Toyota has carried out one of history’s largest product recalls in the past year. How did the car giant with a reputation for quality get into such a situation?

Toyota has carried out one of history’s largest product recalls in the past year. How did the car giant with a reputation for quality get into such a situation?The bigger they are, the harder they fall. Japanese car giant Toyota has certainly had cause to ponder the old maxim in the past year. Since November 2009, the firm has had to recall more than 10m vehicles to address a variety of technical problems. The company has faced its greatest difficulties in the US where, according to the US National Highway Traffic Safety Administration, faulty Toyotas might be to blame for 52 deaths in 43 crashes since 2000.

Crashes have been caused by “sudden unintended acceleration events”. The most high profile of these occurred on August 28 2009. Mark Saylor, a California highway patrolman, was travelling with three passengers in a Lexus – Toyota’s upmarket brand. Apparently unable to control his speed because of a stuck accelerator pedal, Saylor crashed. All of the car’s occupants died. Desperate calls to emergency services made by Saylor’s passengers just before the crash were released to the media.

This and the subsequent recalls were the spur, in February, for US House of Representatives hearings on Toyota’s handling of the recall crisis. For Toyota, it was a public humiliation. The Democrat chairman of one hearing, Bart Stupak, accused the company of an “ambiguous” response, and of not getting to the core of the problems. Technical reports commissioned by Toyota had “numerous shortcomings” and were “nowhere near adequate”, Stupak said.

Toyota also stood accused of breaking US laws on providing timely notifications of faults to the authorities, and indeed the company subsequently paid a $16.4m fine for this. The avalanche of bad publicity was a serious blow to Toyota’s image as the company of “kaizen”, or continuous improvement, in which respect and teamwork combined to ensure that no detail was overlooked.

Company president Akio Toyoda offered a comprehensive mea culpa. “I am the grandson of the founder, and all the Toyota vehicles bear my name. For me, when the cars are damaged, it is as though I am as well,” he said. Most significantly, Toyoda admitted that at the root of Toyota’s problems there lay a blurring of the firm’s priorities. “Quite frankly, I fear the pace at which we have grown may have been too quick,” Toyoda said. “We pursued growth over the speed at which we were able to develop our people and our organisation.”

Wrong direction

Where did it all go wrong? How did a company with such a high standing end up to confessing to relegating safety to second or third place? Dr Paul Nieuwenhuis of Cardiff University’s centre for automotive industry research says Toyota was hit harder by the recall crisis than others might have been because “Toyota is supposed to be so perfect. There are recalls all the time, but the scale [in this case] was big because Toyota is big.”

Toyota did “take their eye off the ball in the area of quality”, Nieuwenhuis says. This seems, as Akio Toyoda admitted, to be down to managerial attention being shifted away from a close focus on quality towards the dash for growth.

Toyota’s pre-recession revenue growth was impressive. As its annual report for the year to the end of March 2010, published in August, shows, Toyota’s automotive revenues grew by 41.5% between 2005 and 2008, to stand at a vast 24tn yen (about $287bn at current exchange rates). This marked the peak, however. Thereafter, Toyota was, just like other carmakers, hit by the economic crisis, with revenues in the year to the end of March 2009 down by a quarter, to below 2006 levels.

The downside of the dash for growth seems to have been quality control oversights. Nieuwenhuis says other car firms dealing with other recalls might have been able to shift the blame to suppliers, but Toyota has a particularly close relationship with suppliers and cannot pass the buck so easily. With managerial attention diverted, problems that might previously have been dealt with in Toyota’s traditional, methodical way have been “allowed to come through to market”.

No internal change

Commentators have noted that although Toyota’s revenues changed dramatically, the corporate culture did not. The company was previously “a follower”, says Nieuwenhuis. Compared with Ford or GM, it was “relatively late on the world stage”, but now “they began to take a leadership role that in the past they had tried to avoid”.

Nevertheless, the company structure remained centralised and hierarchical, a “reflection of Japanese legal tradition and corporate culture”, according to Simon Pickard, director-general of the European Academy of Business in Society. Decisions still had to be taken at the centre, without much public discussion and with a focus on talking down problems. This made it “very difficult for [company executives] to admit to and address the scale of the crisis”.

Toyota was thus not well positioned to react quickly when problems cropped up. “They’re not used to this sort of problem and they don’t really have the mechanisms in-house to deal with it,” Nieuwenhuis says. He argues that the company was also caught out by the media reaction to the recalls in the US, which emphasised the personal tragedy of car crash victims and sensationalised the problems. Contrastingly, in Japan – where recalls have also taken place – the response has been more sober.

Nieuwenhuis also suggests that there may be an element of schadenfreude in the US reaction. In some quarters there is the “notion that Toyota destroyed the US big three” of Chrysler, Ford and General Motors, which underwent great trauma as the economic and financial crisis hit in 2008. This idea is compounded by Toyota’s emphasis on greater sustainability as the future of motoring. The relatively green Toyota Prius hybrid is “a political product”, which can be seen as posing a threat to the US way of doing things, Nieuwenhuis says.

Pickard argues that Toyota’s initial reaction to its technical troubles may have been tardy but ultimately “they were forced to do the right thing”. Politically, with the appearances before US congressional committees, Toyota “was clearly unprepared for the spotlight and related criticism”. But Toyota could hardly dodge the media, and its public relations effort was “ultimately honest, despite increased loss of consumer trust”.

Toyota says it has learned the lessons. Toyota Europe spokeswoman Anne Gaublomme says: “We are implementing a top-to-bottom review of our global quality assurance processes.” That includes the establishment of a “special committee for global quality”.

This has already “re-examined the problems that have occurred from the standpoint of design quality, manufacturing quality, sales quality and service quality … [and] agreed on concrete improvements to get started on”.

In the wake of the recalls, Toyota is less shy about confessing its shortcomings. “The company needed to take a step back and rethink how to make the customer’s voice our number one priority, and then develop products that emerge directly from that deep understanding,” Gaublomme says.

Can we fix it?

Measures such as these are part of the programme of lessons that other firms can take from the Toyota experience. Simon Pickard says that when faced with product problems, firms “must be consistent in acknowledging faults” and have “clear and transparent systems of redress”. They have to “accept customer criticism and feedback, be open with regulators and public authorities, and do what they can to increase quality assurance”.

This last point is crucial. It will be a while before a judgment can be made of whether or not Toyota has mended its ways. “If there are multiple things that need to be fixed systematically it takes a long time until changes are really bedded in,” says Pickard. If problems recur, the damage to the Japanese giant could be magnified.

Paul Nieuwenhuis says Toyota is, so far, well positioned to bounce back. It sits on huge financial reserves and has a strong reputation for quality that has persisted even through the recalls crisis. But the company must make durable changes, such as embedding corporate responsibility and sustainability at board level. For the longer-term prognosis, it really “depends what happens from now on”.

Total recall

The list of Toyota models involved in recalls is so long that it is easier to give those that are not subject to recall. The unaffected vehicles are the Yaris, the 4Runner, the FJ Cruiser, the Land Cruiser and the Camry Solara. The most extensive recalls have taken place in the US, but China, Europe, Japan and other countries have also been affected.

The bulk of recall notifications were issued at the end of 2009 and beginning of 2010. Vehicles have been recalled because of sticking accelerator pedals, floor mats that interfere with the operation of pedals and software problems that have affected stability-control and steering systems.

Toyota may not have yet reached the end of the road for recalls. In late August, a further notification was issued covering 1.1m 2005-08 Corolla and Corolla Matrix vehicles sold in the US that might have minor faults with electronic engine controls. The company says there had been “three unconfirmed accidents alleged to be related to this condition, one of which reported a minor injury”.

Toyota is trying to be open, with a website giving extensive recall information. The company’s chief quality officer for North America, Steve St Angelo, says the latest recall is “an example of our commitment to standing by our products and being responsive to our customers”.

And Toyota may yet end up feeling aggrieved about the furore it has faced. A preliminary report sent in August to the US Congress by the US National Highway Traffic Safety Administration found that in most of a number of test cases of “unintended acceleration” that were examined, there was no evidence of technical faults, making driver error the likely cause of accidents.

This is the latest in Ethical Corporation’s series on classic corporate responsibility incidents and their repercussions. Next month: Exxon Valdez.