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Economic analysis - Quality Standards...and the Automotive ‘Bubble'
Published in AL HAYAT on 01 - 03 - 2010

The ‘tears' that Akio Toyoda shed before U.S lawmakers signalled the end of the rise of an industrial empire that had defeated the American auto industry, and swept the global markets owing to Toyota vehicles' ‘quality' standards and fuel efficiency. Although Toyota did not suffer as dramatically as General Motors did, which was forced to restructure and to become a medium size organization, it incurred substantial losses in the aftermath of the recall of nearly ten million units from the global markets. Toyota had closed 2008 with losses estimated at 437 billion yen (4.9 billion U.S dollars), for the first time ever since it was founded in 1937.
If the requirements of globalization and of increased transcontinental competitiveness prompted the makers of economic cars to adopt designs that caused deaths among consumers, then these requirements are now placing industrialized countries such as Japan under suspicion in terms of the quality of their exports. In fact, Japan was the first country following the Second World War to adopt the ideas of W. Edwards Deming, an American whose ideas did not prove to be popular at home.
The notion of quality then went hand in hand with Japanese products, which succeeded in improving their reputation, and overran the global markets owing to their ability to exceed the expectations of their target consumers. In truth, the Japanese had raised the slogan ‘export or die', after their defeat in the war. In the same vein, Deming's philosophy can be summed up with the concept of ‘customer satisfaction' by delivering high-quality products at lower cost. According to the philosophy of quality, focus on greater output is not the best approach. Instead, focus must be on the quality of products in terms of meeting the needs of the stakeholders and their expectations. Products that cost more do not necessarily have better quality.
Then from this standpoint [of quality issues], the global automotive industry continued bursting ‘the second version' of its bubble, moving from the United States and Europe to Japan this time, the competitive and popular automotives giant. In the aftermath of the global financial crisis that toppled many giants in the automotive industry, in tandem with the collapse of banks, financial institutions, the vanishing of the assets of global investment funds and the deterioration in stock value, manufacturing defects emerged and tarnished the reputation of the most renowned name in the global auto industry. As a result, and following the collapse of ‘empires' such as the great American automotive trio General Motors, Ford, and Chrysler, in addition to other companies and the decline in the output of European automakers, the Asian car companies led by Toyota, Honda, Nissan, Suzuki and Daihatsu (Japan) in addition to Hyundai (South Korea), are now effectively inside the burst ‘car bubble', owing to the manufacturing defects which also affected European cars.
The most calamitous event in the world was the bankruptcy of General Motors, which embodied the strength of automotives over half a century. This company had filed for bankruptcy in early June 2009, after its debts hit the mark of 173 billion dollars, while their stock value fell to 1.8 billion dollar, or the equivalent (at the time) of 2 percent of Toyota's shares in the financial market. Subsequently, General Motors received a 50 billion dollar assistance package from the U.S administration, and cancelled 2.5 million jobs in the world, while closing down 14 factories out of its 47 factories in North America, and 2600 dealerships out of 6200. General Motors also stopped producing many big brands or cancelled them, and sold many of its plants.
However, the crisis was not the direct cause of the collapse of the ‘giant' of the U.S auto industry; rather, the cause was its global expansion, and what this entailed in terms of financial burdens that led, in the ten years that preceded General Motors's collapse, to restructuring, technical delays, and bad decisions. These in turn led to losses in the market, causing General Motors's market share to fall from 29.5 percent to 20 percent. Following its ‘nationalization', General Motors became a medium size industrial organization. This has given rise to Japanese, European and Korean cars to become heavy weights in the market, awaiting China where Geely acquired Volvo from Ford.
With the exception of Volkswagen, which achieved strong growth in Brazil and China, the crisis did not spare any of the automakers, and even the number one manufacturer Toyota did not survive the onslaught, and sold only 7.6 million units out of the 9 million units planned for sale. The crisis also affected continents. For instance, the Russian market which was forecasted in 2008 to become the largest European market, outranking that of Germany, - with four by fours selling there like ‘bread'-, fell back by 50 percent last year. Only china succeeded in curbing the decline in sales there by swiftly adopting incentives and support measures.
In order to avoid the bankruptcy of automakers, many governments put in place bailout programs that reached the value of nearly six billion Euros in France (8.16 billion dollars), and 40 billion in the United States. Moreover, 41 percent of car sales in the European Union directly benefited from the automotive assistance program, most importantly in Germany (67 percent). Nevertheless, in spite of this support, the top 15 automakers lost 41 billion Euros (55.76 billion dollars), while global sales fell from 71.1 million units in 2007 to 70.5 million in 2008 (52.6 million passenger cars and 17.9 heavy vehicles). Japan led the sales with 11.5 million units, followed by China – 9.3 million, the United States – 8.7 million, Germany – 6.2 million, and South Korea – 4 million units. However, China, before global statistics were completed for last year, produced 13.8 million cars in 2009, which places it at the top of the producers list.
While Toyota lost its way during its period of rapid growth, it was globalization that led global competitiveness towards ‘the exploitation of consumers'. But with the onset of the high-tech culture, it is no longer acceptable to be complacent in terms of international quality standards.


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