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Economic Issues and the Challenges Faced by Toyota

In the current essay there will be provided the analysis of economic issues and the challenges faced by Toyota. To begin with it can be said that multiple returns of cars, as well as public hearings in Washington indicate the unprecedented crisis and a serious failure within Toyota. I presume that Toyota should be aware of its responsibility before consumers and ensure that this malfunction will be corrected as soon as possible. However, it is difficult to identify what problem led to the crisis in the company. In my opinion, current crisis was caused by a number of both internal and external factors that formed a complex mixture. It should be noted that among them are: the wrong decisions of the company’s management, self-reliance in matters of quality, continually complicated design of vehicles, increase the production of the company, globalization of production, and as a consequence a number of associated problems. Some of these factors are unique to Toyota; others are inherent to the industry as a whole.

As a matter of fact, Toyota certainly made a mistake which led to the current problems. Of course, it is clear that there are special aspects of the organizational culture of Toyota, which are hidden behind apparent low level of decision making. However, Toyota faced the same challenges as any other company in its scale – the challenge of globalization of the production, market and constantly increasing complexity of products. As a fact, automotive companies of developed countries nowadays fight with what we might call “the demon of complexity”, which is generated by the unaccountable companies’ aspiration to go beyond their own capabilities. In my opinion, the primary cause of the Toyota crisis lies in a huge complexity, which exceeded the organizational capabilities of the company, as described in Toyota’s Recent Problems with Cars that Speed Up Unexpectedly.

Further I would like to consider the conditions that led to this situation. It can be said that cars, produced in developed countries became more complicated for several reasons. Above all, governments of developed countries impose strict requirements on safety management, allocation, fuel consumption, etc. Meanwhile, the demands of consumers are also becoming higher. Naturally, the team engaged in designing vehicles, should be addressed simultaneously a large number of equations to obtain the desired result. One way of overcoming the restrictions – limit the number of common structural elements and make optimization for each car separately. However, the desire to reduce the cost on construction, dictates different path. As a result, engineers have developed sophisticated electronic control systems to maintain modularity and overcome the limitation of private optimization.

Consequently, today in developed economies cars contain software from more than 10 million lines of code, as stated in Q&A: Toyota recalls.

It should be noted that until today, Toyota has topped the race to increase the functional complexity, production capacity and the ability to control the globalized organization. In particular, Toyota has been the leader of the automobile manufacturers’ industry in complex construction: luxury and hybrids segments of the market. However, the institutional capacity, which contributed to the success of Toyota and its leadership in the U.S. market, could not keep the company from facing the problems. Despite efforts to improve its capabilities, Toyota has not been able to defeat “the demon of complexity”. The success of recent years allowed the company to take a special position, which contributed to a number of mistakes. As a fact, the company was running too fast, enjoying years of spectacular growth. When the financial boom in America caused the increasing demand for premium cars, Toyota has been able to meet this demand due to strong Japanese operating expertise in mass products of high quality. In this regard, the volume of luxury cars exported to the U.S. grew rapidly, allowing the company to obtain unprecedented high profits. The profits the company has been invested in the rapid expansion of production, increase production capacity and number of production lines. As a result, nowadays Toyota is rightfully considered as a world leader in volume production. In addition, Toyota was the leader in the race for complexity, as an innovator in the development of environmentally friendly cars, as described in Toyota found to keep tight lid on potential safety problems.

However, when the U.S. growth gave way to recession, Toyota was not able to adapt. The collapse of the U.S. luxury cars market, as well as the period of not quite correct investments in the U.S. economy, has put the company, burdened with credit commitments in an unstable position. In other words, the rapid growth in the number of foreign factories and new models exceeded the number of available quality managers. Experts believe that the basis of problems with “sticky” gas pedal is negligent in assessing the quality, which was led by the transfer of the production of inappropriate details developed by foreign supply companies. The most important is the fact that the position of Toyota as the world leader in automotive industry has caused the loss of the fundamental characteristics of this company – its way of thinking. The basis of Toyota’s ideology has always been following motto: “First of all is the quality, volume – it is not a problem”. However, the pursuit of a mystical prize associated with obtaining the title of a leader of the global automotive industry prompted some managers to change priorities of quality to the priorities, aimed at achieving the production volume. As a result, the pursuit of volume has led to “overvoltage” in quality, which was further exacerbated by the increasing complexity of products, as stated in Can Toyota Be Fixed?

Essential is the fact, that CEO of Toyota – Yasuhiko Ijichi said that it is quite possible for the company to achieve high quality and low price in the same time. As a matter of fact, this statement should be read in two ways: quality of design and quality of production. As Mr. Ijichi said, improvement of manufacturing quality and cost reduction rely on each other. This belief underlies the Toyota’s production system and its quality control. However, the relationship between quality of design and cost reduction is not a simple question that can be described by linear causality. On the one hand, the dependence between cost and design standards is quite clear: the current high demands on the design standards of today’s complex products significantly increase their value. For this reason, product developers are using value engineering in order to avoid more functionality than is required. It should be noted that from the beginning of 1990, and for a period of 10 years, Toyota has saved more than $10 billion by value engineering. In recent years, Toyota rapidly increased the use of common components in different car models, thanks to the measures to reduce various kinds of costs.

On the other hand, it is well known that redundant elements, appearing as a result of the universalization, can cause deterioration of the quality of design across the range (which uses these elements). Moreover, study of Japanese Ministry of Transport shows that the elements of universality are among the main reasons for returning the car. Thus, the statement “quality and low cost can co-exist” is absolutely true for the quality of production, but quality of design – it is another, more complicated matter. Toyota has responded to the challenge with many innovative organizational changes that have concerned its employees. It should be mentioned that among these changes are following elements: the system of configuration SPS (Set Part System – relocation kit on the conveyor belt with the car, increase of quality control in every production process, the revival of the role of team leaders. Without any doubts all these measures will give the results and Toyota will be stronger than before crisis, as described in Toyota’s Legal Problems Are Just Beginning.

I presume that cars for developed countries should be made with much more stringent functional constraints and requirements in terms of safety, environmental impact, trends and design. In other words, companies must be prepared to meet the challenge of complexity through the mobilization of all personnel for advancement in areas such as improvement of the design, processing of e-governance systems and digital processing, quality control and so on. As a fact, companies that count on their presence in all world markets should develop strategies for the production of simple, inexpensive cars for the middle class on emerging new markets. At the same time, companies will face the challenge of complexity in design of high-yield vehicles that are in demand in the U.S. market, a market that has become a source of financial strength of Japanese manufacturers, particularly Toyota. Thus, major changes must be made in a direction that will allow both to confront two challenges: the complexity and simplicity. I believe that Japanese automakers should continue cover the market of expensive and environmentally friendly cars and combat the structural complexity. At the same time, they should monitor the demand for simple, inexpensive (even less than $ 5000) car for emerging markets.

To sum it up I would like to say that Toyota suffered a setback in the fight against the demon of complexity, but the overall ability of Japanese companies cope with the difficulties still on top. There are several reasons that led to the current problems in the company, among them are: the wrong decisions of the company’s management, self-reliance in matters of quality, continually complicated design of vehicles, increase the production of the company, globalization of production. In my opinion Toyota should redouble its efforts in order to emerge from the crisis. Without any doubts, current crisis in Toyota lies in the sectors of operational and management control of the global company. I believe that for Japanese automakers and their suppliers, the current Toyota crisis provides a unique opportunity to make a full assessment of the conditions that allow survival in the context of the correct size of production capacity on domestic Japanese and foreign manufacturing firms.


Works cited

David Kiley. 2010. Can Toyota Be Fixed? 9 April 2011. <http://autos.aol.com/article/toyota-problems/>
Ken Bensinger, Ralph Vartabedian. 2009. Toyota found to keep tight lid on potential safety problems. Los Angeles Times. 9 April 2011. <http://articles.latimes.com/2009/dec/23/business/la-fi-toyota-secrecy23-2009dec23>
Q&A: Toyota recalls. 2010. 9 April 2011. <http://news.bbc.co.uk/2/hi/8496902.stm>
Toyota’s Legal Problems Are Just Beginning. 2010. 9 April 2011. <http://www.theautoinsurance.com/toyotas-legal-problems-are-just-beginning_2010-05-07/>
Toyota’s Recent Problems with Cars that Speed Up Unexpectedly. 2010. 9 April 2011. <http://www.manythings.org/voa/0/12900.html>