Case Study : The Actuarial Control Cycle, Reputation Risk

recalls related to product quality problems. Observers felt the company would have lost even more

In promotion it is said a corporations reputation is fragile and valuable. These companies risked losing their reputation to supporters of

Toyota has hit the headlines over the years over the defects in several of their models which has sent it on a public relations and safety campaigns relating to its vehicles. Notably is the Toyota safety campaign in North America for certain models of Toyota as well as Lexus brands concerning the floor mat entrapment of accelerator pedals, later on it extended to other models in November 2009.

One of the main errors leading to this situation was the fact that ChassisCo didn’t follow on the Toyota principle of giving the bad news up front. Toyota stated with every supplier that they expected a swift alert in case any risks were to arise, in order to tackle root causes and diminish the problems right away. On the same line, Toyota knew that the manufacturing process for the

Global demand for cars increase every year. As a result, car manufacturers focus on producing quality cars in record breaking times and speed. However, as a result there are manufacturing mistakes that result in serious injuries and deaths. Below introduces the worst automaker offenders and most recent high profile vehicle recalls.

The compact Chevrolet Cruze also had a worrying fire-related recall, which affected every single model sold. Missteps like these seem to be common for domestic automakers. (1)

The U.S. government asked automakers to speed up in fixing 42 million vehicles that were recalled due to a potentially defective Takata airbag inflators. The National Highway Traffic Safety Administration (NHTSA) released an order to automakers to set a deadline for replacements.

On the bright side of the airbag recall issue, there was only one distributor, Takata, that caused such an enormous burden on the automotive business. With that being said, our company would decline to partner with Takata Corp for the placement of its airbags in our products. Additionally, the root cause of the airbag problem was an attachment referred to as a deflector. We would safeguard against parts being defective by error proofing each set of airbag parts to the region of production. In other words, vehicles that we produce in cold climates would not have airbag parts from our warmer region sites. All of our testing data and safety precautionary measures that we implemented before placing airbags in our products, would be made available

As if this weren’t enough, quality problems mounted week after week. Only months later in February 2010, the NHTSA revealed that it had received claims citing another life threatening defect in the break system for the Toyota Prius. More than 400 thousand Prius recalls resulted. In April of 2010, customers reported handling issues in the Lexus brand which resulted in another recall of 9,400 Lexus cars and a “Don’t Buy: Safety Risk” rating from Consumer Reports. Also in April, the company voluntarily recalled Siennas to address a problem with corrosion on a spare tire cable. Later that month, Toyota voluntarily recalled 2003 Sequoia SUVs to improve the stability controls. 2010 Tacomas were also recalled for defective front drive shafts. Once the quality icon, Toyota had hit a really low point; so low that credit

In May of 2006, The Toyota Motor Corporation initiated a recall of nearly one million vehicles around the world to replace faulty parts that could cause drivers to lose control of the steering wheel. The recall affected vehicles across 10 models, including the popular Prius. The intermediate shafts and sliding yokes in the recalled cars lacked the necessary strength and could distort or crack under strong pressure, causing drivers to lose control of the steering wheel, according to Toyota (ConsumerAffairs.Com). Owners of these vehicles were allowed to have these defects repaired at the cost of Toyota and required approximately on hour to complete (News.com.au).

Due to Toyota’s financial greed and unethical practice, vehicles were wrongly equipped with faulty brakes, sticking pedals and poor quality door looks, which caused death of many Toyota customers and hundreds of dollars in damages. When a company like Toyota acts in an ethically questionable manner, it causes the company to lose customers and develop a negative reputation. Customer tend to lose faith in the company and have to look for better service

Product recalls have opened the company to numerous lawsuits from consumers that were hurt by the recalled products.

The purpose of this report is to examine if the reasoning behind well-known car manufacturer, Toyota’s loss of revenue and leading market position is alone as a result of extensive product recalls following a fatal crash of a Lexus ES 350 on August 28th 2009. The journal article, “Toyota Crisis: Management Issue?” (Yuanyuan Feng 2010) provides an outline of the key factors that triggered the 2009 Toyota crisis, and explores whether the fall in the company’s returns by 19% were caused purely as a result of the recall and safety concerns, or something much deeper.

It has been created also a gap between Image and Vision. After the crisis Toyota's relationship with its main stakeholders (suppliers, national and international customers, employees, dealers and investors) was not so strong as before, because it was loosing its reputation. The investors and the suppliers were complaining because recalling million of vehicles, and the customers were disappointed because they were not receiving what they expected.

One potential threat for Volkswagen is that Toyota may respond strategically by also cutting its prices. However, given Toyota’s quality problems over the past year, they will not be able to lower prices, as this possibly would create the perception of lower quality.. First and foremost, Toyota needs to ensure it handles its quality problems to its customers’ satisfaction. The auto maker needs to ensure the public perception is that Toyota is being upfront, honest, and responsible in dealing with recalls and the