Cars

Table of Contents
Introduction. 4
Background. 4
Mechanicals Problems 6
Expensive Recall 6
Economic Theory 7
Demand 7
Supply and demand for immediate/short run effects 8
Price elasticity of demand 10
Toyota´s response over last few months 11
Temporary or permanent damage 12
Conclusion 13
Bibliography and References 14

Introduction.
Background.
The manufacturing carsector is an industry global, complex, oligopolistic and, undoubtedly, can be considered the world's largest in terms of economic impact, ie in terms of production, international trade, employment generation or wealth for the economy of each country producers. It also has a strong multiplier effect and intense economic towing capacity with respect to other productive sectors, allowing a higheconomic growth Direct, indirect and induced. Their weight in the overall industrial production in Western Europe, for example, is 10% and generates a direct or indirect employment of nearly 10 million workers.

Alliances and mergers between different manufacturing companies, ie business integration processes, have set the tone of the sector in recent times, especially in the late nineties, benefitingboth, opportunities for economies of scale and economies of the range or scope offered by this productive activity because of the limitations of production and market.

As evidence of the advanced process of concentration which has occurred in recent times, we might note that if the mid-sixties there were more than 50 manufacturers worldwide, today we find 10 large business groups that controlmanufacturing and the world automobile market.

Mechanicals Problems
The car companies sometimes have quality problems and carry out these calls without consequences, but in a company that is synonymous with quality, like Toyota, these calls can be a disaster.

Toyota has halted U.S. sales for several of its most successful models, has closed six of its plants in North America (60% ofproduction in 2009) and has called for a review of more than 8 million cars including, among other models, the Avalon, Camry, Corolla and Sequoia.
The recall was caused by a defective throttle detected in these models, which means that in certain circumstances it automatically accelerates to cause the collision of the vehicle.
Toyota recalled 4.3 million vehicles in November 2009, until then thebiggest recall in its history. Toyota said the incident occurred because the accelerator pedal was stuck to the mat. But in December 2009, four people died in a Toyota Avalon, when their car suddenly accelerated.

As said Ken Thomas in The Washington Times Toyota has recalled more than 8 million vehicles worldwide since October because of acceleration problems in multiple models and braking issues inthe Prius hybrid. The company recently agreed to pay a record $16.4 million fine to the government for a slow response to problems with sticking gas pedals.
Expensive Recall
The cost of the current crisis is immense. The call to review the problem of accelerator Toyota will cost $ 2 trillion in the first quarter. Sales of Toyota's U.S. (The largest and most profitable market for the company)have fallen 16% in January 2010 versus the previous year, while GM's sales grew 15% and Ford 24%.

In Europe, Toyota's share was the lowest since 2005 and in China, the largest global market and fastest growing, Toyota has lost the second place as its sales have the highest fall of 24 brands sold in that country.

While Toyota's priority was quality, growing healthily and increasing marketshare was obtained as a byproduct, but as soon as it shifted its focus and prioritized gaining market share, it was not long before they stopped doing it, to the point that today its global leadership position is being threatened.

Send an email to Matt Hardigree, the author of this post, at matt@jalopnik.com.

Economic Theory
Demand
The demand has been affected by confidence in Toyota...