Toyota Recall Financing Dilemma PDF Document

Toyota is increasingly becoming a more dangerous competitive threat to European and North American car manufacturers. During the 1970’s their North American product line focused mainly on economy cars and pickup trucks. Today they are present in practically every key American automotive demographic with competing products. They also entered what was once the domain of the European luxury sedan manufacturers by introducing its line of luxury “Lexus” automobiles.

Although American and European car manufacturers have improved their product reliability and they still have not managed to catch up with Toyota. Japanese and European automobile manufacturers benefit from a higher degree of degree of intra-governmental cooperation than their American counterparts. Many of the worker benefits provided by US auto manufacturers are provided to European and Japanese auto workers by their respective governments. Furthermore, Japanese and European corporations are more heavily subsidized than in North America. This allows them to operate at a higher rate of return and gives them access to more expansion and contingency capital which in situation like the aforementioned Toyota recall can come in quite handy.

The costs of Japanese government subsidies to Toyota are passed onto Japanese and European citizens via higher income and sales taxes. This diminishes their purchasing power and negatively affects the size of their automobile markets. Despite some of its drawbacks, this system has given Toyota a significant competitive advantage abroad which it has been slowly building upon over the course of the past 50 years. Although borrowing against future earnings is the most financially sound option available to solve the recall dilemma, Toyota can avail of other options. Toyota could repeal some if its sales incentive programs thereby raising the price on some of their automobiles in an attempt to generate cash in the short-term. This would have a negative effect on overall sales in the long term substantially reducing market-share.

Download Toyota Recall Financing Dilemma PDF Document