1. A brief story of what happened:

Growing Pains: Toyota, Japan-based transnational company has achieved global rankings

through decades of work diligence, process efficiency, cost and quality control. Toyota

officially surpassed GM to become the world’s number#1 automaker in 2009 [3]. Toyota’s

increasing dependency on outside Japan suppliers due to high-speed expansion resulted in a

decoration of Toyota standards and consumer automatic recommendation [2].

Massive Accident, August 2009: An off-duty California policeman was driving a Toyota

Lexus that accelerated in excess of one hundred miles per hour and crashed, killing the

officer and his family. A recorded cell phone call to 911 documented that the acceleration

was uncontrolled, and the driver had no part in the sudden acceleration. This became a hot

story in the electronic media and spiked existing concerns about electronic defect of Toyota

vehicles [3].

1st Recall, September 2009: At the time of fatal accident, Toyota was well aware of quality

and safety defects reported by NHTSA1 about experiencing 20% accidents for uncontrolled

acceleration in 2004 [3]. Analyzing the accidents, Toyota suspected floor mats obstructing

gas pedals to be the problem and issued a warning to drivers suggesting them to remove them

[2]. Toyota ordered a massive recall of 3.8 million vehicles. Due to controversies from

NHTSA, Toyota took remedial measures either to shorten the length of existing pedal or to

exchange the existing with one of different design [1].

2nd Recall, January 2010: The sensational recall of 2.3 million vehicles due to sticky pedal

lead Toyota up to US Congressional hearing. The DOL2 claimed that Toyota was safety deaf

hiding the proof of unintended acceleration from public [4]. Toyota suspended the sale of

eight models and shut down five North American assemblies. Toyota’s investigation was the

slower deceleration, not sudden acceleration and repeated use for stickiness [4].

3rd Recall, February, 2010: Due to break malfunctioning of flagship brand Prius, Toyota

recalled another 437,000 vehicles. Toyota suggested that Anti-lock Brake system took a few

extra milliseconds to react while driving on slippery road surface [1].

1 The National Highway Traffic Safety Administration

2 The Department of Labor1

NHTA and NASA Investigation, February 2011: A 10-month search reported that driver

error or pedal misapplications was found responsible for most of accidents and Toyota’s

problems were mechanical, not electrical [3].

2. The impacts to Toyota

Due to the massive recalls that Toyota faced since 2009, the company had to suffer from

negative experiences such as dropping the existing global ranking in automobile industry,

damage on company reputation and losing customers’ trustworthy. In 2009, Lexus ranked as

the third in quality rankings for used car owners, even though it was the first in 2000.

Moreover, Toyota became the sixth in ranking in 2009 among new car owners, by dropping

its rank as fourth in 2000. Recall of Prius hurt the good name of Toyota as company

positioned Prius as its “gold standard”.

Company experienced a dramatic loss in sales, and it further ensures as Toyota reported its

first loss in 59 years, by end March 2009. Competitors like Ford and GM grabbed the market

share of Toyota and they recorded sales rise over 2009 by 24% and 14% respectively. In

2010, market capitalization of the company was dropped by $21 billion and it influenced

negatively on stock price. Shareholders made pressure on Toyota to lay-off existing

employees, which was a really critical decision to the management due to the global

economic downturn at the same time. Furthermore, company was looking for more technical

staff in order to improve its product safety and quality. Not only from the shareholders,

Toyota was heavily pressured during this period by media, public and government bodies like

NHTSA.

As a result of losing market share and damage on company reputation, Toyota had to spend

billions in advertising though television, radio, newspapers, websites and social networking

sites. Company had to utilize all the possible ways in communication to approach its

customers to rebuild the loyal bond between Toyota and its customers. Toyota faced many

more quantitative and qualitative damages which influence in short term and long term

strategies of the company.

3. What went wrong2

Toyota motor itself is well known for its sterling quality and reliability. Toyota motor is the

first company, which put their customer first in its motto, then the dealers and then the

makers at the end. It is a pioneer on numerous quality improvement methodologies, providing

the operational basis for Japanese total quality control. The total quality control used by

Toyota motor is the building block for six-sigma methodology. Despite of all of these

benchmark set by Toyota, it faced the biggest recall in between 2009-2011. This went against

the main selling point of Toyota which prides itself for the quality and safety of the car they

produced.

3.1 Contributing factors for Toyota Recalls & Reasons for quality issues

The main contributing factors for this recalls are rapid growth and product complexity which

led to a decline in the safety standards and the overall quality of the cars manufactured by

Toyota. The decline in quality did not emerge overnight. It was result of series of decision

taken by top management which pushed the quality standards in a downward direction. The

aggressive policies and targets adopted by the senior executives forced the suppliers and the

engineers to achieve targets which compromised with the quality standards previously set by

Toyota.

In 1995 the new president Hiroshi Okuda set the growth strategy called “2005 vision”. In this

one decade he expanded the company globally with his aggressive effort. The market share of

Toyota’s increased from 7.3% in 1995 to 10% in 2005. To achieve the ambitions of

management for rapid growth, they had to reduce the cost and push profit growth. They

engaged with non-Japanese supplier, hired large number of new employees, and overlooked

the risk associated with this strategy. The traditional quality focus theory of Toyota became

biased in the favor of meeting sales target, cost reduction and profitability.

The other major factor behind the decline in quality was the product complexity. The

production of car was becoming more challenging because of growing technical complexity

and other various issues like government rules on safety feature, fuel consumption, increasing

demand of “green” vehicle and luxury feature. This makes for sophisticated product design

and manufacturing of car. In order to compete in the global market and achieve its growth

target they reduced the time of design and production to 12 months while competitors

averaged 24 and 26 months. In this race of competition Toyota forget its motto and lost its

standard practices.

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4. Is it all about the quality issues

Three misunderstandings by Jeffry Liker (2010) behind recall issues: (i) wrong

impression of unique problem to Toyota by the media (ii) cause of accidents traced to

electronic control system and (iii) Toyota’s production system: manufacturer not the complex

design. He also mentioned slow response to customer concern, less responsive public relation

and less subjective concern of the engineers are the main problems.

Slow to react: Japanese corporate managers have a tradition of respecting group decision

making, so their responses to problems are often slower than their US and European

counterparts. Toyota has a delicate and thorough engineering analysis of defect investigation

followed by the publicized result. Thus, much time is need for such review and analytic

process.

Lack of corporate governance: There is a view that blames a lack of corporate governance

at Toyota as a result of having returned management to its founder family (The Economist,

2010). It is learned that the founder family members of Toyota, unlike the non-founder family

executive, have always frowned on the pursuit of short-term profits and the decreased quality

that often results [1].

Sinking Japanese Economy: Toyota’s recall is a problem with its roots in Japan politics,

society and economy and that Toyota-Japan’s last fort, has now toppled (Stewart, 2010). Few

commentators found a direct link between trends of decline in Japan (extremely low and

declining birth rate, the low productivity of Japan’s agriculture, retailing business and

government, Japan’s inability to ‘get a grip’ in the competition against China) and the Toyota

recall problem [1].

US Political Issue: In 2010 the political charged atmosphere in the US caused the Toyota

crisis a big issue while years later, other auto maker-Ford’s problem is still under

investigation.

5. Recall Aftermath

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The Toyota recall problems led the company to such counter measures as strengthening

regional decision-making about recalls, reworking the product development process and

engineering training to focus more intensely on vehicle quality and safety from the

customer’s subjective viewpoint and getting data on customer concerns directly to the

engineer in charge [4]. Ironically, three years after the massive recalls of 2009, Toyota

dominated the JD Powers three-year dependability survey with Lexus number one and Scion

and Toyota in the top five [4].

A close look at the data led us to the conclusion that the recall crisis was more like mass

hysteria than a degradation of Toyota quality or safety.

References:

[1] Sakurai, M. (2011). Impact of Toyota Recall on Corporate Reputation. Minutes West

International University, 19(1), 73-89.

[2] Andrews, A. P., Simon, J., Tian, F., & Zhao, J. (2011). The Toyota crisis: an economic,

operational and strategic analysis of the massive recall. Management Research

Review, 34(10), 1064-1077.

[3] MacKenzie, A., & Evans, S. (2010). The Toyota Recall Crisis. Motor Trend.

[4] Liker, J. ( 2010). Three Misunderstanding on Toyota Problems. Nikkei Business.

[5] Cole, R. E. (2011). What really happened to Toyota. MIT Sloan Management

Review, 52(4), 29-35.

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