Economics

The fall of Toyota has been pronounced, as it has gone from being one of the most profitable, viable automakers in the world to being one in ominous peril. The company is struggling to fight against consumer-based lawsuits and it is fighting an even more pronounced battle to save its public image. When looking at how the Toyota failure has impacted American consumers, there are a number of factors that must be considered. Though American consumers have not completely abandoned the Toyota brand, they have started to look elsewhere. Not only has the Toyota failure changed the actual marketplace that automakers are forced to compete in, but it has changed how consumers operate individually, as well. It has changed some of their focus areas and it has adjusted how American consumers value certain automakers. The relationship at play in the auto industry have always been fluid and volatile, and such a large scale failure served to limit the options for American consumers and shift their focus back toward the thrift of tried and trusted American automakers.

In order to understand how the Toyota failure impacted American consumers, one must first understand how consumers operate within the marketplace. Though it is true that individual consumers act differently and often use impulsive behaviors, one can assume that consumers on the whole will act in a certain manner. This means that there are some expectations that consumers hold when they make decisions on certain vehicles. In Principles of Economics, Mankiw writes, Economists normally assume that people are rational. Rational people systematically and purposefully do the best that they can to achieve their objectives, given the available opportunities (Mankiw, pg. 6). With a basic understanding of the consumer in hand, one can go on to a more enhanced understanding of how consumers are reacting to the current Toyota failure. In a competitive marketplace, consumers are not only able, but they are trained to consider all of the possibilities. Simply going with one brand, company, or item is a foreign idea to most, especially given the nature of advertising and how it impacts the competitive market. The auto market is especially competitive, with American companies and foreign companies competing for market share each and every day. Since one can assume that consumers will look to act in their best interests when making decisions on major purchases, it is clear why Toyota is having such a hard time right now. Individuals have options to choose from, and those options are competitively priced. There exists a huge competitive disadvantage for Toyota in the current marketplace, as consumers believe that purchasing safer cars is a more responsible decision for achieving their goals. This is why, if all other things are equal, consumers would much rather have a vehicle without all of the doubts and safety questions.

Consumers are also somewhat enslaved to incentive-based decision making. They will respond to certain things that companies do within the marketplace, whether those are positive incentives to purchase or disincentives provided unintentionally by various companies. Mankiw wrote of this, An incentive is something that induces a person to act, such as the prospect of a punishment or reward. Because rational people make decisions by comparing costs and benefits, they respond to incentives (Mankiw, pg. 7). This basic economic principle applies perfect in this particular situation, as American consumers have been profoundly impacted by the disincentives put forward by Toyota. Many of the decisions being made in the auto world by consumers are small and they are in shades of gray. People decide based upon things that some might find to be unimportant, including color or maybe the type of stereo system. This is because the majority of major automakers have adopted reasonably similar auto making processes. When one steps out of line with a major disincentive, as Toyota has, it forces consumers to completely re-evaluate how they are choosing cars. This is what has happened over the last few months with Toyota, and it is something that has forced the company to the brink of disaster in the American market.

In assessing the effect that Toyotas fall has had on consumers, one must look towards the fundamental shift in approach that has occurred. With the news of recall after recall, consumers have had to change the way they view not only Toyota, but the vehicle market in general. Much consumer confidence existed in that market leading up to the Toyota situation. More companies were coming out with great cars and though the economy impacted how people were able to spend, they were generally confident in the vehicles that they did purchase. Now, things are changing to some extent. A Bloomberg.com article by Jeff Green and Angela Greiling King speaks to this effect. In the article, the authors wrote, More than four in 10 Americans say they would definitely not buy a Toyota, according to the Bloomberg National Poll. The Japanese company is viewed unfavorably by 36 percent of those interviewed, the highest negative rating in the survey, while fewer than half -- 49 percent -- have a favorable impression (Green, and King). This is because the company itself had built its reputation on a number of qualities, most of which had to do with unbreakability. The automaker had established itself on the top of the market by fulfilling consumers needs in terms of long-lasting qualify and proficiency. Toyota was one of the companies that people though they had a good handle on, so to speak, and when news of the recalls came down, consumers were forced to reconsider what they considered to be quality. This was especially devastating for the bottom line of Toyota, as it had talked up this reputation as a maker of great cars for many years. Today, things have changed and economists speculate that if Toyota is going to get back near the top of the industry, it will have to get these using some different marketing approach. Its old shtick is clearly broken and consumers are no longer buying what the company is trying to sell.

As the Bloomberg article also indicates, todays consumers have turned their attention elsewhere, and some might say they have turned it inward. With competition being so fierce and consumers always looking to fulfill their need of satisfying self-interests, American automakers have been there to take full advantage of Toyotas fall. Specifically, Ford has been able to position itself with a smart marketing approach. The company is being seen as a safe, reliable choice more and more, and in a way it is replacing Toyota in that regard for the bulk of would-be auto consumers in America. That same Bloomberg article states, Ford, the only U.S. automaker that didnt seek a federal rescue, is seen favorably by 77 percent of those surveyed, topping No. 2 Honda Motor Co. by seven percentage points. General Motors Co., eight months after getting U.S. aid to survive, has a positive rating of 57 percent. The results show the challenge faced by Toyota, which in 2008 passed GM to become the worlds largest automaker, as it tries to regain consumer confidence (Green, and King). American consumers have long been known for believing in the made in the USA moniker, asserting that the highest quality products are made in the United States. This situation has provided much more fuel for that, and it has given individuals an incentive to purchase American vehicles. As stated earlier by Mankiw, consumers are always looking to respond to the incentives placed in front of them.

One thing worth noting is how the supply and demand for both new and used Toyotas in the near future will impact American consumers. Though the situation has made consumers rethink their values in terms of choosing a car and it has certainly caused American consumers to consider domestic vehicles, those who still choose to consider Toyota vehicles will benefit from lower prices and other incentives. As Toyota seeks to regain its reputation in the United States, which is very important to its overall operating vitality, it will need to do certain things to bring customers back. Some have speculated that this outside force will drive prices down on the vehicles. Because of the disincentives that the company has put out there for consumers, it will have to counter those by providing positive incentives if it wants to have any chance of competing in the near future. This should mean that prices will be significantly lower on both used vehicles and new Toyota vehicles for the foreseeable future.

Additionally, another market force will have an impact on Toyota pricing that American consumers will see soon. Speculation is that Toyota will go through an extended sales lull, which means more cars will begin to back up and pile up on individual dealerships. This bloated supply will not match the demand, as the disincentives are sure to drive demand down in the coming months. An increased supply and decreased demand for these vehicles should cause prices to plummet even more, if the automaker wants to avoid bankruptcy and retain its status among the worlds top auto companies. This is something that an article by Joseph R. Perone of the New Jersey Business News spoke to. In that article, he writes, When the repairs take effect, dealers are going to have built-up inventory, and that will put downward pressure on prices. We expect Toyota will come out with zero percent financing for 60 months in March to clear these cars off the lots, and that is very unusual to do that at this time of year (Perone). This will also be true in the used car market, as more people will be looking to unload their old Toyotas in the face of the news. For buyers who are willing to put aside their fears and take advantage of the benefits, a solid deal will await. This is another example of how consumers will likely have to make a tough choice. Many will be put into a position where they are forced to weigh the options. On one hand, the reputation and safety problems are a sure negative standing in the way of the company. Many consumers will see the positive benefits of a good price and figure that this benefit outweighs the negative. This will put consumers in a unique position for a while, with some taking risks depending upon their own tolerance for that risk.

In all, the situation has had many different effects on the economy and on consumers specifically. The fluid nature of the auto industry makes it an interesting study even when something of this nature is not taking place. Given the dire nature of the Toyota situation, it is clear that consumers are going to have choices to make regarding their values in the coming months. Additionally, it should be noted that it would be impossible to assess how the Toyota failure will affect every single consumer. Because different consumers will undoubtedly follow different paths and value sets, each will see a different impact as a result of this incident. Some will see lower prices on new and used cars, taking over in a time when Toyota is forced to sell for less as a result of increased supply and lessened demand. Others will look inward, recognizing the value of an American company that will slide in to conveniently provide them quality in place of fallen Toyota. Others will just re-evaluate how they look at cars and they will start to recognize what is important and what is not in the auto industry. The situation will impact them differently, and it will be fluid, as Toyota must adapt to how it is being treated in the market if it wants to reclaim any amount of lost American market share in the future.