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Can Toyota Be Fixed?

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Can Toyota Be Fixed?

Carmaker’s Problems Are Larger Than Recalls

Posted: Jul 26, 2010

Before Toyota became faced with recalls of more than eight million vehicles that have now extended into both its Toyota and Lexus brands, and before it faced a series of sweat-inducing Congressional hearings about its corporate ethics, the company was facing fundamental problems typical of companies trying to grow fast and dominate world markets.

Looking back a few years, Toyota seemed like a juggernaut, poised to take over the spot as world's largest automaker from General Motors. But to some, the company looked like a plane that was climbing in altitude by dumping fuel in order to lessen its weight. From the ground, it just looks like the plane is ascending higher and higher, but at what cost?

Growing Pains

Toyota did eventually pass GM for worldwide sales in 2008, though according to former and current executives, it wasn’t without a price: Toyota's once relentless focus on quality that would have engineers investigating the slightest niggles and hiccups when they were reported through dealers, its acute attention to consumer desires in design and vehicle packaging, and a certain institutional humility that made Toyota executives some of the best listeners in the industry as it rose from mediocre in the 1960s to industry masters in the 1990s.

One of the signs that Toyota was not the Toyota of old came in a report in 2009 from Merrill Lynch. In the firm's annual "Car Wars" report, it pointed out that the Toyota rate of new-model replacement had fallen behind the industry's average in North America. Because of that, the report said, Toyota could only be expected to gain a single point of market share between 2009 and 2013. Hyundai, Ford and Honda, on the other hand, were set up to gain three full points of share. That report, updated in 2010, now projects Toyota to lose a half-point of market share between 2010 and 2013. With the steady flow of recall news only abated by the BP oil spill’s headline-grabbing horror, Toyota's market share in the U.S. has fallen from 16 percent last year to 15.1 percent through June.

Toyota is now is dealing aggressively with the assaults on its reputation. It recently led a group of journalists, including those from the U.S., through its safety technology and innovations near its headquarters in Japan, and made President Akio Toyoda available for questions. It has been supplying a growing amount of "Toyota Safety" content for the Internet, this designed so its own safety-related content appears as high as possible on Google searches for terms like "Toyota Safety" or "Toyota Recall."

Unintended acceleration, the issue that has prompted most of Toyota's recent recalls, is probably the toughest problem to deal with for an automaker. Evidence of an engineering problem is scant or non-existent. History shows that unintended acceleration is typically caused by drivers pushing down on the accelerator when they think it's the brake. To make matters worse, the vast majority of cases involve women over the age 50, a tough constituency to blame.

But two especially damaging aspects of Toyota's culture have come to light in the last six months, as reams of internal documents have been handed over to government investigators and trial lawyers. At least two American executives are known to have forcefully told their Japanese masters that the company was not responding to warning signs of falling quality and consumer complaints: Former Toyota Motor Sales President James Press warned a group of high ranking company officials in a presentation in Japan in 2006, and former communications chief Irv Miller warned his superiors in 2009. The impression has been left with media, lawmakers, bloggers and other influencers tracking the story that Japanese executives, prioritizing Toyota's image for quality, were blowing off and otherwise marginalizing the opinions of American executives. When faced with mounting recall problems starting in 2005, Toyota responded by upping its lobbying budget and hiring NHTSA officials to its payroll instead of digging in to what was causing the increased recalls.

At the recent press program run in Toyota City, Japan, Akio Toyoda, as expressed in a corporate blog, "stressed that the company needed to take a step back and rethink how to make the customers’ voice our number one priority, and then develop products that emerge directly from that deep understanding. He believes this is the only way to truly regain the confidence of our customers."

Press, who left Toyota in 2007 to go to Chrysler, has said in recent months that Toyota's culture, prior to Toyoda taking control last year, was corrupted by executive leaders more driven by purchasing efficiency than by quality and design. He was referring specifically to Toyoda's predecessors Katsuaki Watanabe and Fujio Cho. It was under the leadership of those two presidents that Toyota's chase for a number-one market share in the world took place, and the number of safety and quality recalls mounted.

Beyond salvaging its reputation amidst the recalls and ethics charges that the company systematically or negligently hid complaints of quality and safety problems, charges it rigorously denies, Toyota has to re-emphasize quality and sensible product development inside its ranks if it hopes to raise its market share in the U.S. and get its profitability back on track..

A Litany Of Issues

While the Lexus lineup continues to lead luxury brands and shows little sign of giving way to its German or American competitors, the Toyota and Scion brands seem riddled with issues.

The Camry sedan, while still the best selling car in America, will be redesigned for 2012. The current model has a deficient interior, though it appears that its staunch loyalists didn't notice to the degree pundits did. The new Camry was designed amidst the company's worst period for recalls and culture breakdown. It will be scrutinized like no other Toyota when it is released.

The old reliable Corolla has become one of the most disappointing cars to drive in the subcompact segment. An all-new Ford Focus designed to higher European standards, a new Volkswagen Jetta priced lower than ever before, and GM’s Chevy Cruze, all are being hailed as excellent vehicles and good values by the media, and will severely pressure Corolla's image and sales.

The Tundra full-size truck has been a bust. Sure, industry sales tanked and the pickup market sank just when Toyota launched what it thought would be a broadside into Detroit's hold on the market. Quality ratings are high, but sales are soft for the largest vehicle Toyota has ever built. It has been a blow to Toyota's reputation and sales momentum. The Yaris subcompact, Toyota’s smallest vehicle, is an also-ran in its segment comparing unfavorably to similar cars from Honda, Nissan, and Ford.

The Scion brand, though it started out with great promise, has veered off course. Sales have sank, and its product design strategy is confused and misdirected at best. Speaking of strategic failings, Toyota Sequoia and 4Runner SUVs lag behind Detroit's offerings in almost every category -- ride, fuel economy, handling and design.

Still Number One

For all the issues Toyota faces, there are still many bright spots. It continues to make a first class minivan, the Sienna, and the Prius hybrid is the juggernaut of the green vehicle movement.

But Toyota's hybrid strategy going forward presents a lot of questions. The Prius has been wildly successful. But other hybrid attempts like the Camry and Highlander hybrid, and Lexus hybrids have been duds, leaving both consumers and the media scratching their heads about why they should bother paying big premiums over traditional gas-powered cars for relatively modest fuel economy gains.

Toyota has long subscribed to a philosophy called "genchi genbutsu”, which roughly translates into “go and see where work is done in order to gain fuller understanding.” It is clear from Akio Toyoda's own words the last few months as well as those by long-time Toyota veterans like Jim Press, that that cultural mantra inside Toyota lived on paper more than in the hearts of employees the last five to ten years.

But more than spending time in the U.S to find out whether drivers are pressing the wrong pedal in the car, Toyoda, whose family founded the company, should probably spend a great deal more time finding out what is going on in his own design and technical centers. How does the Sienna minivan come out so right, for example, but Camry interiors and Corolla steering and handling come out so wrong? How did managers and product planners let the original Scion business strategy get so far off the tracks, going from cool, bold and edgy designs to ones that are more mainstream and dull.

The big challenge for Toyota, especially in the U.S., is that its leadership, which has turned over a great deal in the last five years, has not known adversity until now. Ford's global head of marketing James Farley, who worked at Toyota for more than 20 years, told a group of reporters in 2008 that, "Working at Toyota was a bit like playing at a casino where everybody wins." He was referring to Toyota’s tremendous profitability in the last decade, topping $10 billion a year in some years, covering up a lot of mis-steps by managers.

With General Motors and Chrysler having faced bankruptcy last year, it should be time for Toyota to thrive and grow in the U.S. But it appears instead that the automaker that was synonymous with quality for nearly three decades will be spending more time convincing consumers in the U.S. that it isn't actually a part of the American auto industry that ran off the road in 2009.



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