Economic Impact of the Toyota

Economic Impact of the Toyota Recall Crisis

Mitchell, Josh. "Toyota's Chief Will Testify in Congress." (February 19, 2010). The Wall Street

Journal. Cited in:

http://online.wsj.com/article/SB10001424052748703983004575073842754600732.html

Mitchell, Josh. "House Panel to Question Bush-Era Regulators in Toyota Recall." (February

The Wall Street Journal. Cited in:

http://online.wsj.com/article/SB10001424052748703787304575075391760949632.html

Josh Mitchell's two articles on the Toyota recall crisis form a deeper geopolitical and economic paradigm that reaches back into the Bush Administration, the U.S. Insurance industry, regulatory commissions, and indeed the economic impact for both domestic automakers, U.S. consumers, and Toyota workers globally.

In brief, Toyota Motors issued three related recalls of automobiles. While these were initiated by Toyota, they were also with the assistance of the U.S. national Highway Traffic and Safety Administration, after reports of several Toyota models experiencing unintended, and uncontrollable acceleration. The first recall, in November 2009, was to correct a misplaced floor mat that hit the floor pedal; the second, on January 21, 2010, was for the same problem but shown to be outside the floor mat issue; the final recall, for it's hybrid anti-lock brake software early February, 2010. This recall affects over 7 million vehicles, and globally the current toll stands at around 9 million automobiles.

Naturally, questions arise regarding how early and to what degree these problems were noticed by the U.S. regulatory agencies, since it appears the insurance industry raised red flags as early as 3 years prior. The House Oversight and Governmental Reform Committee plans to hold hearings in March, and a House committee investigating Toyota Motor Corporation will broaden its approach to the issue. Two seminal questions are on the committee's minds: did Bush officials have prior knowledge of the safety issues and did Toyota willingly allow unsafe vehicles into the American market.

Under growing pressure from U.S. lawmakers, Toyota Motor Corporation Akio Toyoda agrees to appear before Congress the week of February 24th. Mr. Toyoda said he will gladly appear before the committee to clarify his company's safety procedures, and the flowchart of their available information on the problems, as well as their admission of fault and plans to find solutions to the issues involved. There is a $3.7 million lawsuit pending from a former in-house Toyota layer alleging that Toyota executives "unlawfully withheld and concealed evidence to obstruct justice in the United States."

While Toyota denies this allegation, it is important for the company's very survival that it appear to be transparent and forthcoming in its approach to information and safety.

Economic Impact -- There are both macro and micro implications for the Toyota issue. The recall, of course, came at a difficult time for all automakers who are struggling to emerge from lagging sales. On the day of the recall almost 1000 jobs were cut in one Toyota plant, and the economic impact is expected to be about $2 million/month to total almost $2.5 billion. Toyota's stock shares fell by 15%, and the loss of jobs in manufacturing, sales, and dealer repairs has yet to be calculated. Additionally consumer economics are affected due to the devaluation of Toyota models, some now upside down on relatively new vehicles. Sales, too, are expected to dramatically fall, which has an effect on the local economy, the national economy, and the global economy. Players in the range of Toyota's annual production and revenue affect the economies of more than one nation -- in particular in this case, that o f Japan and the United States, with peripheral effects in the EU and other parts of Asia. Transportation unions on the West Coast (Los Angeles, Seattle, and Portland) also face a reduction in force as shipping from the automaker declines.