Toyota Crisis: Management Ignorance? (Yuanyuan Feng 2010.) (Amendments/additions and adjustments made by Dr Daniel Ringuet)
“We deeply regret the inconvenience and concern caused to our customers and others by our recent recalls of multiple vehicle models across multiple regions.” – Aki Toyoda, the CEO of Toyota Motor Corporation1 (Toyota website). Beside the regretful expression we can learn from this public release, it also implies that Toyota, one of the world’s largest automakers, is suffering in their recent recalls of millions of vehicles round the world. Safety recalls are common issues occurring in the automobile industry, few may have long run impact on the automakers involved if handled correctly. However, in this case, the disaster engulfing Toyota is of a different order (The Economist, Feb.6, 2010). Toyota’s quality brand has been scrutinised and at risk due to its sedans’ safety problems that have sequentially emerged recently.
In 2008 Toyota became the world’s largest carmaker when it successfully exceeded General Motors in sales and production. However, this leading position of Toyota had changed since the end of 2009. In the United States, Toyota’s largest marketplace, a fatal crash of a Lexus ES 350 on August 28th 2009 was highly publicized, due to the gas pedal which was stuck and the car went out of control (Los Angeles Times, Oct.25, 2009). Since then, Toyota’s vehicles have been largely exposed to a series of issues associated with unintended acceleration problems, and these have triggered Toyota’s escalating crisis and its massive recalls of approximately 9 million vehicles globally within a six months period. For Toyota, this is indeed a tragedy that is not only related to heavy financial losses due to associated repairs costs, market share lost and production suspending, but also to Toyota’s reputation for its matchless quality and management. The firm's reputation for quality cars, on which the business was built over time, is shattered.
Toyota has long been regarded as the pinnacle of Japanese innovation, manufacturing quality and an industrial pioneer (The Economist, Feb 13, 2010). Its vehicles are well known for economy, reliability and fuel efficiency. Its ‘lean’ manufacturing techniques and culture of continuous improvement were the envy of the business world (ibid). It is absolutely astonishing that Toyota has been embroiled in such a serious quality issues with its vehicles. Just within six months, almost 9 million cars have to be taken back for modification because of the potential problems with floor mats, acceleration pedals, and braking, all of which were related to unintended acceleration problems by drivers.
As we know, cars nowadays have become more complicated in features and functionality. The growing numbers of wires, sensors and computer chips embedded in auto electronics have profoundly changed automobiles in the last decade (Krisher, 2010). As more and more hi-tech systems are fitted to modern cars, it has become more and more perplexing in quality-control testing along with troublesome interferences and uncertainties. Small electronic flaws randomly happen in the complicated machines, as well as the influence of environmental factors, which can easily lead failures. In the Toyota crisis, the question is, were the massive recalls simply as a result of mechanical problems that could happen in any automaker potentially, or was it caused by other errors of the company that could have been avoided in term of their technology and management. No matter what the answers are, the recalls stories made headlines worldwide. In the United States for example, Toyota has received unprecedented attention from the mass media, most of which have published a lot of negative news related to the issues, questioning the quality problems of Toyota’s car and its reputation. Negative events usually come unexpectedly with the potential to bring an organization into reputational crises and thereby imperil its future profitability, growth, and survival (Greyser, 2009). Whether the negative impacts are immediate or sustained over months and years, crises would probably affect both internal and external stakeholders of the company (Weiner, 2006). Suffering because of such a crisis Toyota has taken action to manage the crisis, in order to retrieve the company’s reputation and rebuild trust from stakeholders, especially the most important groups - consumers. Toyota has been in the media coverage more in the United States, where the crisis originally initiated. Since the recalls have been conducted across regions globally not only in North America, it would be interesting to see how vehicle consumers in non-American regions perceive the crisis and the Toyota brand.
Toyota Crisis Overview
According to Stewart (2010), Toyota has a full-blown crisis on its hands, but the problem has been compounded by a long-delayed and less-than-reassuring response from Toyota. By looking back from the beginning of the horrific Lexus accident, quality complaints and safety problems involved in Toyota vehicles have been brought to light with the increasing investigations by The National Highway Traffic Safety Administration (NHTSA) in North America. Toyota American Sales organization (TMS) previously attributed the problem in the Lexus to an incompatible floor mat that may potentially interfere with accelerator pedal (Los Angeles Times, Oct 25th 2009). They issued a public safety advisory on Sep 29th 2009 inform the owners of specific Toyota and Lexus models of the ill-fitting floor mat problem, and then followed by the first large-scale recall announcement in November 2009 for remedy of this problem (Toyota USA Newsroom). However, Toyota’s explanation of ill-fitting floor mats was questioned by NHTSA, stating that the problem was “related to accelerator and floor-pan design” (Stewart, 2010). Consequently, the problem of gas pedals that get stuck led to Toyota’s second large recalls of 2.3 million vehicles in U.S. market, as well as the third recall announcement of 1.8 million vehicles in European markets in January 2010. Meanwhile, Toyota decided to temporarily suspend production at most of its North American plants and halted the sales of eight popular models in U.S. market (Toyota USA Newsroom).
By late January 2010, Toyota began issuing apologies and promises to do better; its engineers brought up a fix for the accelerator pedals and began rushing it to dealers around the world (Welch, 2010). In face of the blame from mass media presses, Toyota maintained that the recalls and actions were taken voluntarily rather than the insistence from NHTSA, with the intention to “help ensure the safety of our customers and restoring confidence in Toyota”, according to Group Vice President and Toyota Division General Manager Bob Carter (Toyota USA Newsroom). Subsequently, Jim Lentz, president of Toyota’s U.S. organization TMS, apologized for the recall and acknowledged it was embarrassing for the company that built its reputation on the reliability of its vehicles (Linebaugh, Mitchell and Wakabayashi, 2010). Despite Toyota’s announcement to remedy the problems and providing solutions to fix the recalled cars, fresh reports of sudden-acceleration incidents continued to crop up from American Toyota owners involving vehicles excluded in the recalls, raising suspicions whether the company had identified all of the factors that could cause unintended acceleration, which was closely linked to a failure of vehicle’s heart ‘the vehicle electronic throttle control system’ (ibid). In a conference call with reporters, Mr. Jim Lentz gave the explanation that "these two fixes solve the issues that we know of," and “we have done exhaustive testing, and we have found no evidence of problems with the electronics" (ibid). Akio Toyoda, Toyota’s CEO, issued his public apology candidly at a news conference in Tokyo on Feb 5th 2010, emphasizing that they will “go back to the basics of “customer first” and “genchi genbutsu”(means ‘go to the source to find the problem’) by improving products quality around the world. He added that he will be the head of a global quality task force newly formed to lift quality standards within the company (Toyota Website). However, bad news did not cease. Toyota’s tragedy were aggravated again with further recall announcements in February 2010 including: the Hybrid vehicles containing the celebrated Prius with antilock brake problems in Japan and American markets; and the Tacoma trucks with drive shaft problems in American regions (Toyota USA website). After years of being the benchmark for quality, Toyota has been losing its edge even as its rivals catch up (Welch, 2010). Some analysts estimated that the immediate impact of Toyota’s global recalls and sales stoppages could cost Toyota more than $2 billion USD (Trottman and Mitchell, 2010; Businessweek.com). Meanwhile Toyota could be forced to spend considerable amounts on advertising, sales incentives and legal bills (Linebaugh et al., 2010). Moreover, Toyota has been blamed for its misreading and mishandling of the crisis. The longer-term damage to the automaker's brand could be much larger, according to Linebaugh et al. (2010).
In response to those negative issues, Toyota maintains that they never misled regulators and they properly responded to potential safety problems (Linebaugh, et al., 2010). “We’re committed to doing everything we can – as fast as we can – to restore consumer trust in Toyota, and these recalls are part of this effort,” said Mr. Jim Lentz (Toyota USA website). Toyota President Akio Toyoda also outlined the company’s plans for earning customer trust back, stating that: “we are taking responsibility for our mistakes, learning from them and acting immediately to address the concerns of consumers and independent government regulators” (Toyota website). As BusinessWeek reported on Jan. 29, the company planned to break its silence, with an explanatory newspaper ad, as well as more tools such as the internet, social media, cable TV, etc. (Bush and Thomaselli, 2010). Special recall web pages were created in late January 2010 with latest recall and repairing information, along with posing some updated statements officially released by Toyota. Through various online or offline communicating tools, Toyota has made an attempt at highlighting its existing goodwill on, for instance, innovative technologies, excellent engineers, brilliant history, as well as its consistent social mission for making contributions to sustainable environment.