. The other areas of the company are forklift production,
manufactured housing, and financial services. Toyota also owns and operates the Lexus
and Scion lines, as well venturing into building robots. They have taken the initiative to
become more ‘green’ with the introduction of the Prius into the market. The Prius is the
first mass-produced hybrid car and was introduced in 1997. In 2008, sales topped $1
million.
(Yahoo Finance)
Toyota officially established its automobile department in 1933. However, it
became recognized on the New York Stock Exchange in August of 1937. They say they
base their company around five principles; challenge, improvement, go and see, respect
and teamwork. They have tried to express many of these concepts through marketing.
Currently, their emphasis is on positive experiences of ownership and vehicle quality, and
has the slogan “Moving Forward.” This slogan is not new, based on the most recent
recall incident. In fact, it has been the slogan for more than five years.
(Standard and Poor’s)
Their biggest market is in Japan, where the company was founded. They have the
most revenue and units of sales there. Their strategy in Japan is to ‘maintain market
leadership by actively introducing remodeled and new cars, increase market efforts,
enhancing customer loyalty through information technologies and the brand image, and
better target consumer demand patterns’ (Standard and Poor’s). Investing so much in
Japan pays off with 40% of the market share there.
In the U.S., they expected to see continued sales expansion and production
capacity, until the wide-spread recall occurred in the beginning of 2010. There were
several reports of problems with accelerators and also with brake pedals. The first of the
reports were not investigated, which caused the problem to escalate. In April of 2010, the
U.S. government issued a record penalty to Toyota for deliberately hiding information
about defective accelerator pedals. Toyota’s reputation has been affected and confidence
from buyers has decreased. They have new commercials trying to repair their image.
They must reassure and target the problem in order to further grow.
External Environment / Industry Analysis
The Automotive industry began in Germany when Benz put its first automobile
into production in 1885 (Wright, 1996). Since then, the market has had fierce rivalries
and countless mergers and acquisitions all of which allowed the market to evolve into
what it is today. The intensity of competitors in the industry has always been high which
makes the power of customers strong since they have so many choices to choose from.
This means that each car company could be a substitute for another car company. This is
actually what creates such fierce rivalries within the industry. These rivalries have even
gone down the chain to the customers where Ford car owners and Chevrolet car owners
maybe rivals because of the car that they drive. All of these forces affect the way that an
automotive firm operates and Toyota has overcome these tough industry factors and
become the leading car manufacturer in the world.
The key success factors in the automotive industry have also been changing since
its inception. In the early years people just wanted a car; it didn’t matter what color, how
many miles per gallon the car received, or even the safety features of the car. Today, car
buyers are buying cars with higher safety standards, higher gas mileage, and more
options than ever before. They are buying these things while still expecting to pay a low
price. Toyota, who last year had five vehicles on the “Top Safety Pick” list, this year, has
only one which is the Corolla (cnnmoney.com). Overlooking safety maybe the cause of
the recent recalls, which cost Toyota over $2 Billion (cnnmoney.com). In terms of miles
per gallon, Toyota is ahead of most companies. The Prius has the best miles per gallon in
its class with 46 miles per gallon and according to cnnmoney.com, out of the top ten cars
with the best gas mileage Toyota holds six out of the ten. So competitively, if people are
looking to save money on gas, they are probably going to be looking at Toyota as one of
their main choices. Like most industries there are different types of automotive
companies who seek to excel in a different segment of the market. There are several
different ways that an automotive company could choose to take strategically when
designing their cars. They could choose to be low cost like Kia, Luxurious like Cadillac,
or high safety like Volvo. All of these things are success factors in the automotive
industry today and Toyota tries to capture all of these strategies in one. They try to have
relatively low cost while still serving the high safety features and with Lexus also cater to
the luxurious car buyers. In the past Toyota has done a great job of incorporating the
overall industries success factors into their strategy and firms who can do this usually are
the ones to prosper.
The cost of new cars sales has been steadily rising in the past decade, for instance
in the past year average car sales have risen by three percent (bls.gov). This is causing
consumers to keep their cars longer in order see that they break even on their purchase.
This has caused a reduction in new car sales. This matched with the bad economy which
is also causing consumers to hold on to their cars for longer has made it necessary for
automotive companies to do something. Recently, the automotive industry has set its
focus on payment terms to try to battle back during these tough economic times. Many
people are unsure of their jobs and are reluctant to purchase a car that will stretch their
budget too far; therefore they are turning to cars with less overall cost to help minimize
their risk of defaulting on a car payment. Due to these new payment terms the industry
has lost much of its margin. For example after the recent Toyota recall, to try to keep the
flow of Toyota’s off the lots, Toyota introduced a six year no interest financing strategy.
This will not only eat away at their margin this year but also for the following years
during the payoff periods. This will be a choice that today will keep sales up, but in the
future may cause cash flow problems that Toyota will have to overcome.
On the Macro level, the automotive industry is affected by many factors. The
unemployment rate and average yearly wages directly correlate to the sale of new cars.
For example we will use recent economic downturn. Consumers had less money to
spend and had the choice to spend a lot of their money on buying a new car or to spend
comparatively a small amount on maintenance and repairs of their old cars. This created
a gap between what the car companies expected to sale and what they actually sold which
left many new cars sitting on the lots and costing car companies millions of dollars.
Another factor that has had a major impact on the automotive industry in the past decade
is technology. The increased use of computers in cars has increased cars durability in
that they give the driver more information about when their car should be serviced and
can tell the mechanic specifically what is wrong with a car. This technology is making it
easier for cars to be repaired and by giving the owner more information about service
aspects of the cars they are in turn not breaking down as often. The increase in durability
caused by technology can also create another problem for car companies. By increasing
the durability they are also increasing the longevity which makes it easier for a consumer
to consider buying a used car. For example asiaone.com claims that used car sales
outnumber new car sales seven to one. Interest rates and the overall cost of borrowing
money also correlate with the growth of the automotive industry. Higher interest rates
and borrowing cost will deter consumers from borrowing the money to purchase a new
car. Overall the automotive industry is affected by the economy that the market is
surrounded by. If the market is prospering then the auto market is normally also
growing, but at the first sight of an economic downturn new car sales are often first to
take a hit.
Internal Environment Analysis
Toyota has been one of the top car manufacturers for as long as any of us can
remember. When thinking of Toyota as a company, what typically comes to mind is
safety and reliability. However due to the recent recall issue, those images may have been
slightly tainted in consumers minds.
Toyota has several strengths that help the company in being very successful as
well as several weaknesses that hold it back. Some of their strengths are that Toyota is a
very large company and has the capital to invest in several ventures. They are also known
for having a very specific set of skills. These skills include working closely with
suppliers, continually finding ways to innovate and improve, and constantly challenging
it to cut costs (Autoweek.com, 2008). Along with these strengths, Toyota also has several
weaknesses. First and foremost, the way Toyota handled the recall issue was completely
unacceptable. It took quite awhile for the CEO to come out and make a statement
apologizing for all of the recall issues. Many also felt that the statement was implying
that Toyota as a company was sorry the recall issue occurred, rather than apologizing to
their customers for severely inconveniencing them as well as putting several of them in
danger. Another major weakness of Toyota is the down economy. Every since the
economy made a turn for the worst, car manufacturers started to have an over capacity of
vehicles while still maintaining their very high fixed costs. Toyota was no exception to
this and suffered greatly during the recession.
Their business model has proven somewhat successful for the past several
decades. Toyota went from making low quality, inexpensive cars in Japan to being the
most profitable-from the sale of vehicles-automaker. The company became so successful
because of their long term planning skills as well as continuously seeking customer
feedback on their vehicles (Glgroup.com, 2008). Toyota has proven that they value their
customers’ opinion as well as their safety which has allowed them to retain so many loyal
customers over the years. Since the recall issue in the beginning of 2010, several
consumers are upset with Toyota however several consumers are also remaining loyal to
the brand despite the previous discrepancies.
Despite the recent recall issue, Toyota has maintained its market standing. It is
currently third in sales behind GM and Daimler. On the contrary, their profit margin is
still in the negatives, which is probably due more to the recession as supposed to the
current recall issue. Their profit margin is currently at -3.89% followed by their operating
margin which is at -3.66%. Unfortunately, Toyota's management effectiveness is not
doing much better with their return on assets at a -1.33% and their return on equity at a
very low -6.39%. As previously stated, the negative percentages are more than likely do
to the downturn in the economy as supposed to the recall issue. Had the negative ROE,
ROA, profit margins and operating margins been due to the recall issue, Toyota's sales
would not be as high and they would no longer have a strong hold on third place behind
GM and Daimler. Toyota's revenues are a reported $183 billion and their gross profit is
reported to be approximately $21 billion. Although the economy is still down, it is a
positive sign that they are still proving to be profitable and it is hopeful that they will
continue on an upward slope when the economy is better (Yahoo Finance).
Given the poor performance by Toyota in their recent history, it is hard to
determine whether this is because of the down economy or the recall issue itself. If the
recall issue had not occurred, Toyota would probably be ahead of Daimler but would
most likely still be behind the number 1 car manufacturer on the market, GM. Some
resources and drivers of performance that affect Toyota's current sales and market
standing are the recession, the recall issue and customer views. Since the economy is
down, the average American is not spending money unless the item is an absolute
necessity which unfortunately, a new vehicle is probably not. The recall issue has also
had a significant impact and Toyota's financial performance. With the recent brake/ gas
pedal recall issue, many consumers are going to be weary about purchasing a vehicle
from Toyota. The brake and gas issues are problems that proved to be very dangerous if
not addressed immediately. Some of these dangers included moderate to severe accidents
from the gas pedal sticking and not retracting back up when necessary (a reported 50,000
2003 Sequoia's are reportedly being recalled for maintenance issues). Lastly, the way in
which customers view Toyota is going to be very important for the company through out
the next decade. Several people no longer view Toyota as being safe and reliable, and
many have voiced their concerns on the issue of the amount of time it took the CEO to
make a statement.
Toyota Recommendations and Action Plan
In our extensive research of Toyota we are recommending three strategies to help
Toyota get back on top. These three strategies would include a public apology, offering a
prepaid maintenance plan, and the implementation of a new emergency protocol.
Just a short time ago Toyota was an icon of reliability. They were the only
automotive company that had gone such a substantial amount of time without a mishap.
However due to recent circumstances, consumers are thinking twice before purchasing a
new or used Toyota. After much research we were able to conclude that there has never
been a pubic apology for losing the confidence and trust of Toyota owners. There have
been apologies for having to recall the vehicle, or for any inconvenience they caused the
consumer, but we believe that consumers want to know that Toyota cares about their
loyalty and trust and are willing to do whatever it takes to get it back.
In each of the new commercials and ads Toyota has put out recently, which they
didn’t even air during Super Bowl Sunday, there have only been the faces of the factory
works, guaranteeing you that the quality of their cars will again maintain its position of
quality, but never do you see the CEO’s, president, or other executives of Toyota. In a
poll on aolnews.com out of 221 voters, 52% said that the new commercials didn’t regain
their trust, and for 48% it did. Every effort should be made to turn these statistics around
and pull the general public back on Toyota’s side.
We are recommending that Toyota run this apology commercial on four different
stations during prime time hours. The cost for a 30 second commercial on each of the
four stations would be: FOX $658,333, NBC $479,250, CBS $374,231 and ABC
$323,000 (Baker, 2009). Each of these commercials would air once a day, every day, for
1 month. To go along with the commercials it would also be a good idea to have a video
streaming on Toyota.com. This would be a 10 second apology from the president of the
company stating, “We at Toyota are extremely apologetic for losing your confidence as a
customer. We are currently doing everything we can to regain that trust and appreciate
your continued loyalty and patience.” This footage would pop up on a side bar each time
someone was to log on to the company’s website. There would also be subtitles in the
instance that the website viewer didn’t have sound, or were unable to hear.
On top of the commercials and online streaming, Toyota could also make a
statement for themselves when they sponsor the NBA Finals this year. On top of airing
their commercials in house, during breaks, they could also distribute 25 thousand shirts to
the attendees of the first game of the finals. For each shirt it would cost around four
dollars totaling to 100 thousand dollars. The shirts could have the name of both teams
competing in the finals, with Toyota’s logo on the back. This way each attendee has
something to go home with that reminds them of Toyota. Even though the cost of these
three media recommendations seem to be high, it is essential that Toyota do whatever
they can to regain the trust of their current and future customers.
The second recommendation is that Toyota offer prepaid maintenance plans for
their vehicles for a certain period of time. Once all the cars that were recalled are
reinstated to their owners, those driving these cars are going to be a least a little nervous
about something happening. According to CNNmoney.com there have been 5.3 million
cars recalled. With a prepaid servicing plan Toyota owners can take their car to just about
any auto shop and have it repaired, keeping away from an inconvenience to the car
owners.
Typically Toyota offers a 55,000 mile or 4-year program to be purchased by its
customers, but due to the financial constraint Toyota is under and the fact that all of the
plans would be paid for by Toyota, it would be beneficial to narrow this down to a one
year, 14,000 mile program. Currently Toyota factory workers are investigating why their
pedals are malfunctioning. By the time they are able to figure out what the problem is, fix
the issue, and redistribute all the cars, plus 14,000 miles, researchers will have had a
substantial amount of time conduct reliable research. Prepaid maintenance plans range in
price and service options. Currently Toyota has a plan in place that allows for service at
predetermined intervals, 24-Hour roadside assistance, prepaid maintenance booklet,
timed service reminders, computerized service history, to which they should add monthly
break check and servicing.
The cost of their 4- year plan is $1,355 (toyotafinancial.com), which is obviously
inflated to allow a return of revenue for Toyota, leading one to believe that it is much less
expensive for Toyota themselves. However, since the plane will now be a 1- year plan the
cost would only be $340 per car. With 5.3 million cars currently in recall this would cost
Toyota 1.8 billion dollars. 1.8 billion is a large sum of money, but it is better that Toyota
service and repairs the issues before it becomes a national recall, on top of the fact that it
will help to renew the trust of current and potential customers.
Our last recommendation would to be implementing a new emergency protocol.
Because Toyota has never experience such a large recall, there was no set procedure in
place. In the first instance of an issue Toyota would bring that car in and investigate what
the problem. They would then notify customers that there is an issue via letter or phone
calls, letting them know that they would keep them updated.
If the issue turned into something much larger they would then advise Toyota
users to bring their vehicle in to be checked, and provide a shuttle to and from work, or
wherever they happened to be to avoid inconvenience. From there they would submit a
news release to advise the public that they are aware of the issue and everything is being
handled accordingly. In implementing this plan it will help to keep from having mass
chaos in a time of crisis. It is important to familiarize existing and future employees on
this plan. The best crisis to have is one that has already been evaluated and have a firm
plan of action.
After examining Toyota’s issues, in order to continue to produce revenue and
rebuild the trust of new and existing consumers it is essential that Toyota follow the
previously stated recommendations. Not only will it help their image as far as the public
eye is concerned, but it will also improve company morale, and eventually bring Toyota
back to the top of its game.
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