Correction Appended: February 24, 2010
What's wrong with Toyota?
Not much. At least not from an engineering, mechanical or even a quality point of view. You don't reach the top gear in the global auto industry unless you make outstanding cars, which Toyota does most of the time. Though cars are familiar machines, they are also highly complex ones. To create a modern car, a company has to design, engineer, build, buy and then assemble some 10,000 parts. Sell 7.8 million cars, as Toyota did worldwide in 2009 a horrible year for the industry and there are billions of new parts with the potential to go kerflooey. Inevitably, some do.
What makes the recall since November of nearly 9 million Toyotas that are susceptible to uncontrolled acceleration and balky brakes such a shocking story is not so much the company's manufacture of some shoddy cars or even its dreadful crisis management though those are errors that will cost it more than $2 billion in repairs and lost sales this year. It's something more pernicious: the vapor lock that seems to have seized Toyota's mythologized corporate culture and turned one of the most admired companies in the world into a bunch of flailing gearheads. Not only is Toyota producing more flawed cars than in the past, but an organization known for its unrivaled ability to suss out problems, fix them and turn them into advantages is looking clueless on all counts.
Although the recalls seemed sudden, the evidence has been piling up. Literally. According to a report from Massachusetts-based Safety Research & Strategies (SRS), a consumer-advocacy group, there was a spike in the number of unintended-acceleration incidents in some Toyota vehicles in 2002, about the same time that Toyota introduced its electronic throttle control. The problem was initially blamed on a floor mat or vehicle trim that, if it came loose, could jam the accelerator pedal in an open-throttle position. That was followed by the first of several National Highway Traffic Safety Administration (NHTSA) investigations, in 2003, and two small recalls in 2005 and 2007. But accidents mounted, and last November the company had to take back nearly 3.8 million U.S. Vehicles its biggest-ever recall to address the problem.
Modifying the floor mats, though, didn't fix things. Toyota at first refused to believe that there was a mechanical problem with its pedals, blaming customers for improperly installing the floor mats. But by the time Toyota got around to a second recall, on Jan. 21, this one of 2.3 million vehicles, its reputation was in tatters.
There was no place left to park the blame. The company backhandedly singled out a U.S. Partsmaker CTS Corp., of Elkhart, Ind. as the supplier of defective pedals while exonerating a Japanese company, Denso, that makes the same part. But CTS CEO Vinod M. Khilnani wasn't about to take the fall. He says his company met Toyota's engineering specifications and notes that the recalls tied to unintended acceleration extend to vehicles built as long ago as 2002. "CTS didn't become a Toyota supplier until 2005," he says.
There was more to come. In early February, Toyota managed to back over any remaining political goodwill it had when it voluntarily recalled more than 400,000 Prius and other hybrid cars this time, to update software in the antilock brake system that could cause a glitch if the car traveled over a bumpy surface. The Lexus is Toyota's top-selling luxury model bad enough but the Prius is its darling, a car that demonstrated the company's ability to solve technical issues that kept other automakers from fielding gas-electric hybrids, at the same time clinching Toyota's green cred. Only last month at the Detroit Auto Show, executives described the Prius as the cornerstone of Toyota's future growth. Toyota planned to sell a million hybrids a year globally, most of them in North America.
As Toyota dithered, it lost hold of the wheel. Lawyers and politicians took charge. In Washington, Toyota executives are poised to replace bankers as populist targets before a congressional hearing. "Toyota drivers have gone from being customers of the company to being wards of the government," says Jim Cain, senior vice president of Quell Group, a marketing-communications firm in Detroit, and a former Ford media-relations executive. "It's absolutely the worst possible position to be in." Tort lawyers around the U.S. have filed class actions. SRS says it has identified 2,262 instances of unintended acceleration in Toyotas leading to at least 819 crashes and 26 deaths since 1999.
At Toyota dealerships, meanwhile, customers have had to haul their cars in to have the sticky gas pedals repaired. Loyal Toyota owners now have a reason to flirt with other brands, though switching could cost them: trade-in prices for Toyotas have fallen. And at global headquarters in Toyota City, Japan, corporate officers belatedly grasped the seriousness of the situation and tried to make amends. "I apologize from the bottom of my heart for all the concern that we have given to so many of our customers," a chastened Akio Toyoda, grandson of the corporation's legendary founder, Kiichiro Toyoda, told reporters in Nagoya, taking the requisite deep bow of the disgraced.
The Little Company That Could
So what happened? What went awry at the car company whose widely admired Toyota Production System (TPS) had made it the paragon of the art of manufacturing?