Toyota is not alone in the history of massive recalls as quality becomes increasingly beyond the control of any industry that is outsourcing more and more parts to third-party suppliers

There was much hope in Toyota Motor Corp. last year when Akio Toyoda took over as president. Many thought that turning over the reins to a fourth generation scion of the family that founded Japan’s pride would save the troubled firm. A year ago, Toyota’s woes were centred on its shrinking global sales due to the financial crisis. Who would have thought that a year later, it would face another problem but with even worse effects, and not due to outside factors but internal ones?

Japan’s leading automaker has recalled at least 9.1 million cars worldwide due to malfunctioning accelerator pedals and faulty floor mats involving eight models, including the Prius, Camry and Corolla. The foundations of the public’s trust in Toyota, a firm that takes great pride in the quality and safety of its vehicles, have been shaken.

Geopolitical dimensions

The automaker has been criticized for its slow response and at first, it seemed to be a normal recall of defective cars. But the crisis Toyota faces has surpassed the purely ‘business’ level to involve political and geopolitical dimensions.

Many observers suspect something other than safety concerns behind the harsh response of the United States to Toyota’s recall. To former Kia Motors chairman Kim Sun-hong, the US reaction to the Toyota problem is an act of "killing the chickens to scare the monkeys".

This Chinese proverb illustrates the cruel yet effective tactic of killing one to tame a hundred: As monkeys misbehave in the treetops, annoyed humans violently kill chickens in front of the monkeys. From fear, the monkeys get silent and tamed. Some even fall out of the trees

In an interview with the online newspaper Whoim (www.whoim.kr), Kim said no man-made technology can be perfect. Cars are not an exception, and hence the constant recalls of vehicles to rectify defects. In a sense, recalls in the car business are seen as an automaker’s show of confidence and trustworthiness.

Toyota has recalled its cars numerous times, so why is the US government taking issue with the Japanese automaker this time? The reason Kim suggested was that "Toyota has crossed the line that it should not have crossed". Toyota, he said, should not have driven the Big Three — General Motors, Ford and Chrysler — to the wall, and instead should have followed a strategy of coexistence.

"The message that Washington wants to send through the Toyota recall crisis is that other companies could also be put into such a quandary. The US government wants its trading partners to heed the warning," Kim said.

Many observers in Japan seem to echo Kim’s view. They suspect that domestic political dynamics of the US are at work in the Toyota bashing.

"For the Obama administration, which is worrying about its falling support rates, the best way of letting off steam about the jobless situation is to target Toyota, which has overtaken the Big Three," Kazutaka Oshima, president of Rakuten Investment Management, was quoted as saying in a February 9 Reuters story from Tokyo.

Tough talk by US transportation secretary Ray LaHood fueled speculation that the US government is using Toyota as a scapegoat. LaHood advised anyone who owns a faulty Toyota vehicle to "stop driving it and take it to the Toyota dealership because they believe they have the fix for it".

He said the National Highway Traffic Safety Administration (NHTSA) "will continue to hold Toyota’s feet to the fire to make sure they are going to do everything they said they were going to do to make the vehicles safe".

Kim said the US government will not let the Toyota crisis spiral out of control because Washington’s intention is not to kill off Toyota but to warn "strong monkeys" from other parts of the world.

To some observers, the Toyota bashing has deeper political and geopolitical implications. Some Japanese watchers worry that the Toyota incident could further strain Japan-US ties that are already frayed by the escalating dispute over a US airbase in Okinawa.

Cha Kil-jin, head of Hooam Future Institute, describes the Toyota bashing as Washington’s attempt to tame Japan under Prime Minister Yukio Hatoyama.

In the first place, Cha says the Toyota predicament is the result of "having eaten too much salt-marinated salmon roe". He was referring to the method used to hunt polar bears. As hunters are unable to beat a polar bear in strength, they feed the bears salt-drenched salmon eggs as bait until the bears become so bloated from drinking too much water that they cannot move. It is then that the hunter moves in.

What triggered the Toyota crisis was its rise to the No. 1 spot in the global auto industry by overtaking General Motors. "It hurt the United States’ pride," Cha said.

But the Toyota crisis involves more than the No. 1 spot in the global car industry. "It reflects Washington’s intention to tame the Hatoyama administration which seeks to change the power balance in East Asia," Cha says in a Whoim article.

Cracks began to appear in the staunch US-Japan alliance since the Democratic Party of Japan (DPJ) took power, ending the 54-year-long rule of the Liberal Democratic Party. Conflicts began to surface when the Hatoyama administration sought to nullify the 2006 agreement to relocate the Futenma air base on Okinawa island.

Throughout the post-war era, Japan had actively supported Washington’s global strategies. But friction was anticipated with the DPJ’s seizure of power because the party vowed to seek an independent voice. Following the DPJ’s takeover, calls have been raised for a reorganization of the US forces in Japan. Recently, secret agreements crafted in the 1960s to allow US nuclear weapons in Japanese territory were exposed.

These incidents were taken as signs of the Hatoyama administration’s intention to pursue a more independent diplomacy with the United States. According to Cha, Washington used the Toyota recall crisis to keep Japan in check.

"Toyota became too high spirited and careless after rising to the global No. 1 spot," he said. Cha said the Toyota fiasco offered Washington a chance to promote the revival of its staggering automakers and the national economy and push Japan back into line in relationship with the United States.

Asian rivals rise

In the meantime, while Toyota is singing the blues, South Korea’s Hyundai Motor is whistling a happy tune, after years of hard work and meticulous planning.

Thanks to its virtual monopoly in the domestic market and the successful launch of the latest model of its Genesis luxury sedan, Hyundai posted record profits for last year.

Favourable exchange rates and robust gains in market share in the US and China also contributed to its healthy bottom line. The numbers are spectacular:

Hyundai’s net profit last year more than doubled to 2.96 trillion won (US$2.56 billion) from 1.44 trillion won in 2008. South Korea’s top automaker sold a record 3.1 million vehicles, up 11.7 per cent from 2008. And it has raised the sales target for this year to 3.46 million vehicles globally.

With Toyota’s name and reputation suffering, many analysts expect Hyundai’s global brand recognition to grow.

Currently, Hyundai is ranked the world’s No. 4 automaker, along with Kia Motors, after Toyota, General Motors and Volkswagen.

But some analysts say that Toyota’s current crisis may not necessarily work in Hyundai’s favour in the long term.

"How issues of quality will affect the company largely depend on how honestly Toyota deals with them," said Shin Jeong Kwan, an analyst with KB Investment Securities.

Hyundai has had to overcome an image problem overseas—where its cars are seen as reliable but mass-produced. But it did not have that problem at home, where Hyundai is a household name.

Some analysts say that Hyundai also benefited from the global downturn.

"The government offered some tax benefits to spur the economy and people got more interested in small- to medium-sized cars as the economy went down," said Gong Jeong Ho, an automobile analyst at Prudential Securities. But he cautioned: "Once the government pulls back its stimulus package, there will be a drop in demand."

Hyundai is facing increasing competition in its own backyard as more foreign carmakers enter the market.

"Imports are posing a bigger threat than ever so we are taking the battle to the next level—we will not compete based on price but on the strength of our product design and technical merit," said Chaz Lee, managing director at Hyundai’s Overseas Marketing Group.

Overseas, Hyundai continues to offer innovative marketing schemes. The successful product differentiation by launching the Genesis luxury line in the US has, meanwhile, opened up new possibilities for the company.

The Genesis was voted the 2009 North American Car of the Year at the Detroit Auto Show.

"Hyundai was an upstart and that image lured the competition into a false sense of security. They got caught flat-footed when the Genesis came out," said an auto industry analyst, who spoke on condition of anonymity.

"The company also has a very top-down approach which makes it much easier to implement measures very quickly." he said. "So far, such management type has succeeded, but by the same token, it could easily go the other way if a wrong decision is made."

As Toyota’s problems grow, Hyundai officials are experiencing a sense of urgency regarding the challenges ahead.

"We basically think that what happened to Toyota can happen to us any time. So we are actually tightening our quality controls and being more careful than ever, although we think the recalls by Toyota can be an opportunity for us," said a Hyundai marketing official, who spoke on condition of anonymity.

Paying the price

In its headlong rush to become the world’s No. 1 carmaker, Toyota lost control of the very thing its reputation has been built on — quality.

The auto giant has been expanding sales of new cars rapidly since 2003, chiefly by slashing costs through the use of common parts in its line-up of models. In 2008, it over took General Motors to become the world’s leading car company after the American car industry was hit by the global financial crisis.

But the faulty accelerator pedal — found in US-made Toyotas — put a brake on its success. Ironically, the pedal is produced by an American parts maker and not by Toyota.

Koichi Shimokawa, a retired professor who writes about the car industry, pointed out that Toyota could not cope when its sales and production shot up.

"There were not enough people trained to take charge of quality control. Looks like Toyota caught the big corporation disease," he was recently quoted by the Mainichi Shimbun daily as saying.

M Urayama, a retired insurance executive in his late 60s, watched astounded when Toyota president Akio Toyoda announced the recall but without admitting to any defect.

"On an icy road, the failure to engage the brakes, even for a moment, can cause a car to spin," said Urayama, who drives an old Toyota Corolla and once lived in snowbound Hokkaido.

But company employee T Kikuchi, 38, thinks it is unfair that Toyota has been made the bad guy. "I think Toyota moved rather quickly to deal with the Prius issue. We should give it some praise."

General Motors has been quick to capitalise on its plight. Reports said GM dealers were giving owners of Toyota vehicles up to $1,000 discount, or free financing, to switch to a GM car or truck.

Interestingly, while the US media was baying for Toyota’s blood every day, it ignored a voluntary recall by Ford Motors to fix an almost identical brake problem in its hybrid models.

Ford chief executive Alan Mulally stressed that there was no safety issue, only that the brake was just "a little too sensitive".

Steering Toyota out of a crisis

From page 6

That Toyota, Japan’s leading company and the pride of the Japanese, should end up being the whipping boy for US economic ills and grilled by US lawmakers over the recalls has shocked business leaders in Japan. This is because Toyota not only is Japan’s top company in terms of sales, but it is also regarded as a leader in quality control and its executives are much sought after.

Masamitsu Sakurai, head of the Japan Association of Corporate Executives, said Japanese companies should learn from Toyota’s crisis and reflect on the way they run their own businesses. "All companies with global operations should be aware that Toyota’s problem can be a universal one," he said.

There are concerns that the bad press Toyota has been getting from the US media could rub off on other Japanese firms, including those outside the car industry.

Said the Mainichi: "There was a time when ‘Made in Japan’ was equivalent to ‘cheap and bad’. But, over the years, Japanese workers made high quality and safety the lifelines of Japanese products. We want to reaffirm this through Toyota’s recovery of customer trust."

Not the end of the road

It is all too easy to join in the hype and hysteria over Toyota’s safety recalls. But hype and hysteria tend to blur the line separating fact from fiction.

To understand the quality slip that Toyota is struggling with now — a crisis every automaker is all too familiar with — a bit of perspective goes a long way. Until the recent saga, Toyota had been a pretty solid brand as far as quality was concerned. The brand name has been synonymous with quality for as long as quality has been measured and compared.

In annual surveys conducted by JD Power, a leading industry quality research company, Toyota and sister brand Lexus have been ranked first more times than any other brand. It came to pass that whenever another brand pipped Toyota to the top, it made headlines — as Ford did in 2007.

"Toyota is a brand built on quality," said JD Power’s Singapore managing director Gerrit Kuyntjes, adding that it is this trait that has given Toyota "global dominance".

"Growth comes with challenges," Kuyntjes noted, admitting that Toyota’s phenomenal growth could have made quality control harder. But he is confident Toyota will rise and shine again.

"We believe Toyota has the strength and resources to overcome this," he said, referring to the company’s recent recalls. "In the long term, we don’t believe it is something it can’t get out of."

Long-time automotive analyst Graeme Maxton concurred: "I don’t think this will be a major issue. It is big and it is a surprise and it will be costly. But it won’t damage Toyota too much. They have such a lot of goodwill. But they better not let it happen again. That would be much more serious." Indeed, other big manufacturers have rebounded from product defects—even some very embarrassing ones.

Soon after it launched its TT sports car in 1999, Audi initiated a recall to improve its high-speed stability. That followed a couple of fatal crashes in Germany.

And at the debut of its A-Class in 1997, Mercedes-Benz lost face big time when the ‘baby Benz’ flipped over in a routine handling test.

For months, stories of other Merc flipover cases ran in newspapers the world over. The German company finally fixed the flaw by fitting the car with an electronic stability device.

Commenting on the scale of the bad publicity then, a senior Daimler executive sighed: "I think it’s precisely because we’re Mercedes-Benz that the news is so big."

Would the accelerator-related recalls be as sensational if they were initiated by a firm less successful than Toyota?

It turns out that complaints related to "sudden unintended acceleration"—a possible outcome of the accelerator faults—are not new.

The NHTSA has recorded about 24,000 such complaints involving almost every major manufacturer in the past 10 years. In that period, the agency has ordered more than 30 recalls for defects ranging from faulty throttle cables to cruise controls.

Kuyntjes noted that recalls are part and parcel of the car business. "Nobody’s perfect," he said.

On this count, Toyota is by no means alone in the history of massive recalls. According to the NHTSA and Reuters, Ford and GM have had some nasty recalls, including:

—2009: Ford sent a series of recalls going back 10 years and affecting 14 million vehicles to fix a faulty cruise control deactivation switch;

—2004: GM recalled nearly four million pick-up trucks because of corroding tailgate cables;

—2001: Bridgestone Firestone recalled 6.5 million tyres as part of an investigation into rollovers of Ford Explorer sports-utility vehicles; and

—1996: Ford recalled more than eight million vehicles to replace defective ignition switches that could lead to short circuits and fires.

Despite their chequered quality history, the two American firms have survived. It is thus ironical that Ford and GM are offering discounts targeted at unnerved Toyota owners in the US now.

Their moves prompted Volkswagen to take the moral high ground.

The German group—which aims to overtake Toyota in global sales by 2018—wrote to its dealers in the US asking them to refrain from "predatory practices". The letter, obtained by Bloomberg, said Volkswagen will remain an aggressive competitor without targeting a rival that is facing "unfortunate circumstances".

Recalls can weaken a car company considerably. In Toyota’s case, the two recalls are expected to cost $2 billion. Its share price is also taking a beating. Which is why manufacturers sometimes resist them.

In 2000, Mitsubishi Motors admitted it had been concealing a long list of complaints since 1977.

In 1993, GM successfully resisted a recall of nine million pick-up trucks to fix fuel tanks that could explode in crashes. Instead, it chose to settle suits arising from deaths and injuries caused by tank fires. By 2000, it had settled close to $500 million worth of such suits.

This is not an attempt to trivialize Toyota’s safety slip-up. Any defect that can cause injury and death—no matter how unlikely—must be viewed with utmost seriousness. It is merely a reminder that defects do happen. The two recalls were not Toyota’s first, and they are unlikely to be the last. The question is: Could it have reacted faster to address the flaws? Probably. Why didn’t it?

Perhaps the giant is not as nimble as it was when making merely five million cars. Clearly, Toyota must find a way to re-embrace kaizen (continuous improvement) if it is to establish itself once again as a hallmark of quality. But having said that, the company—as well as every other manufacturer—will find it an uphill task in ensuring high standards today, compared to 20 years ago.

Quality, alas, becomes increasingly beyond the control of any industry that is outsourcing more and more parts to third-party suppliers.