What Really Happened to Toyota?

Given the spate of recalls and quality problems, managers wonder whether Toyota’s difficulties throw its legendary manufacturing model into question.

Toyota’s quality problems in the United States were signaled with a recall in late 2009 for problems with floor mats, but they didn’t end there.  Since then, more than 20 million cars have been recalled.

Image courtesy of Flickr user kenjonbro.

Consumers were surprised in October 2009 by the first of a series of highly publicized recalls of Toyota vehicles in the United States. Citing a potential problem in which poorly placed or incorrect floor mats under the driver’s seat could lead to uncontrolled acceleration in a range of models, Toyota announced that it was recalling 3.8 million U.S. vehicles. The recall was triggered by the report of a fiery crash in California, where the accelerator of a Lexus sedan got stuck, resulting in the driver’s death.

Additional reports of unintended acceleration from sticky gas pedals prompted the National Highway Traffic Safety Administration to pressure Toyota to recall additional vehicles and models.

To car buyers and students of manufacturing excellence, Toyota was no ordinary company. It was in a class by itself, long known, even revered, for its sterling quality. For manufacturing executives who have strived for decades to emulate Toyota, the mere suggestion that it had quality issues was a serious matter, to say the least. All over the world, executives paused to wonder if they had been chasing after the wrong manufacturing model.

Despite Toyota’s long record of building reliable, low-defect vehicles, public perceptions about quality are often greatly influenced by reports in the media and their overall timing. The public view can be at odds with the objective measures. In the case of Toyota, there were definitely indications that the quality level of its products had fallen off in recent years. What’s more, the changes had occurred during a period of time when many of Toyota’s competitors, including Ford, Chevrolet and Hyundai, were producing better and better cars. The key question was the source of Toyota’s problems: To what extent did they originate with the product designs and assembly, and to what extent could they be pegged to the company’s manufacturing systems?

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References

1. J. Press, “A New Era for Toyota and TMA in North America,” (internal Toyota presentation, Sept 20, 2006), http://commerce.senate.gov.

2. Gallup, “Americans, Toyota Owners Still Confident in Toyota Vehicles,” March 2, 2010, www.gallup.com.

3. N. Roland, “Toyota Doesn’t Go Far Enough on Safety Management Changes, Panel Says,” Automotive News, May 23, 2011.

4. D. Sedgwick, “Toyota Likely to Win Back Consumer Reports ‘Recommended Rating,’” Feb. 26, 2010, http://autos.aol.com.

5. J.D. Power and Associates, “J.D. Power and Associates 2010 U.S. Initial Quality Study” (Westlake Village, California: J.D. Power and Associates, 2010).

6. C. Jensen, “Toyota’s Image Falls in J.D. Power Survey,” New York Times, June 18, 2010, sec. B, p. 5.

7. J.D. Power redesigned the IQS survey in 2006, doubling the number of items ranked, going beyond defects that can, presumably, be repaired to include design problems. With quality differentials sharply diminishing, the survey was in danger of becoming irrelevant, but with a doubling of items to be scored, brand differentials were increased. Many of these new items have little or nothing to do with the fundamental safety, quality, value and performance (in that order) that consumers, on average, say is most important when buying a vehicle.

8. Ordinarily, just equaling longtime quality leaders is not enough to dislodge them from their leadership position. In Toyota’s case, however, these developments combined with the publicity given its successive recalls.

9. M. Rechtin, “Fay in the Fray of Toyota Image Turnaround,” Automotive News, Sept. 13, 2010, 20.

10. Parker Waichman Alonso LLP, “Chronology of Events in Ford/Firestone Controversy,” May 21, 2001, www.yourlawyer.com.

11. Adding to Toyota’s woes, its recalls are getting far more publicity than those of other automakers. In late October 2010, Toyota issued a voluntary recall on 1.5 million cars globally to replace a brake master cylinder seal. A few days later, Nissan recalled 2 million cars for ignition problems. Both recalls were reported on msnbc.com. The Toyota article was 966 words and described the company as “lurching from recall to recall”; the Nissan article was only 285 words long and suggested that there was nothing unusual about Nissan’s recall. P.A. Eisenstein, “Dark Clouds Gather Over Toyota After New Safety Setback,” Oct. 21, 2010, http://msnbc.com; and “Nissan Recalls 2 Million Cars Worldwide,” Oct. 27, 2010, http://msnbc.com.

12. A. Frean, “Fears Over Potential Toyota Problems Surfaced in 2006, U.S. Senate Told,” Times Online, March 3, 2010, http://business.timesonline.co.uk.

13. J.S. Busby, “Failure to Mobilize in Reliability-Seeking Organizations: Two Cases from the UK Railroad,” Journal of Management Studies 43, no. 6 (2006): 1375-1393.

14. N. Shirouzu, “Toyoda Concedes Profit Focus Led to Flaws,” Wall Street Journal Asia, March 1.

15. Toyota Industries Corporation, “A New Direction for a New Millennium: Annual Report 2001” (Kariya, Aichi, Japan: Toyota Industries Corporation, 2001); and Toyota Motor Corporation, “Driving to Innovate New Value: Annual Report 2008” (Aichi, Japan: Toyota Motor Corporation, 2008).

16. J.B. White, “What’s Safer: A Chevy or Mercedes?” Wall Street Journal, Sept. 22, 2010, sec. D, p. 1.

17. D. Barkholz, “Fixing Cars’ Brains Saves Ford Millions,” Automotive News, May 11, 2010, 12B.

18. N. Shirouzu, “Inside Toyota, Executives Trade Blame Over Debacle,” Wall Street Journal, April 13, 2010.

19. M. Ramsey and N. Shirouzu, “Toyota Is Changing How It Develops Cars,” Wall Street Journal, July 6, 2010, sec. B, p. 6.

20. T. Fujimoto, “Toyota Overwhelmed by Demon of Complexity,” Asahi Shimbun, March 3, 2010, http://www.asahi.com.

21. R. Dore, “Taking Japan Seriously” (Stanford, California: Stanford University Press, 1987), 173-192.

22. R. Sherefkin, “Detroit 3 Score Higher with Suppliers,” Automotive News, May 24, 2010, 16B; and R. Sherefkin, “Toyota Loses Luster with Suppliers,” Automotive News, May 25, 2009.

23. N. Roland, “Toyota’s U.S. Execs: Japan Didn’t Share Info,” Automotive News, Aug. 9, 2010, 3.

24. Ramsey and Shirouzu, “Toyota Is Changing.”

Acknowledgments

I have received a great many helpful comments on this paper from individuals too numerous to list. I would, however, like to give special thanks to Michael S. Flynn, former director of the Office for the Study of Automotive Transportation at the University of Michigan, and John Shook, CEO and president of the Lean Enterprise Institute.

6 Comments On: What Really Happened to Toyota?

  • Bob Cohen | June 28, 2011

    What a well-written, concise and insightful review and commentary on a business case that will, no doubt, be studied for years to come. You have articulated so many issues to which other organizations need to attend. It seems that a fundamental lesson in all this is that straying from the fundamentals of what has made a company great can be hazardous to its health. There is a saying that “love is blind” in human relationships. Perhaps it can also be said that “growth is blind” when it comes to organizations. Thanks so much for this analysis.

  • Charles H. Green | July 3, 2011

    Fine piece of writing. Balanced, clear, nuanced. A standard for how to write an article on a complex phenomenon.
    Thank you.

  • Siswanto Gatot | July 15, 2011

    toyota has overconfidence about its quality. for many years, toyota experiences major market leader, it makes capacity expand and quality control weaken. multisupplier arround the world is hard to control

  • Martin Dressler | August 19, 2011

    Toyota’s biggest mistake was a simple one; failing to direct their auto salesmen to instruct owners how to turn off the car while moving.

    While this seems obvious (twist the key counter-clockwise), many of their models don’t have a key. They use a Smart Key system with a “Power” pushbutton. When stopped, simply press the Power button and the car shuts off. Many modern cars use similar systems.

    But to shut off the car while moving, depress and HOLD the Power button for 3 seconds. The car shuts off and gently coasts to a stop.

    If every Toyota owner knew this, there would never have been any such thing as a “runaway car” with brakes burning (or whatever actually happened — we never got a clear answer on what the truth was).

    Martin Dressler

  • Trent Harding | September 11, 2011

    The general public doesn’t seem to understand the regular frequency with which many manufacturers vehicles are recalled, however the speed of Toyota’s response to the problems are where the auto manufacturer needs to take responsibility.

    Also it is interesting to know that in the countries where there were competitive domestic rivals, in the U.S for example, the reports of Toyota’s problems and the seriousness of their situation were almost sensationalized.

  • Darren Relty | September 20, 2011

    What is especially amazing to me is the obvious impact of media power here. It is clear that Toyota has had far more media attention than any other vehicle recall and the have suffered the most. Is anyone else worried about the amount of power that media plays in our society?

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