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The Market Should Decide Toyota’s Fate

Posted By Nicolas Loris On February 24, 2010 @ 12:01 pm In Economics | Comments Disabled

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Toyota’s Chief Executive Officer Akio Toyoda testified yesterday [2] about safety and quality control after his company recalled 8.5 million cars and trucks worldwide – 6 million in the United States. A deeply remorseful Toyoda feared the company may have been growing too quickly and outlined how the company would move forward with the recall.

Earlier testimony included an anecdote from Lexus owner Rhonda Smith, who avoided catastrophe after her vehicle unexpectedly sped to 100 miles per hour, but she managed to eventually pull over. Smith berated Toyota and the National Highway Traffic Safety Administration (NHTSA) saying [3], “Shame on you, Toyota, for being so greedy, and shame on you, NHTSA, for not doing your job.” Transportation Secretary Ray Lahood questioned whether or not the regulators have the proper expertise to monitor and identify any electronic problems. Chairman of the House of Representatives Energy and Commerce Committee said the solution [4]will “require legislation.”  To add to Toyota’s problems, a federal grand jury in New York and the Securities and Exchange Commission issued a subpoena to Toyota in order to [5] “produce certain documents related to unintended acceleration of Toyota vehicles and the braking system of the Prius.”

Automobile safety and reliability is undoubtedly a serious concern and the CEO of Toyota made that clear. They’ve recalled more than 8 million vehicles and have halted production [6]in suspended manufacturing to focus on the problem.  Only time will tell if Toyota failed to disclose pertinent information but signs point to Toyota handling the recall in an effective and timely manner. They’re planning to add brake override systems to new vehicles.

Toyota’s reputation has taken a hit and it has every incentive to fix the problem efficiently.  Toyota estimated the recall will cost $2 billion by the end of March but that number could rise. Falling consumer demand will ultimately take the biggest toll on Toyota’s bottom line if the company does not take the right steps to repair its image. Toyota’s stock price fell 21% in the past month. Toyota will lose billions more if consumers lose trust and cease to buy the automaker’s vehicles. Despite calls for stricter oversight and more regulation, the market will determine the fate of Toyota — that’s the way it should be.

It’s easy to understand why a government that now owns a major stake in General Motors would want to put continuous bad press on a rival automaker, but given Toyota’s integral stake in the U.S. economy, it would not be prudent to come down extra hard on Toyota. In a Washington Post op-ed yesterday Mississippi Governor Haley Barbour (who has a Toyota plant in his state) writes [7], “We cannot lose sight of the company’s importance to America’s economy — and should not ignore its continued commitment to doing things the right way. Although Toyota was founded in Japan more than 70 years ago, after five decades of doing business in the United States it is as much an “American” car company as any other.” When priority number one for U.S. citizens and Members of Congress alike is the economy, rushing too quickly can have negative effects on foreign investment [7]as well.

Toyota made mistake that tragically resulted in 34 deaths since the year 2000 and a number of other life-threatening scares. Let Toyota, and the market, correct it.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/02/24/the-market-should-decide-toyota%e2%80%99s-fate/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/toyota.jpg

[2] testified yesterday: http://content.usatoday.com/communities/driveon/post/2010/02/my-name-is-on-every-car-ceo-akio-toyoda-will-say-toyota-grew-too-fast/1

[3] saying: http://www.detnews.com/article/20100223/AUTO01/2230402/Witness---Shame-on-you--Toyota--for-being-so-greedy-

[4] said the solution : http://www.reuters.com/article/idUSN2313100720100224?type=marketsNews

[5] in order to: http://abcnews.go.com/Blotter/toyota-subpoena-sec-federal-grand-jury-toyota-acceleration-investigation/story?id=9910971

[6] recalled more than 8 million vehicles and have halted production : http://www.washingtonpost.com/wp-dyn/content/article/2010/01/26/AR2010012603492.html

[7] writes: http://www.washingtonpost.com/wp-dyn/content/article/2010/02/23/AR2010022302512.html?hpid=opinionsbox1

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