Toyota's Epic Fail

Toyota, the world’s largest automaker in sales, was forced to begin a recall that would affect 8.5 million Toyota vehicles around the world. The recall involves an issue with floor mats and gas pedals sticking. Many Toyota customers had been complaining that their Toyota vehicles had been accelerating unexpectedly, an issue that has already proved to be extremely dangerous. On August 28, 2009, four members of the Saylor family were driving a loaner Lexus ES350 while Mr. Saylor’s car was being serviced at the dealership. The loaner vehicle’s acceleration pedal became stuck, which caused the Lexus to speed up to about 100mph when it slammed into the back of another vehicle, causing the Lexus to go out of control off of the highway, went airborne, and rolled several times before catching on fire, killing all four family members inside the vehicle.


After consistently avoiding the press, President of Toyota, Akio Toyoda, finally agreed to do a press conference on Capitol Hill. Mr. Toyoda was questioned as to why it took so long for Toyota to begin recalling all vehicles affected by this malfunction. In essence, Mr. Toyoda stated that the vehicular malfunctions can be attributed to structural issues and “misuse” of the vehicles (not defects in the electronic throttle system), admitted failure on the company’s part to respond quickly, and promised that Toyota is now setting up a “global commission to address complaints more quickly and efforts to increase transparency on safety issues” (CNNmoney.com).

Even after avoiding the press for so long, many people in the general public, including myself, are dissatisfied with Mr. Toyoda’s response to this situation. I drive a Toyota vehicle, and knowing that the company’s President avoided the press for such a long time, only to NOT be able to provide any reasonable answers about the company’s recent shortcomings makes me extremely nervous and skeptical about the company I invested in.

Also, Toyota’s executives were scrutinized for a company memo in 2009 which clearly stated that the company was saving $100 million in limiting their recalls. That couldn’t have come out at a better time. Customer safety comes first, huh? Thanks Toyota!

At the press conference, Mr. Toyoda expressed his condolences for the Saylor family again. However, when asked if Toyota will take financial responsibility for anybody injured as a result of the recall, the president of Toyota's North America division, Yoshimi Inaba, hesitated in responding that such decisions will be left to Toyota’s legal teams. Are you kidding me? These guys knew they were walking into the lion’s den when they agreed to do this press conference in the first place, so they should have expected that question. They could have at least agreed to “try their best” in accommodating for any future issues that may arise as a result of the recall. I understand that such decisions will be made on a case-by-case basis because of the need for research to have evidence that the crash was a result of the malfunction being recalled, but give me a break! The point of a press conference is to give the organization being represented positive press, and it seems as though these guys were simply counting money the entire plane ride over to the U.S., rather than practicing how they were going to respond in the conference.

Potential danger to Toyota customers aside, what effects will this have on Toyota’s auto making competitors? Could this give the struggling American car companies, such as Ford and GM, the edge they need in order to gain some market share? I may be hypocritical when I say this, but I sure hope so. I want American car companies to succeed because, although some of them do outsource certain parts of their vehicles to other countries, the United States could use a boost in American car sales to help propel our country out of the economic rut. I bought into Toyota a long time ago because of its reputation for having high quality vehicles that you could basically drive into the ground for 100,000 miles without ever needing an oil change (this is an exaggeration, but you get the idea). Now, however, I may need to rethink what car I choose to drive next when my car does eventually die. What do you think?

One last thing – If you drive a vehicle and your gas pedal sticks, so you are unable to stop the acceleration, you can do one of two things to increase your chances of survival. One (and this is my recommendation, especially if you have a vehicle with a start button instead of a key), turn your car off! You will lose power steering and breaks, but your vehicle will stop feeding gas to the engine completely and you will be able to turn your emergency lights on and hopefully steer your car to safety. Two, put your car in neutral. This has the same basic effects as option one, but your car will still rev the heck out of the engine because it is still on, which can freak the people out around you by making your car sound extremely loud and possibly do more damage.

According to CNNMoney, Nestlé, the world's largest food company, reported profits of $9.6 billion in 2009. Given the state of the economy in 2009, what is it that contributed to this company's (relative) success? Do they provide superior products than its competitors? Does Nestlé have the best marketing team or business tactics in its industry?

Here are my thoughts – A poor economy leads to businesses suffering. When businesses suffer, the people working for those businesses aren't making as much money, and are therefore stretching their budgets to make ends meet. This leads to stress. What do many typical Americans turn to when they get stressed?..FOOD! And even more specifically, junk food: candy, baked goods, etc... Among other things, Nestlé is the number one provider of chocolate, ice cream, frozen foods, and coffee (Nescafé). And beyond the junk food aspect of stress, how about people being forced to work longer hours than usual? If you've ever worked a day in your life then you are aware that a large portion of our work force rely on coffee as a stimulant source to keep themselves awake and alert in the work place. The public's consumption of store-bought coffee (not a $5 latté from Starbuck's)has probably increased as well.

Although Nestlé reported $9.6 billion in profits in 2009, sales were still down from the previous years. Nestlé attributes this primarily to a decrease in sales of bottled water, probably because the general public has to stretch their budgets and have finally realized that purchasing bottles is the most cost ineffective way to obtain water. On the bright side, Nestlé predicts that sales will increase in 2010.

What do you believe contributed to Nestlé's success in 2009?

And China Takes The Lead

The Chinese central bank tightened credit Friday by requiring banks in China to increase their reserves for the second time this year. Bernanke has not yet pushed for a tightening of credit in the US because of our high unemployment, still devastated real estate market, and lack of consumer spending. As soon as these three things begin to recover we will see a rise in interest rates to avoid inflation brought on by a "too rapid" recovery which, when driven by low interest rates, causes a rise in the cost of goods that exceeds wages and lowers the value of the US dollar. This creates a hardship for most Americans.

Before China became the World’s #3 economy (about to become #2), China’s economic success was indirectly influenced by the United States because we were one of their top customers worldwide. Since then, the country went crazy giving out zero-interest loans to Chinese businesses in order to promote business growth, and the country is now well on its way to becoming much more self-sustaining.

This has some serious implications for the United States. China’s total population in 2009 was estimated at 1.3 billion. That means if China is able to get its middle-class (a class that can afford consumer goods) between 23 and 24% of its total population, then China’s middle-class will be equal to the United States’ total population, which would allow China to not be nearly as dependent on selling goods to the U.S.

China’s current economic successes can already be seen because the U.S. has had to slow down its purchasing, while China is back to buying more expensive commodities, such as steel. China is now not as dependent on U.S. purchases of goods to unilaterally drive its economy. China’s domestic consumption and its trade to other developing economies, such as Brazil, has put China's recovery well ahead of the recovery in the U.S. This is why their central bank is already applying a little bit of the "brake pedal" to the Chinese economy by tightening lending practices.

Debt or GDP? You Tell Me...

If you picked up yesterday’s copy of the Wall Street Journal, or almost any newspaper for that matter, then you are aware of the debt crisis going on in the European Union. Certain countries, namely Greece, have let their debt to Gross Domestic Product ratio become unfavorably balanced on the debt side.

According to an article on The New York Times, this has had serious economic consequences for Europe. Because of an increase in the instability of the European markets, the strength of the Euro is seriously being called into question. As a result of the wavering value of the euro and turnover of some major leaders in the EU, the European stock markets have been hit very hard. The European Union is nervous about Greece, as well as Portugal, Italy, and Spain allowing their debt to GDP ratios get out of control because it may cause the other countries in the EU with stronger economies to question whether or not they should remain members in the Union. And why shouldn’t they? If Greece, Portugal, Italy, and Spain continue in this direction, they will become a great credit risk to the EU. The other members of the EU may begin to feel like there’s no reason to help countries like Greece run deficits if the country isn’t using the money on loan to help get itself out of debt.

Does any of this sound familiar? It should. This is what has been happening in the United States for the last 8-10 years. China has been funding the United States debt, most notably since the Bush Administration took the reins, and our debt to GDP ratio appears to still be completely out of whack. What should frighten us the most is the thought of China pulling the plug on this funding. Just like people do not want to invest in a company that shows no signs of becoming profitable, China may begin to feel the same way.

Something else worth noting is how we, as citizens of the United States, exhibit almost identical behavior. It is what our country was founded on: credit. We have the ability to take out loans (with some restrictions and guidelines of course) and blow all the money on something that does not benefit us in the long run. Anybody can apply for a credit card with an enormous spending limit, without even having the money to pay the credit card companies back. So many people spend over their limits on useless items and get so far into debt that they can’t get out. If the United States does not get its spending under control and begin making serious progress in getting out of debt, the US may find itself in the same position as all those ignorant citizens living above their means.