‘Kaizen,’ the ethic of continuous improvement, and ‘just-in-time’ manufacturing are principles that have revolutionized the manufacturing industry, and placed Toyota in a league of its own. Even more so was another process pioneered by the great Japanese car manufacturer named TQM (Toyota Quality Management) – anyone who went to business school would have read about its tremendous success, as pointed out by various case studies. TQM is clearly mentioned in the company’s mission statement, and is still very much a focus at Toyota.
“Quality is Toyota’s lifeline,” is the phrase that Akio
Toyoda, grandson of the company’s founder, used in his first public appearance in the United States after becoming Toyota’s president in June last year. When you hear the word quality, you think of Toyota. This is what the company has built its reputation on, and henceforth went on to become the world’s No. 1 automaker. So, how did they go astray?
Trouble Brewing
In 2007, there were as many as 400 complaints in the US about floor mats wedging the accelerator pedals in many Toyota car models – leading to unwanted acceleration. However, these were treated as minor complaints, and it wasn’t until August 2009 when an accident involving 3 fatalities that Toyota’s problem with unintended acceleration attracted national attention in North America. A recall affecting approximately 4.9 million Toyota and Lexus vehicles was issued two months later in October. However, it wasn’t until late January 2010 that Toyota’s safety issues catapulted into a disaster of global proportions – with the very real possibility of tarnishing it’s thus far carefully constructed image.
On January 21st, another 2.3 million vehicles were recalled,
this time for a separate issue, but again involving the accelerator pedals, which were sticking – but this time not due to the
floor mats. It’s now estimated that an astounding 9.5 million
cars will have been recalled around the world because of unintended acceleration.
To make matters worse, the worlds’ best selling hybrid, the Toyota Prius, had to be recalled on February 8th due to issues with its ABS braking system, which also performs the function of regenerative braking. Toyota formally issued a recall filing of 223,068 cars in Japan across four hybrid models. This was later expanded to another 213,000 hybrid cars around the world – including about 150,000 cars in North America. Some owners reported experiencing inconsistent brake feel during slow and steady application of the brakes on rough or slick road surfaces when the anti-lock brake system (ABS) was active.
The Prius has been the world’s best-selling hybrid vehicle – helping Toyota grab 70% of the US hybrid market. The recall
of these vehicles seemed like the final blow for Toyota.
However, there was more to come, with 8,000 Tacoma
pick-up trucks recalled just one week later in the US due to effective drive-shafts.
Four recalls in almost as many months, not to mention serious safety concerns, meant that the media frenzy spread quickly across the globe. There was talk of Toyota being so dizzy on its own success that it veered off course from its own fundamental principles of TQM. The bad publicity, and fear, combined with the fact that not one, but up to 8 models were affected by various recalls – with the majority of these models being in the US and Europe, two of the biggest markets for Toyota – meant that sales plummeted by almost 16% in the US for the month of January.
What Went Wrong?
Many car enthusiasts and industry analysts alike are perplexed at the situation that Toyota’s facing. Everyone wants to know how this could have happened to the Japanese Giant that seemed virtually infallible.
Consultants, suppliers, dealers and analysts agree on the fact that rapid growth strained the company’s resources to a breaking point. The stress of achieving near constant cost reductions in parts added to the pressure – also keep in mind that Toyota, in light of the economic collapse of 2008-09, had to struggle to optimize its growth back in line with this new reality. A further problem turned out to be the sharing of components, for the sake of cost reduction, across model lines. Therefore, it wasn’t just a single model, such as the Corolla, that was affected – but multiple models, which left dealers with virtually no cars they could actually offer to customers for a certain period of time.
And, of course, the media hype certainly didn’t help. An interesting story grew around Steve Wozniak, the co-founder of Apple. According to reports, his Toyota Prius faced an acceleration problem, which he believed had something to do with the vehicle’s software. The billionaire claimed that he had complained about the problem to Toyota and the U.S. government for over two months, with no response. Eventually, on February 9th, Toyota recalled the Prius – but only for an issue with the ABS.
Problem Solving
As you’d expect, Toyota is attacking the problem head on – they’ve instructed many service centers to stay open around the clock to work on their recalls. Approximately 50,000 vehicles are being repaired every day.
All vehicles fitted with Toyota or Lexus-made all-weather floor mats will receive a new set of redesigned front mats and pedals to prevent the interference between them. Interestingly, Toyota will also install a brake override system on all new models that will turn off the engine if both the accelerator and the brake are depressed simultaneously. The second recall, for the accelerator pedals, was reportedly due to friction being generated within the pedal housing – making it harder to press down on the pedal, but, more dangerously, slower to release. A steel reinforcement bar is added within the assembly, which reduces the surface tension between the friction shoe and the adjoining surface. With this reinforcement in place, the excess friction that can cause the pedal to stick is eliminated – a very clever and cost effective idea that’s stated to take around 30 minutes of repair time. Although, in reality, dealers are performing the fix even quicker. Mind you, there are still some skeptics who believe that the problem is linked to electronics.
In regards to the 2010 Prius, Toyota responded by issuing a software update to improve the ABS systems response time, as well as the systems overall sensitivity to tire slippage. The first and second-generation Prius vehicles use a different ABS system and are not involved in this campaign.
Toyota has also announced that it will idle two of its US plants, in the face of slowing sales of its popular models. This is to keep the inventory in check.
Consumer and Dealer Loyalty
Toyota has experienced recalls in the past. In fact, they’ve handled them fairly well thus far, and have recovered extremely comfortably as well. In 1989, the Lexus brand was launched, but its LS400 experienced some technical glitches – such as a tail lamp prone to overheating. Production was halted immediately, and the output of replacement parts was increased. Customers were treated with great care – they were given a loaner car, and when repairs were complete they got their cars back, cleaned, and with a full tank of petrol. Customers were so impressed with Lexus that the brand went on to outsell BMW and Mercedes in the US market over the next two decades.
But dealing with 9 million cars, which have been recalled is another story. It’s on a scale far larger than anything they’ve had to deal with in the past, and it’s occurring at a time when Toyota dealers have just managed to escape the economic crisis. It must be noted, however, that Toyota is a company which can be greatly admired for its perseverance and successes from the past. They may have reacted slowly to complaints because of their sheer size and overlapping objectives of quality and growth, but they are now doing everything in their power to rectify
the setbacks.
Toyota dealers in the US have been fiercely loyal to the brand that’s earned them their bread and butter through good times and bad. However, customers may not be as unforgiving in the short term – especially since Toyota’s reputation was based on a promise of quality and reliability.
Looking Ahead
Toyota Kirloskar Motors, the Indian unit of Toyota, expects to double its sales in the next five years – powered by the Etios which is to be launched at the end of this year. The units Managing Director Hiroshi Nakagawa also said Toyota’s recent recalls had absolutely no link to India, where it hasn’t recalled any of its cars – since component suppliers are different. The company expects its sales to grow more than 15% this year itself.
Meanwhile, in the United States, Toyota is running apologetic TV ads, and vowing to win back customers’ trust. In Japan, Toyota has taken out full-page advertisements in all the major newspapers publicly apologizing for the lapses, as dealers begin fixing software glitches on hybrid models sold in the country. The Japanese automaker is playing with the idea of extending warranties to as long as 10 years to gain back customer trust and boost sales. If the extended warranty materializes, it would add substantially to Toyota’s warranty costs, but a move such as that may be essential to restore customer confidence.
Toyota will also need to deal with an irate US government. The company has been encouraging its US dealers to contact local members of Congress, and about 60 of the 1,200 US Toyota dealers visited Washington in February. Their message – Toyota employs 34,000 people in the US, and accounts for 164,000 other jobs at dealerships and parts suppliers. Toyota also flew 23 workers from plants around the country to Capitol Hill to meet with lawmakers, emphasizing that the people who make the parts and build the vehicles care about quality. One worker who tested the cars and trucks said he took it personally that he never found the accelerator pedal problem.
Toyoda himself has admitted that the massive expansion has played a part in the current crisis. And he intends to take a
number of steps to ensure that defects such as these don’t reoccur. Toyoda will lead a new global quality task force. He will also appoint a Chief Quality Officer for each geographical region.
It must be understood that manufacturers recall products on a regular basis. However, when there’s a perceived safety concern, and the general media takes up the matter, it can snowball into a much larger problem. Dealers in the US believe that the media has blown the issue out of proportion, which is instilling fear in owners and customers. The negative press has meant that Toyota will face the repercussions of these recalls for quite some time. However, a company with as much experience as Toyota – coupled with their manufacturing legacy – will undoubtedly be able to pull out of the crisis. How long it takes, however, only time will tell.
