Toyota Motor Company RecallEssay Preview: Toyota Motor Company RecallReport this essayAt the end of May, 2006 Toyota Motor Corp the worlds second largest automaker which is on course to overtake US giant General Motors, recalled over a million cars in Japan alone last year. “There is a possibility that the front suspension lower ball joint may experience excessive wear and looseness, causing increased steering effort, reduced vehicle self centering and noise in the front suspension,” Toyota said in a statement, but refused to disclose the full cost of this recall. Toyota produced 9.04 million vehicles worldwide and sold a record 2.54 million vehicles in the United States in 2006. Let’s assume that Toyota will need approximately $925 million in order to take care of the full cost of this recall. This sum needs to be raised so that the company has this additional cash to support the manufacturing of the new parts, their global distribution, the dealers’ costs of contacting the affected customers and then making the replacement plus the public relations and advertising campaigns needed to stress the reliability and safety of Toyota vehicles. How can this be accomplished?
A first look at the cash and cash equivalents for Toyota in 2006, shows that the venture could be covered without debt or equity financing. Given the nature of the venture, it would be imperative to use readily available, highly liquid funds. This source of funds could cover the entire venture without any noteworthy adverse effect to the debt to equity ratio. But, in considering financing, current debt instruments would be my first choice, and again I would use this to finance the 100% of the venture. The note payable would be my first choice. A note payable is a contract detailing the terms of a promise by one party (the maker) to pay a sum of money to the other (the payee). The obligation may arise from the repayment of a loan or from another form of debt. For example, in the sale of a business, the purchase price might be a combination of an immediate cash payment and one or more promissory notes for the balance. Trade credit could also be used. Whenever a supplier allows a small business to delay payment on the products or services it purchases, the business has obtained trade credit from that supplier. Trade credit is readily available to most businesses. But the payment terms may differ between suppliers, so it may be helpful to compare or negotiate for the best terms. A small businesss customers may also be interested in offering a form of trade credit or example, by paying in advance for delivery of products they will need on a future date in order to establish a good relationship with a new supplier.
I don’t believe that a new line of credit would be necessary for this endeavor. A line of credit is a long term commitment by a commercial lender to honor the day to day checks of a business up to a maximum figure agreed to in consultation with the business. The lender retains a number of signed drafts (notes held for discount) from the business on hand to use as required to place funds as needed into the account. The business was made responsible for depositing all sales revenues on a regular basis into the account to “buy down” the outstanding loan balance whenever there were the funds available to do so. This up and down, fluctuating nature of the loan amount (account balance) is why it has come to be called a “revolving line of credit.” There is no scheduled repayment of principal because there is no set principal amount of the loan. The interest rate normally
bets as follows. A balance of 2.2% bursary is due at $3 per month plus $5 per year for the life of the balance. If the credit line is not extended or terminated, a monthly $100 annual interest rate will accrue on the first $500 balances with the longest amount of annual interest. $100 of this $100 will be converted into our annual interest at interest expense of $25/ year. This amount is equal to our $10 daily payment paid.