The Toyota Recall Issue
The Toyota recall issue was one of the biggest scandals in those times, it started on August 28, 2009, four members of a family were killed in a car accident of a Lexus ES350, The death was because of a reason that a ground carpet that was introduced by Toyota glided for frontward when he was riding his vehcle, and then by mistake it got entangled in the gas pedal, preventing it from recurring to the nil argument or the peak position. The car was being driven at a speed of around 180 km per hour. The entire assessment of this accident was published by Toyota in 2010. As per the company, many types of Lexus cars that were sold by the company, if any customer installs the floor mat in a wrong angle while cleaning it, then there are chances of it coming in contact with the air pedal and cause the misfortune, and this was the motive that the company gave for the accident. We can conclude that these pedals were designed to come in contact with the bottom of the vehicle, so when anything with a tallness of more than 15mm comes below the pedal; the pedal comes in contact with the air bag. It was reported that around 100 same events were witnessed by the customers and were reported to the U.S army. It is very much likely that many drivers came in contact with these design elements, andmade any changes to the floor mat on their own pretext.
On October 5, 2009, Toyota took external action on this problem of air bags, just about one month following the accident by announce a recall. It forwaded direct mails, to advice the owner of the objective type cars, to get rid of the floor mats from the vehicles. However it was insisted by the executives of the company that there were no defect in the overall design of the car. However a different view was taken by the National Highway Traffic Safety Administration (NHTSA) that insisted that there were some problem with the overall design of the car and also the pedal and the overall car control system was not effective enough.
On November 25, 2009 the controversy reached a new level, when the car company took a new initiative, to acquire intentional corrective measures. The company as an alternative of removing the pedal in question, went ahead with sinking the length of the peal, to put a stop to it from getting trapped by the ground mat, and also in some conditions, it exchanged the active pedal with some other designs. This made the pedal, senior of the floor mat, and hence prevented it from coming in contact in case of high speeds and altitude. The company also released a system that it will have an effect of releasing the brake pedal and the accelerator automatically when they were depressed hard at the same time. Around 4.26 million cars were affected by the issue, The thick all weather type mats were instlled based on the preferences of the customer, if the customer asked for it , thn only he was provided with the same. Hence it was ascertained that there was problem with the overall design of the car, that was not identified previously.
Analysis of the Recall Issue
In January 21, 2010, the company came again in the spotlight, not with the same issue, but with a different issue, that was considered as an extension of the previous issue. The company equipped an declaration that the gearshifts will not get returned in some cars, after also considering that it has been deceived in the floor mat.The company recalled around 2.2 million cars including some of their best selling cars. The company made it clear that the present recall does not include the cars that were recalled in the first instance. This recall was for a dissimilar issue, with the gas pedal recurring to the same position in case of excess friction. The important topic involved in the same was that there was some problem with the electronic system of the car and not just the mechanical design.
Any cable system that is mechanical by totalling exact amount and various ways of friction to the lever connection. Any resources that were used around organization ended up developing a certain amount of stickiness when used in the same environment for a long time. Most of the pedals did not have this problem, and the environmental problem associated with the same was not recognised.
A third event occurred on February 2010, when there was a report to the US Department of Transportation of malfunctioning car brake controls in additional of 50 owners of the new Prius hybrid cars. On February 5, , it was decided in a meeting of the company that the ABS (Anti-lock Brake System) in the Prius brake controller will consume some amount of time o take action while driving on greasy surfaces of the road. After the company recalled 400000 vehicles worldwide to take care of the issue plus the Prius to meet the deemed time. Following this issue, software was set in to control the overall time,. It was but considred as an issue that dealt with the comfort of the customer, rather then something that affected his safety.
Overall the three issues that were described above, were not witnessed by more than a handful of drivers, and hence were not affecting the overall reputation of the company; most people came to know about the same from news reports. After recognising the issues with the manufacturing system and the gas pedals, the company went ached with large-scale improvements to these recalled vehicles. However few experts believed that the main cause was the defect in the electronic system of thee engine and the company was hiding the fact. (Piotrowski, C., & Gray, R. (2010).
On August 5, 2010, following a defect in the system it was ascertained after the speech by the then president Akio Toyota that was no issue with the functioning of the electronic throttle control system (ETCS). The U.S Regulator aroun the year 2010 forced a fine of 16.375 million dollars , on Toyota because of the suspected hold-up, in lie of the overall defects that was the reason of the recollection. Toyota agreed to the above settlement to avoid any more argument and possible proceedings, as well as to allow it to move forward fully-focused on the methods to strengthen its quality assurance operations. (Wallace, E. (2010).
The Role of Accounting Theories in Understanding the Recall Issue
What was the true reasons behind the Toyota recall can be ascertained through three reasons, first and foremost, the company was not only the sole maker of the recalled cars, there were other companies also that made such recall, and the question is to understand why no steps were taken against such companies. The number of other recalls that were made by other companies was also huge. The Japanese company also recalled around 450,000 vehicles, which also includes the Odyssey minivan on March 16, 2010. On the other hand the Honda Company also recalled around 1.5 million cars, following a problem with the cars. The other companies like Honda, Ford, also recalled their cars following some or the other problem. One of the aspect of this entire issue was that Toyota was abig rand in the field of car manufacturing , and was successful in selling large volumes of vehicle. This will lead to wide dispersment in the overall design of the cars. The target cost method of costing that ahs been used traditionally will also go for a toss, in case the company indulges in making so many recalls. (Piotrowski, C., & Guyette Jr, R. W. (2010).
If we do a detailed analysis, we found that the main cause of malfunction was wether there was a defect with the electronic system or not. On February 24, 2010, in a public hearing , the U.S authorities, mae it clear that the emain focus of debate was that there was no problem in the mechanical design, but the overall electronic system, was defected. The overall attitude of the U.s Governemnt towrs the case of Toyota, led to the disappointment among the public for the same. The democractic party lifted the flag of consumer rights, where as the republic were more of apro industry types. It is very important for ana utomaker to have public support. Even though other top class companies also recalled their vehicles, it was Toyota that was targeted. . (Neufeld, E. (2011)
There was also avery serious allegation on the company, that it indulged in alot of cost cutting keeping the overall safety of its customer on risk. It was told that the compamy was not in favour of its ccustomer ,and was totally against them. It was important for every car maker to develop cars, that were based on the concept of sfae science, the ones that are able to provide safety to the customers.This typ of set back that happened to Toyota can happen to any company, but since Toyota was one of the pioneer in thye field of autmaking , it was tagrgeted. It was alo broughhtinto notice , how th company dint follow y etraditional method of target costing and that affected the overall accounting of the company (Anderson, L. (2013)
One of the major problems when it comes to accounting aspect of this delay is that the overall warranty costs were exceeded by recalls. Considering the year 2011, , Toyota spent huge amount of money international on recollections as compared with warranty. The company treated recalls and warranty separately, however when it came to the present recalls, the company was very much affected by the entire scenario, when the recalls made by the company was more than its warranty. Figure 1 (“Toyota’s Warranties & Recalls, 30 June 2011”, 2017)
The Role of Accounting Models in the Recall Issue
The main issue with the same is that the recall calls were not recognised separately beforehand because they were never that substantive, but now they are. though, in the most present fiscal year, the company upturned course. Now, Toyota facts its recollection charges together unconnectedly and joint and also taking in consideration with the warranty .Hoever it fails to project warranty alone. (“Toyota’s Warranties & Recalls, 30 June 2011”, 2017)
The company also included anew chart for recalls, in its financial statements that was stated below Thus we can notice that the company had, employed a model of estimation, , that was based on the time at the quantity assessed from past expensesstarting from the quarter four of the fiscal year, ending March 3. This innovative transformation had resulted in the overall growth of the estimation by yen 105,698 million, that reflected the estimation made for safety and other measures.(TOLMAN, T. (2016). The Toyota Accelerator Crisis)
In cases where the overall recall payments will grow, leaving it more than the warranty costs, leaving it out of the picture, will present an unwrapped image, and the company needs to take care of the same. And hence the company covered the same as expenses for “quality assurances.” But overall this is wrong and the company must show its warranty and recall costs separately and not combine the do, just as the company did. from the period of 2003 to 2008, the company dint show its recall expenses, but we know what is the warranty only expenses that was shown by the company, if we draw a chart of the both, we reach to the following table show below In this figure recall payments in fiscal 2009 and 2010 weren’t all that big. (“Toyota recall timeline“, 2017)
Revenue geration would be the guarantee expended 1.2% r while recollections expended 1.5%.. So we can establish that in the past two years, The total warranty costs of the Toyota falls down by thirs while all its cost of recollection was doubling and more . (“Toyota’s Warranties & Recalls, 30 June 2011”, 2017)
If we see that the warranty claims we can discuss the accruals related to warranty. At the end of 2010, Toyota distorted from scheme that is pay as u go for its reminiscenceexpenses to an accumulation method for its method of accounting of warranty. Starting with 2011 year it began to calculate the two composed. The figure below shows the accruals to provisions (“Toyota’s Warranties & Recalls, 30 June 2011”, 2017)
The company should have set up asmall teamto check the oiverall dfects in its system and quickly fix it. A software upgradation must also be done. The company should ahve ssen that the overall cost cutting done by the company to make the car affordable should not affect the overall safety of the drivers. It also needs to have an effective crisis management team, that will help in reducing the fater effects of the crisis. The plans of future expansion should be done in such away that the overall brand image of the company is not hampered. If the recommendations are implemented effectively, it will help in reducing the past effects and also make better progress in the future.
Conclusion
So the overall conclusion that we reach is that it is dangerous when the makers resorts to such method of accounting, the overall warranty and the recall cost are two separate items, and it is the responsibility of the company to show them separately to reflect the fair position of its financial systems.The scamof Toyota shows how, the overall accounting is affected if the company faisl to take proper stepd in this regard. (Gokhale, J., Brooks, R. M., & Tremblay, V. J. (2014).
Toyota’s Warranties & Recalls, 30 June 2011. (2017). Warrantyweek.com. Retrieved 22 May 2017, from https://www.warrantyweek.com/archive/ww20110630.html
The Real Scandal Behind the Toyota Recall. Bloomberg BusinessWeek.
Lost in Translation? Toyota and the Recall Scandal. Incas Studies In Japanese Management (pp. 231-245)
The Toyota Accelerator Crisis: A Shattered Asian Miracle. The Earlham Historical Journal, 31
Toyota recall crisis: Public attitudes on leadership and ethics. Organization Development Journal, 28(2), 89.
The effect on stockholder wealth of product recalls and government action: The case of Toyota’s accelerator pedal recall. The Quarterly Review of Economics and Finance, 54(4), 521-528.
Halo (spill over) effects in social media: do product recalls of one brand hurt or help rival brands?. Journal of Marketing Research, 53(2), 143-160.
Cost/Benefit of Toyota’s Media Campaign during the Recall Crisis of 2010. Organization Development Journal, 28(3), 95.
Recalling Toyota’s crisis: Utilizing the discourse of renewal. Journal of Professional Communication, 2(1).
Toyota recall timeline. (2017). msnbc.com. Retrieved 22 May 2017, from https://www.nbcnews.com/id/35240466/ns/business-autos/t/toyota-recall-timeline/#.WSI-KWdS3IU
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
