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Toyota’s Recall Crisis: What Have We Learned?

• Jeffrey Liker

In August, 2009, the improper installation of an all-weather floor mat from an SUV into a loaner Lexus sedan by a dealer led to the vehicle’s accelerator getting stuck, causing a tragic, fatal accident and launching the most challenging crisis in Toyota’s history. This iconic company, synonymous with safety and quality, was vilified by the […]

In August, 2009, the improper installation of an all-weather floor mat from an SUV into a loaner Lexus sedan by a dealer led to the vehicle’s accelerator getting stuck, causing a tragic, fatal accident and launching the most challenging crisis in Toyota’s history . This iconic company , synonymous with safety and quality, was vilified by the American press , the government, and expert witnesses to plaintiff lawyers. Details usually unworthy of public attention, such as internal memos disagreeing over public relations strategy, became smoking guns that convinced the press and the public that Toyota vehicles had electronic problems causing runaway vehicles — and that the company was hiding this from the public.

• Jeffrey K. Liker is a professor of industrial and operations engineering at the University of Michigan and is author, with Timothy N. Ogden, of Toyota Under Fire .

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Who Was Really at Fault for the Toyota Recalls?

Did overconfident executives, a zealous media or vindictive regulators turn a small safety problem into a massive scandal for the automaker?

On February 25, 2011, Toyota announced a recall of another 2.2 million vehicles for pedal entrapment, seemingly bringing us full circle from its earlier 3.8 million recall in October 2009 for related problems. Both were designed to address unintended acceleration. Since November 2009 through February 2011, Automotive News, the U.S. auto industry trade journal, estimates that some 20.5 million Toyota vehicles have been recalled worldwide, of which North America accounts for 14.5 million. These recalls involved huge financial and reputational costs.

Are Toyota's quality problems of their own making? Or is this largely a media created and driven phenomenon? Did government regulators succumb to public and political pressures?

Let's start with how events unfolded. First, there was the just mentioned 3.8 million vehicle recall for pedal entrapment from unsecured or stacked floor mats on Oct. 5, 2009. This was followed by a January 21, 2010 recall for 2.3 vehicles for the "sticky gas pedal" problem. Both recalls were seen by the public and media as addressing unintended acceleration. Soon after came an expanded recall of 1.1 million vehicles on January 27th for the pedal entrapment problem. All told, there were initially a little over 7 million vehicles recalled for these two problems. On February 8th, Toyota announced recalls of tens of thousands of 2010 Prius and Lexus hybrids to address braking problems, this one caused by a software error.

Much Ado About Nothing?

How serious were these problems? Operationally, we can say as of February 8, 2010, Toyota had a modest three problems in the U.S. Moreover, a recently released NASA study, commissioned by the National Highway Traffic Safety Administration (NHTSA), found no problem with Toyota's electronic throttle control system, which appears to leave "pedal misapplication" as the most identifiable source of unintended acceleration, though they could not estimate its frequency. It is also now clearer that reported cases of unintended acceleration are exceedingly rare events. On average, according to NASA, the reporting of these events is about 1/100,000 vehicles a year or 1 in 1.4 billion miles driven.

Thus, it's not surprising that some well-known observers have come to the conclusion that this is much ado about (almost) nothing. The distinguished journalist Ed Wallace writing in Business Week attributes the debacle entirely to a media too eager for the big story, journalists and network executives choosing sources motivated by financial gain, and a failure of the media and the public to understand the primary role of driver error. The Toyota specialist, Jeffrey Liker, faults a runaway media fueled by plaintiff lawyers, and government regulators succumbing to political pressure. He denies that Toyota had or has any unusual quality problems and sees Toyota's primary failing as one of "communication" during the unintended acceleration crisis.Limiting the focus to unintended acceleration, however, leads to biased results. As I shall show in the following discussion, one needs to draw on a much larger canvas.

Toyota recalls, including Prius and Lexus models, between February and August 2010, totaled 13, roughly one every other week for 28 weeks. Most importantly, these were for variety of different defects and for both old and new models. Moreover, just when things were settling down, in late January 2011, Toyota announced two global recalls covering 1.7 million vehicles in the U. S. and the aforementioned February recall of 2.2 million vehicles. This succession of recalls appears to have solidified in the public's mind that Toyota has real quality problems that go well beyond unintended acceleration.

What is the evidence that they do? From Consumer Reports survey of its subscribers, we can glean the following: the percentage of a brand's test vehicles recommended by Consumer Reports shows declines for Toyota models from 85%, recommended in 2008, to 73% in 2009, to 47% in 2010--the sharp drop in 2010 was strongly impacted by its recalls that year. The just released 2011 recommendations show a Toyota rebound to 74%. Nor has Toyota's Lexus luxury brand been immune.

Reflecting on these and other data, the head of automotive testing at Consumer Reports, David Champion, stated "the quality of Toyota vehicles has measurably declined in recent years." As early as 2007, he reports problems with transmissions, brakes, squeak and rattles, deterioration in fit and finish, and in the quality of some materials in various models. In 2008, in a telling decision, Consumer Reports decided to no longer give automatic "recommended" ratings on new Toyota models. These are pretty damning judgments coming from an organization which many industry personnel believe has had a "love affair" with Toyotas for some 30 years.

Thus, quite apart from negative customer perceptions stoked by the media, Toyota does have objective quality problems. President Akio Toyoda, himself, sees the turning point in 2003; after that time, sales growth accelerated. He acknowledges that a misguided strategic focus at the company warped the "order of Toyota's traditional priorities." By this, he meant that quality had lost its position as Toyota's number one priority. A president is unlikely to make such a statement if he or she considered the problem to be a minor one, simply inflated by the media. Nor does a company that does not believe it has a real quality problem, revamp at enormous cost, its development processes as Toyota is now doing. Their countermeasures include slowing down the development process by four weeks, creating a new quality group in Japan of some 1,000 engineers and greatly expanding rapid quality response teams around the globe.

Notwithstanding, all the evidence suggests that while Toyota's quality has declined, it has not collapsed. They still score in the top ranks of quality performers. Their recent stumbles, however, have coincided with key competitors, improving their quality performance. As a result, key competitors like Chevy, Ford and Hyundai have all but eliminated reliability differences.

Toyota: Losing Its Way

Toyota does bear deep responsibility for its current problems. This is especially the case because they had ample warnings of their emergent quality problems, not only from Consumer Reports data, but other sources as well. Since October 2009, there have been three recalls totaling 7.1 million vehicles for pedal entrapment due to floor mat and carpet cover and pad problems. Yet, Toyota had ample warning of these problems in 2007 when NHTSA ordered a recall for related problems.

In his congressional testimony in February 2010, Akio Toyoda acknowledged concerns had been raised much earlier within the company about the breakneck speed of its worldwide growth. In January 2008, Chris Tinto, a U.S. based Toyota Vice President in charge of Technical and Regulatory Affairs, in an internal Toyota presentation at Toyota's Japan headquarters, warned "some of the quality issues we are experiencing are showing up in defect investigations (rear gas struts, ball joints, etc."). Although we rigorously defend our products through good negotiation (with NHTSA) and analysis, we now have a less defensible product that's not typical of the Toyota I know." We now have a less defensible product -could the message be any clearer?

Still earlier, Jim Press, then President of Toyota North America, made a presentation at Toyota headquarters in which he stated that vehicle recalls had increased sharply between 2003 and 2005. He also stated that the number of NHTSA investigations of Toyota vehicles for safety defects had nearly doubled during that period. He further said "as more of our customers experience recalls, customer loyalty will suffer."

How did Toyota respond to these and other warnings? In facing big challenges, Japanese firms often magnify the crisis to create a sense of urgency for all employees to play a part in developing and executing strong countermeasures. Toyota has a long history of doing just that. Yet, there was no sign in Toyota of a large scale organizational response in the run-up to its problems in late 2009. After a large flurry of recalls in 2005, a high level "Customer First" task force, chaired by then president Katsuaki Watanabe was set up but it was quietly discontinued in early 2009. A Toyota manager explained its elimination by saying that we had come to believe that quality control had become part of the company's DNA and did not need a special committee to enforce it. Yet, superior management systems are not outcomes of embedded genetic material, but rather are a fragile set of management policies, norms, and work routines, created and sometimes sustained for long periods by a succession of individuals through strong incentives, established standards, flexibility, effective socialization of new employees, and a supportive organizational culture. Conversely, they are subject to "unremembering" through the force of a new leader's agenda, outside pressures, new opportunities, internal contradictions and inadequate socialization. Some combination of these factors is what happened at Toyota.

In 1998, Toyota's leaders set as their target 15% of the global market and a strong push toward that objective led them to downplay the risks of rapid growth, further increased by growing automotive complexity. In a pattern not uncommon in large organizations, politically powerful executives overrode early warnings of lower ranking executives. The point of having early warnings is to act on them. A basic principle of risk management is to identify risks early and eliminate them while they still are minor problems. Toyota gets a D for its failure to act on this principle.

The Frenzied Media

If Toyota indeed bears a heavy responsibility for its current predicament, does that mean the media get a pass? Surely not! From the last week of January 2010 through February 2010, as Toyota recalls mounted and as Congress held hearings, Toyota recall coverage ranked, in all but one week, among the top ten news stories across all media. This was an extraordinary amount of news coverage.

The media attention grew out of the legitimate contrast between Toyota's extraordinary quality reputation, the perceived threat to public safety, and the explosive growth in the number of cars being recalled. Roone Arledge, the legendary chief of ABC News, not long after taking over this post in 1977, remarked in his memoir, "I was itching for the world to have a crisis" so ABC could show what it could do. His hopes for a crisis, captures the appeal to the media of dramatic negative events. Toyota had its crisis and the media had its target. Those on top of the status and power hierarchy, who have failed to live up to their public reputations, offer an especially inviting target. This is the case, whether it is powerful business firms found to be corrupt (Enron), sports icons found to be behaving badly (Tiger Woods), or mighty automakers which built their reputation on quality, and then fail to live up to it (Toyota). These are, by nature, eminently newsworthy. Unintended acceleration appeared to threaten the safety of millions of individuals in every part of the country and there was initially no satisfactory explanation for its causes or fixes. The Toyota recalls constituted a truly national public safety story that had all the ingredients of a media sensation.

It was a feeding frenzy that fueled massive public concern. And yes many of these reports were inflammatory, often leading with accident victims stories: "If it bleeds, it leads." And yes, the media reports ignored the low probability of unintended acceleration. Generally, the media are terrible at handling probability. Negative events drive the news, not careful analyses of their likelihood.

The fiery high speed crash in Santee, California by a state trooper, Mark Saylor and family in August 2009, fueled public concern. Saylor's brother-in-law made a phone call: "We are in a Lexus... and our accelerator is stuck.... We're in trouble-we can't-there's no brakes... Hold on guys, pray pray, oh shoot oh! Oh!" A You Tube video, with the text of the conversation overlaid on a picture of the crash site, received more than 250,000 views. The death of the Saylor family became the human face of the Toyota recalls. The real time phone conversation had incredible power to move and frighten drivers. What could be scarier than losing control of your car at high speed? While stacked floor mats were thought to be the cause of the accident at the time, there was a lot of uncertainty. We now know that a dealer installed the wrong all weather floor mats in his loaner Lexus and failed to secure them properly, thereby creating the conditions for the crash.

To add to Toyota's woes, the cumulative Toyota recalls have got far more publicity than those of other automakers. In late October 2010, Toyota issued a voluntary recall on an additional 1.5 million cars globally to replace a brake master cylinder seal. This recall was followed a few days later by an even larger 2 million car recall by Nissan for ignition problems. Consider how these recalls were reported on msnbc.com. The Toyota article was 966 words and the Nissan article was 229. The Toyota article was entitled "Dark Clouds Gather Over Toyota After New Safety Setback." It contained many negative references to previous recalls such as "lurching from recall to recall" and "another black eye." The Nissan article, entitled, "Nissan Recalls 2 Million Cars Worldwide," provided a simple factual description of their recall. It even concluded with the observation that many automakers are experiencing large recalls because of the growing use of common components across multiple models, as if to suggest there was nothing unusual about Nissan's recall. The contrast in the respective treatments is striking. The relentless linking of each Toyota recall to previous ones could only have further increased the public's doubts about Toyota's quality.

There is no doubt that the media, especially with its focus on electronic problems as a possible cause of unintended acceleration, fueled public concerns about Toyota's quality problems and helped confirm in the minds of many, that Toyota has serious quality problems, With quality, consumer perception is all that matters and it means that Toyota has a huge challenge going forward.

Did Washington Punish Toyota to Help U.S. Automakers?

Finally, what about the charge that overzealous regulators lie behind Toyota's problems? This is the tack taken by some who charge that NHTSA succumbed to domestic political pressures to be tough on Toyota. Others, like many in the Japanese media, lean towards conspiracy theory with the claim that the purpose of the recalls was to help "Government Motors," at the expense of Toyota. Even the venerable Asahi News , in a recent editorial, hints at this explanation. These critiques gained further currency with the publication of the January 2011 findings of NASA that they found no evidence that Toyota's electronic throttle control systems were at fault for unintended acceleration. Moreover, NHTSA confirmed only two deadly crashes, the Saylor crash and one more, as a result of pedal entrapment and none for the sticky gas pedal problem. This being the case, the critics argue, there was no justification for the recalls.

Hindsight, indeed, provides incredible clarity of thought. In the period from October 2009 through February 2010, there was utter confusion. Jeremy Awl, Chief Executive of Edmonds.com wrote in the Washington Post on March 16, 2010: "While we have heard much recently about smart pedals, floor mats and sticky throttles, it has not been made clear what is behind the incidents of sudden acceleration." James Lenz III, President of Toyota Motor Sales, U.S.A., testified in congressional hearings in late February, that its engineers had not found its electronic systems to be a factor in unintended acceleration and Toyota's were safe to drive. At the same time, he stated that Toyota's recall might "not totally" solve the problem of sudden unintended acceleration in some of its vehicles. This hardly inspired confidence. Toyota first claimed that pedal entrapment was the cause of unintended acceleration, then, more than three months later, added sticky gas pedals which "in rare instances mechanically stick in a partially depressed position or return slowly to the idle position." Its evolving position further led the public to doubt their judgment. Clearly, they were still in a problem solving phase and couldn't entirely clarify matters. During the period from October 2009 through March 2010, many Toyota owners were at a loss of what to do or think.

The Saylor crash convinced NHTSA that pedal entrapment needed better remedies and this led to the first Oct. 5th recall for pedal entrapment. NHTSA seemed convinced that pedal entrapment was the primary cause and this explanation initially received play in San Diego newspapers. The Los Angeles Times , however, criticized NHTSA for not pursuing alleged electronic causes of the problem. The Times discussed the details supporting pedal entrapment as the cause on Oct. 25, 2009 but stated that NHTSA "draws no conclusions about the causes of the Aug 28 accident." This interpretation left it wide open for them and others to speculate on additional causes . Lawyers for plaintiffs charging faults in Toyota electronic controls fueled the speculation. Most of the national press ignored or treated lightly the pedal entrapment explanation of the Saylor accident, so fixed were they on the possible electronic causes. Widespread diffusion of the NHTSA reason for the October recalls might have quieted a great deal of the public hysteria. Ray Lahood, the secretary of transportation, added to public concerns with his statement on February 3, 2010 that Toyota owners should stop driving their cars and take them into dealerships. Despite his almost immediate clarification, damage was done. There is no evidence that this statement, however, was anything more than an ill-advised offhand remark. For those critics who see it as a smoking gun proving government conspiracy , their standard of evidence is low indeed.

All this was occurring at a time when every day seemed to bring another report of a driver with a terrifying runaway experience. This publicity spurred a flood of further complaints of unintended acceleration. NHTSA received some 9,700 customer complaints regarding unintended acceleration for vehicle model years: 2000 to 2010. Toyota accounted for some 3,100 of them well above what would be expected by their market share. Of the Toyota total, 2,200 (71%) came after the first recall for pedal entrapment in Oct. 2009. According to NHTSA, after the initial Oct. 2009 recall, the publicity that ensued "was the major contributor to the timing and volume of complaints." In late 2009 and early 2010, this spike in customer complaints obscured for the public what was only later to be fully realized, that unintended acceleration was a low-probability event. But at the time, it is easy to see how NHTSA officials concluded that waiting for more data would be an irresponsible decision, possibly endangering more lives. The number of deaths caused by a safety problem is only one of the criteria NHTSA uses for pursuing a recall. In the end, given the confusion and uncertainty that prevailed, the recalls can be seen as a prudent decision. It wasn't until the publication of the NASA report in early 2011 that the mystery was considered solved.

What's being learned from this experience? Toyota is finding that the costs of losing their focus on quality are very high indeed and to their credit, they are implementing serious countermeasures. It is not clear the media have learned anything. Leading with unsubstantiated victim stories, and ignoring that driver error was a known important factor in unintended acceleration, was simply irresponsible. Where was the due diligence of TV reporters and print journalists? Even NHTSA retreated to the euphemism, "pedal misapplication." The media should have been capable of treating this issue more intelligently. No doubt, the 24-hour news cycle, the rush to release tidbits of information and the pressure to make judgments based on those tidbits, facilitated sloppy reporting. Perhaps this is an example of what James Fallows referred to in the April issue of The Atlantic , as giving the public what they want and not what they need. A caveat not mentioned by Toyota defenders is that driver error can be enhanced by poor design. As with many consumer products, it is increasingly expected of manufacturers that they design their products to minimize the probability of failure when consumers use those products in ways not intended by manufacturers. This is the new reality for all automakers, not just Toyota.

It is harder to fault NHTSA given all the uncertainty at the time. Yet, they have had years to study unintended acceleration; they should have learned something more useful in handling the recent events. They certainly should have had the courage to publicize the issue of driver error as a possible explanation much earlier than they did. They need a better understanding of how to release higher quality information in a way that insures public dissemination and inhibits public hysteria. If they could recall 3.8 million vehicles for pedal entrapment caused by improperly installed or stacked floor mats, based heavily on the Saylor crash, they should have been able to get this message through to the public, despite the media's party line on probable electronic causes. NHTSA officials did testify to Congress to this effect but they could have done much more to reach out to the public. On the policy level, some version of the airplane black box (Event Data Recorder) needs to be available to NHTSA officials on a consistent basis. This would allow comparisons across automakers and the matching of crashes on a database to identify common causes. A recorder which documented events at least 10 seconds prior to the crash would enable safety experts to move from a passive safety approach based on crash data to an active safety approach focused on prevention. There are all sorts of political obstacles to achieving this objective but it is a worthy one.

Finally, why is it so hard to get across the message to the public that people freeze up in crisis situations and can't remember what they did at such times? What can be done to better educate the public on this reality? There is a study worth doing.

1 Ed. Wallace, " Toyota, The Media Owe You an Apology ."

2 Jeffrey Liker, Toyota Under Fire: Lessons for Turning Crisis into Opportunity, McGraw-Hill, 2011; " Toyota's Recall Crisis: What Have We Learned ," Harvard Business Review.

Resilience Tested: Toyota Crisis Management Case Study

Crisis management is organization’s ability to navigate through challenging times. 

The renowned Japanese automaker Toyota faced such challenge which shook the automotive industry and put a dent in the previously pristine reputation of the brand.

The Toyota crisis, characterized by sudden acceleration issues in some of its vehicles, serves as a compelling case study for examining the importance of effective crisis management. 

Toyota crisis management case study gives background of the crisis, analyze Toyota’s initial response, explore their crisis management strategy, evaluate its effectiveness, and draw valuable lessons from this pivotal event. 

By understanding how Toyota tackled this crisis, we can glean insights that will help organizations better prepare for and respond to similar challenges in the future.

Let’s start reading

Brief history of Toyota as a company

Toyota, one of the world’s largest automobile manufacturers, has a rich history that spans over eight decades. The company was founded by Kiichiro Toyoda in 1937 as a spinoff of his father’s textile machinery business. 

Initially, Toyota focused on producing automatic looms, but Kiichiro had a vision to expand into the automotive industry. Inspired by a trip to the United States and Europe, he saw the potential for automobiles to transform society and decided to steer the company in that direction.

In 1936, Toyota built its first prototype car, the A1, and in 1937, they officially established the Toyota Motor Corporation. The company faced numerous challenges in its early years, including the disruption caused by World War II, which halted production.

However, Toyota persisted and resumed operations after the war, embarking on a journey that would eventually lead to global recognition.

Toyota’s breakthrough came in the 1960s with the introduction of the compact and affordable Toyota Corolla, which quickly gained popularity worldwide. This success laid the foundation for Toyota’s reputation for producing reliable, fuel-efficient, and high-quality vehicles.

Throughout the following decades, Toyota expanded its product lineup, launching models like the Camry, Prius (the world’s first mass-produced hybrid car), and the Land Cruiser, among others.

Toyota’s commitment to continuous improvement and efficiency led to the development and implementation of the Toyota Production System (TPS), often referred to as “lean manufacturing.” TPS revolutionized the automotive industry by minimizing waste, improving productivity, and enhancing quality.

Over the years, Toyota successfully implemented many change initiatives.

By the turn of the 21st century, Toyota had firmly established itself as a global automotive powerhouse, consistently ranking among the top automakers in terms of sales volume.

However, the company would soon face a significant challenge in the form of the sudden acceleration crisis, which tested Toyota’s crisis management capabilities and had far-reaching implications for the brand.

Description of the sudden acceleration crisis

The sudden acceleration crisis was a pivotal event in Toyota’s history, which unfolded in the late 2000s and early 2010s. It involved a series of incidents where Toyota vehicles experienced unintended acceleration, leading to accidents, injuries, and even fatalities. Reports emerged of vehicles accelerating uncontrollably, despite drivers attempting to apply the brakes or shift into neutral.

The crisis gained significant media attention and scrutiny , as it posed serious safety concerns for Toyota customers and raised questions about the company’s manufacturing processes and quality control. The issue affected a wide range of Toyota models, including popular ones such as the Camry, Corolla, and Prius.

Investigations revealed that the unintended acceleration was attributed to various factors. One prominent cause was a design flaw in the accelerator pedal assembly, where the pedals could become trapped or stuck in a partially depressed position. Additionally, electronic throttle control systems were also identified as potential contributors to the issue.

The sudden acceleration crisis had severe consequences for Toyota. It tarnished the company’s reputation for reliability and safety, and public trust in the brand was significantly eroded. Toyota faced a wave of lawsuits, regulatory investigations, and recalls, as it scrambled to address the issue and restore consumer confidence.

The crisis prompted Toyota to launch one of the largest recalls in automotive history, affecting millions of vehicles worldwide. The company took steps to redesign and replace the faulty accelerator pedals and improve the electronic throttle control systems to prevent future incidents. Toyota also faced criticism for its initial response, with accusations of a lack of transparency and timely communication with the public.

The sudden acceleration crisis served as a wake-up call for Toyota, highlighting the importance of effective crisis management and the need for proactive measures to address safety concerns promptly.

Toyota crisis management case study helps us to understand how company’s respond to this crisis and set a precedent for handling future challenges in the years to come.

Timeline of events leading up to the crisis

To understand the timeline of events leading up to the sudden acceleration crisis at Toyota, let’s explore the key milestones:

• Early 2000s: Reports of unintended acceleration incidents begin to surface, with some drivers claiming their Toyota vehicles experienced sudden and uncontrolled acceleration. These incidents, although relatively isolated, raised concerns among consumers.
• August 2009: A tragic incident occurs in California when a Lexus ES 350, a Toyota brand, accelerates uncontrollably, resulting in a high-speed crash that claims the lives of four people. The incident receives significant media attention, highlighting the potential dangers of unintended acceleration.
• September 2009: The National Highway Traffic Safety Administration (NHTSA) launches an investigation into the sudden acceleration issue in Toyota vehicles. The probe focuses on floor mat entrapment as a possible cause.
• November 2009: Toyota announces a voluntary recall of approximately 4.2 million vehicles due to the risk of floor mat entrapment causing unintended acceleration. The recall affects several popular models, including the Camry and Prius.
• January 2010: Toyota expands the recall to an additional 2.3 million vehicles, citing concerns over sticking accelerator pedals. This brings the total number of recalled vehicles to nearly 6 million.
• February 2010: In a highly publicized event, Toyota halts sales of eight of its models affected by the accelerator pedal recall, causing a significant disruption to its production and sales.
• February 2010: The U.S. government launches a formal investigation into the safety issues related to unintended acceleration in Toyota vehicles. Congressional hearings are held, during which Toyota executives are questioned about the company’s handling of the crisis.
• April 2010: Toyota faces a $16.4 million fine from the NHTSA for failing to promptly notify the agency about the accelerator pedal defect, violating federal safety regulations.
• Late 2010 and 2011: Toyota faces a wave of lawsuits from affected customers seeking compensation for injuries, deaths, and vehicle damages caused by unintended acceleration incidents.
• 2012 onwards: Toyota continues to address the sudden acceleration crisis by implementing various measures, including improving quality control processes, enhancing communication with regulators and customers, and establishing an independent quality advisory panel. 

Toyota’s initial denial and dismissal of the problem

During the early stages of the sudden acceleration crisis, one notable aspect was Toyota’s initial response, which involved a degree of denial and dismissal of the problem. This response contributed to the escalation of the crisis and further eroded public trust in the company. Let’s delve into Toyota’s initial reaction to the issue:

• Downplaying the Problem: In the initial stages, Toyota downplayed the reports of unintended acceleration incidents, attributing them to driver error or mechanical issues. The company maintained that their vehicles were safe and reliable, asserting that the incidents were isolated and not indicative of a systemic problem.
• Lack of Transparency: Toyota faced criticism for its perceived lack of transparency regarding the issue. The company was accused of withholding information and failing to disclose potential safety risks to the public and regulatory agencies promptly. This lack of transparency fueled suspicions and raised questions about the company’s commitment to addressing the problem.
• Slow Response: Toyota’s response to the growing concerns regarding unintended acceleration was relatively slow, leading to accusations of negligence. Critics argued that the company should have acted more swiftly and decisively to investigate and address the issue before it escalated into a full-blown crisis.
• Reluctance to Acknowledge Defects: Initially, Toyota resisted the notion that there were inherent defects in their vehicles that could lead to unintended acceleration. The company’s reluctance to accept responsibility and acknowledge the problem further strained its relationship with consumers, regulators, and the media.
• Impact on Customer Trust: Toyota’s initial denial and dismissal of the problem had a significant impact on customer trust. As more incidents were reported and investigations progressed, customers began to question the integrity of the brand and its commitment to safety. This led to a decline in sales and a tarnishing of Toyota’s once-sterling reputation for reliability.

Lack of transparency and communication with the public

One critical aspect of Toyota’s initial response to the sudden acceleration crisis was the perceived lack of transparency and ineffective communication with the public. This deficiency in open and timely communication further intensified the crisis and eroded trust in the company. Let’s explore the key issues related to transparency and communication:

• Delayed Public Announcement: Toyota faced criticism for the delay in publicly acknowledging the safety concerns surrounding unintended acceleration. As reports of incidents surfaced and investigations commenced, there was a perception that Toyota withheld information and failed to promptly address the issue. This lack of transparency fueled public skepticism and eroded confidence in the company.
• Insufficient Explanation: When Toyota did address the sudden acceleration issue, their explanations and communications were often vague and lacking in detail. Customers and the public were left with unanswered questions and a sense that the company was not providing comprehensive information about the problem and its resolution.
• Ineffective Recall Communication: Toyota’s communication regarding the recalls linked to unintended acceleration was criticized for its inadequacy. Some customers reported confusion and frustration with the recall process, including unclear instructions and delays in obtaining necessary repairs. This lack of clarity and efficiency in communicating recall information further strained the company’s relationship with its customers.
• Limited Engagement with Stakeholders: Toyota’s engagement with key stakeholders, such as regulatory bodies, industry experts, and affected customers, was perceived as insufficient. The company’s communication efforts were criticized for being reactive rather than proactive, lacking a comprehensive plan to engage stakeholders and address their concerns promptly.
• Perception of Cover-up: The lack of transparency and ineffective communication led to a perception that Toyota was attempting to cover up the severity of the sudden acceleration issue. This perception further damaged the company’s credibility and fueled public skepticism about the company’s commitment to consumer safety.

Impact on the company’s reputation and customer trust

The sudden acceleration crisis had a profound impact on Toyota’s reputation and customer trust, which were previously regarded as key strengths of the company. Let’s explore the repercussions of the crisis on these crucial aspects:

• Reputation Damage: Toyota’s reputation as a manufacturer of reliable and safe vehicles took a significant hit due to the sudden acceleration crisis. The widespread media coverage of incidents and recalls associated with unintended acceleration eroded the perception of Toyota’s quality and reliability. The crisis challenged the long-standing perception of Toyota as a leader in automotive excellence.
• Loss of Customer Trust: The crisis shattered the trust that customers had placed in Toyota. The incidents of unintended acceleration and the subsequent recalls created doubts about the safety of Toyota vehicles. Customers who had been loyal to the brand for years felt betrayed and concerned about the potential risks associated with owning or purchasing a Toyota vehicle.
• Sales Decline: The erosion of customer trust and the negative publicity surrounding the sudden acceleration crisis resulted in a significant decline in sales for Toyota. Consumers were hesitant to buy Toyota vehicles, leading to a loss of market share. Competitors seized the opportunity to capitalize on Toyota’s weakened position and gain a foothold in the market.
• Legal Consequences: Toyota faced a wave of lawsuits from individuals and families affected by incidents related to unintended acceleration. These lawsuits not only had financial implications but also further damaged the company’s reputation as it faced allegations of negligence and failure to ensure the safety of its vehicles.
• Regulatory Scrutiny: The sudden acceleration crisis brought increased regulatory scrutiny upon Toyota. Government agencies, such as the National Highway Traffic Safety Administration (NHTSA), conducted investigations into the issue, which further dented the company’s reputation. Toyota had to cooperate with regulatory bodies and demonstrate its commitment to rectifying the problems to restore trust.
• Long-Term Brand Perception: The sudden acceleration crisis left a lasting impression on how Toyota is perceived by consumers. Despite the company’s efforts to address the issue and improve safety measures, the crisis served as a reminder that even renowned brands can face significant challenges. It highlighted the importance of transparency, accountability, and a proactive approach to crisis management.

Recognition and acceptance of the crisis

In the face of mounting evidence and public scrutiny, Toyota eventually recognized and accepted the severity of the sudden acceleration crisis. The company’s acknowledgment of the crisis marked a significant turning point in their approach to addressing the issue. Let’s explore how Toyota recognized and accepted the crisis:

• Admitting the Problem: As the number of reported incidents increased and investigations progressed, Toyota eventually acknowledged that there was a problem with unintended acceleration in some of their vehicles. This admission was a crucial step towards recognizing the crisis and accepting the need for immediate action.
• Apology and Responsibility: Toyota’s top executives, including the company’s President at the time, issued public apologies for the safety issues and the negative impact on customers. The company took responsibility for the unintended acceleration problem, acknowledging that there were defects in their vehicles and accepting accountability for the consequences.
• Collaboration with Authorities: Toyota actively collaborated with regulatory bodies, such as the NHTSA, and other government agencies involved in investigating the sudden acceleration issue. This collaboration demonstrated a commitment to resolving the crisis and addressing the concerns of the authorities.
• Openness to Independent Investigation: In an effort to ensure transparency and unbiased assessment of the crisis, Toyota welcomed independent investigations into the unintended acceleration incidents. The company engaged external experts and formed advisory panels to evaluate their manufacturing processes, safety systems, and quality control measures.
• Recall and Repair Initiatives: Toyota initiated a massive recall campaign to address the safety issues associated with unintended acceleration. The company implemented comprehensive repair programs aimed at fixing the defects and improving the safety features in affected vehicles. These initiatives were crucial in demonstrating Toyota’s commitment to rectifying the problems and ensuring customer safety.
• Internal Process Evaluation : Toyota conducted internal evaluations and reviews of their manufacturing processes and quality control systems. They identified areas for improvement and implemented changes to prevent similar issues from arising in the future. This internal introspection showed a dedication to learning from the crisis and strengthening their processes.

Appointment of crisis management team

In response to the sudden acceleration crisis, Toyota recognized the need for a dedicated crisis management team to effectively handle the situation. The appointment of such a team was crucial in coordinating the company’s response, managing communications, and implementing appropriate strategies to address the crisis.

Toyota appointed experienced and senior executives to lead the crisis management team. These individuals had a deep understanding of the company’s operations, values, and stakeholder relationships. They were entrusted with making critical decisions and guiding the organization through the crisis.

The crisis management team comprised representatives from various functions and departments within Toyota, ensuring a comprehensive approach to addressing the crisis. Members included executives from engineering, manufacturing, quality control, legal, public relations, and other relevant areas. This cross-functional representation facilitated a holistic understanding of the issues and enabled effective collaboration.

Implementation of recall and repair programs

In response to the sudden acceleration crisis, Toyota implemented extensive recall and repair programs to address the safety concerns associated with unintended acceleration. These programs aimed to rectify the defects, enhance the safety features, and restore customer confidence.

Toyota identified the models and production years that were potentially affected by unintended acceleration issues. This involved a thorough examination of reported incidents, investigations, and collaboration with regulatory agencies. By pinpointing the specific vehicles at risk, Toyota could direct their efforts towards addressing the problem efficiently.

Toyota launched a comprehensive communication campaign to reach out to affected customers. The company sent notifications via mail, email, and other channels to inform them about the recall and repair programs. The communication highlighted the potential risks, steps to take, and the importance of addressing the issue promptly.

Toyota actively engaged its dealership network to support the recall and repair initiatives. Dealerships were provided with detailed information, training, and necessary resources to assist customers in scheduling appointments, conducting inspections, and performing the required repairs. This collaboration between the company and its dealerships aimed to ensure a seamless and efficient recall process.

Toyota developed a structured repair process to address the unintended acceleration issue in the affected vehicles. This involved inspecting and, if necessary, replacing or modifying components such as the accelerator pedals, floor mats, or electronic control systems. The company ensured an adequate supply of replacement parts to minimize delays and facilitate timely repairs.

Collaboration with regulatory bodies and industry experts

During the sudden acceleration crisis, Toyota recognized the importance of collaborating with regulatory bodies and industry experts to address the safety concerns and restore confidence in their vehicles. This collaboration involved working closely with relevant agencies and seeking external expertise to investigate the issue and implement necessary improvements.

Let’s delve into Toyota’s collaboration with regulatory bodies and industry experts:

• Regulatory Engagement: Toyota actively engaged with regulatory bodies, such as the National Highway Traffic Safety Administration (NHTSA) in the United States and other similar agencies globally. The company cooperated with these organizations by providing them with relevant data, participating in investigations, and adhering to their guidelines and recommendations. This collaboration aimed to ensure a thorough and unbiased assessment of the sudden acceleration issue.
• Joint Investigations: Toyota collaborated with regulatory bodies in conducting joint investigations into the unintended acceleration incidents. These investigations involved sharing data, conducting extensive testing, and evaluating potential causes and contributing factors. By working together with the regulatory authorities, Toyota aimed to gain a comprehensive understanding of the problem and find effective solutions.
• Advisory Panels and External Experts: Toyota sought the expertise of external industry experts and formed advisory panels to provide independent assessments of the sudden acceleration issue. These panels consisted of experienced engineers, scientists, and safety specialists who analyzed the data, evaluated the vehicle systems, and offered recommendations for improvement. Their insights and recommendations helped guide Toyota’s response and ensure a thorough and impartial evaluation.
• Safety Standards Compliance: Toyota collaborated with regulatory bodies to ensure compliance with safety standards and regulations. The company actively participated in discussions and consultations to contribute to the development of robust safety standards for the automotive industry. By actively engaging with regulatory bodies, Toyota aimed to demonstrate its commitment to maintaining high safety standards and fostering an environment of continuous improvement.
• Sharing Best Practices: Toyota collaborated with industry peers and participated in industry forums and conferences to share best practices and learn from others’ experiences. By engaging with other automotive manufacturers, Toyota aimed to gain insights into safety practices, quality control measures, and crisis management strategies. This exchange of knowledge and collaboration helped Toyota strengthen their approach to safety and crisis management.

Final Words 

Toyota crisis management case study serves as a valuable reminder to all automobiles companies on managing crisis. The sudden acceleration crisis presented a significant challenge for Toyota, testing the company’s crisis management capabilities and resilience. While Toyota demonstrated strengths in their crisis management strategy, such as a swift response, transparent communication, and a customer-focused approach, they also faced weaknesses and shortcomings. Initial denial, lack of transparency, and communication issues hampered their crisis response.

The crisis had profound financial consequences for Toyota, including costs associated with recalls, repairs, legal settlements, fines, and a decline in market value. Legal settlements were reached to address claims from affected customers, shareholders, and other stakeholders seeking compensation for damages and losses. The crisis also resulted in reputation damage that required significant efforts to rebuild trust and restore the company’s standing.

About The Author

Tahir Abbas

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Unintended Acceleration: Toyota's Recall Crisis

By: David Austen-Smith, Daniel Diermeier, Eitan Zemel

In late 2009 Toyota became the subject of media and U.S. government scrutiny after multiple deaths and injuries were attributed to accidents resulting from the unintended and uncontrolled…

• Length: 16 page(s)
• Publication Date: Jan 1, 2012
• Discipline: Organizational Behavior
• Product #: KEL598-PDF-ENG

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In late 2009 Toyota became the subject of media and U.S. government scrutiny after multiple deaths and injuries were attributed to accidents resulting from the unintended and uncontrolled acceleration of its cars. Despite Toyota's voluntary recall of 4.2 million vehicles for floor mats that could jam the accelerator pedal and a later recall to increase the space between the gas pedal and the floor, the company insisted there was no underlying defect and defended itself against media reports and regulatory statements that said otherwise. As the crisis escalated, Toyota was further criticized for its unwillingness to share information from its data recorders about possible problems with electronic throttle controls and sticky accelerator pedals, as well as about braking problems with the Prius. By the time Toyota Motor Company president Akio Toyoda apologized in his testimony to the U.S. Congress, Toyota's stock price had declined, in just over a month, by 20 percent-a $35 billion loss of market value.

Learning Objectives

Understand the strategic and reputational nature of crises Recognize the challenges of managing a crisis Learn the requirements for building trust in a crisis Understand the challenges of managing a crisis that may not be the company's fault Identify the strategic business problem in a crisis Understand how corporate structure may help or hinder effective crisis management Understand the media landscape and its impact on crisis management

Jan 1, 2012

Discipline:

Organizational Behavior

Geographies:

United States

Industries:

Automotive industry

Kellogg School of Management

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• 18 September 2023

Case Study of The Infamous Toyota Recall Crisis of 2010

I’m Nabeel — a seasoned Chartered Accountant with a remarkable 17-year journey through the worlds of investment banking, management consulting, and entrepreneurship . In this case study, we will delve into the infamous Toyota Recall Crisis of 2010, examining its historical context, the root causes of the crisis, its financial impact , and the strategic solutions that helped Toyota regain its standing in the automotive industry.  

History of Toyota: Pioneering Excellence in Automobiles  

In the early 20th century, Japan was on the cusp of an industrial revolution, and a visionary named Kiichiro Toyoda played a pivotal role in shaping its future. In 1937, Kiichiro Toyoda founded Toyota Motor Corporation, following in the footsteps of his father, Sakichi Toyoda, a renowned inventor. Toyota’s journey began with the intent to create automobiles that would revolutionize the industry, not only in Japan but worldwide. This marked the inception of a legacy known for innovation, quality, and reliability.  

Kiichiro Toyoda: A Visionary Leader

Kiichiro Toyoda, the son of Sakichi Toyoda, was born on June 11, 1894, in Japan. He inherited his father’s passion for innovation and manufacturing. Under Kiichiro’s leadership, Toyota began producing its first passenger car, the Model AA, in 1936.

His commitment to quality and efficiency laid the foundation for Toyota’s renowned Production System (TPS), a model of manufacturing excellence that continues to influence industries globally.

Recalls by Major Automakers  

The crisis of 2009 to 2011 toyota vehicle recalls  .

As we dive into the heart of the matter, it becomes clear that Toyota’s recall crisis from 2009 to 2011 was a turning point in the company’s history.  

• The scope of the crisis was immense, affecting more than 8.5 million vehicles globally.  
• The total number of recalls surpassed 10 million units , spanning various Toyota models.  
• This crisis took a substantial financial toll on Toyota, with an estimated cost of approximately $2 billion .  

The focal point of this crisis was the issue of unintended acceleration , where vehicles experienced sudden and unexpected acceleration without any input from the driver. These occurrences led to numerous incidents and accidents, raising serious concerns about the safety of Toyota vehicles.  

The exact number of incidents and casualties can vary depending on different sources and investigations. Toyota acknowledged and addressed these cases as part of their recall and safety improvement efforts. The media spotlight and public scrutiny compounded the urgency for Toyota to address these issues comprehensively and swiftly.  

Root Causes of the Company’s Problems: What Went Wrong  

To gain a holistic understanding of this crisis, it’s imperative to examine the root causes that contributed to Toyota’s predicament:  

• Technical Issues : Investigations revealed that sticky accelerator pedals and improperly placed floor mats were the culprits behind unintended acceleration.  
• Communication Gap : Toyota was heavily criticized for its slow and inadequate response to reports and allegations, leading to a significant communication gap.  
• Regulatory Pressure : Regulatory agencies, particularly the National Highway Traffic Safety Administration (NHTSA) in the United States, conducted investigations that further intensified the crisis.  

Possible Alternatives to Address the Causes: A Path Forward  

In hindsight, Toyota could have explored various alternatives to address the issues:  

• Improved Quality Control : Enhancing quality control processes in manufacturing could have prevented technical issues at the source.  
• Effective Communication : A more proactive, transparent communication strategy with regulators and customers could have mitigated the impact of recalls.  
• Regulatory Compliance : Stricter adherence to regulatory standards would have reduced the legal and financial risks associated with the crisis.  

The Financial Impact of the Toyota Recall Crisis  

• Sales dropped by 16% in January 2010 due to safety concerns, a significant decline not seen in a decade.  
• Toyota’s stock price fell by about 10% overall and 30% compared to the S&P 500 index from September 2009 to April 2010. In contrast, Ford’s stock price increased by 80% during the same period.  
• The Wall Street Journal estimated Toyota’s financial impact at over $5 billion for the next fiscal year, covering litigation, warranty costs, increased marketing, and incentive campaigns.  
• Initial recall costs were approximately $2 billion , but future expenses, including potential litigation settlements, could reach up to $5.5 billion .  
• Fitch placed Toyota’s “A+” credit rating on negative watch, potentially increasing borrowing costs.  
• Toyota agreed to pay a $16.4 million fine to the NHTSA for delaying recalls.  
• Despite the financial toll, Toyota reported a $1.2 billion profit for Q4 and $2.2 billion for the fiscal year ending March 31, 2010. However, recall expenses amounted to $1.1 billion , with a global sales loss of $800 million , and a $233 million operating loss in the North American region.  

Solutions and Plan of Action: Restoring Trust  

Toyota’s enduring commitment to quality, safety, and innovation ultimately proved to be the cornerstone of its recovery. By diligently addressing the root causes of the recall crisis, improving communication strategies, and fostering a corporate culture of accountability, Toyota managed to rebuild its reputation and reassert its position as an industry leader.

Toyota initiated a comprehensive plan of action to rebuild its reputation and regain customer trust. Here are some of the key actions taken by Toyota:

Recall and Repairs

Toyota initiated a comprehensive recall of affected vehicles to address the technical issues responsible for unintended acceleration. This involved fixing or replacing the faulty accelerator pedals and floor mats that were causing the problem.  

• Management Changes

The company replaced its President, Akio Toyoda, and implemented structural changes to improve internal communication and decision-making processes. These changes aimed to ensure a more proactive and responsive approach to quality and safety issues.  

• Quality Control

Toyota significantly increased its focus on quality control and safety measures within its manufacturing processes. The company implemented rigorous testing and quality assurance protocols to identify and address potential design flaws before they could become widespread issues.  

Transparency

Enhancements in transparency and openness in communication with regulators, customers, and the public were prioritized. Toyota began sharing more information about its decision-making processes, safety measures, and recall progress with stakeholders.  

Collaboration with Regulatory Agencies

Toyota worked closely with regulatory agencies, particularly the National Highway Traffic Safety Administration (NHTSA) in the United States, to address safety concerns and regulatory compliance. This collaboration aimed to ensure that Toyota’s vehicles met and exceeded safety standards.  

Enhanced Safety Features

Toyota introduced new safety features in its vehicles to prevent unintended acceleration and enhance overall safety. These included brake override systems and smart throttle technology, which could reduce the risk of sudden acceleration incidents.  

Public Awareness Campaigns

Toyota launched public awareness campaigns to educate consumers about the safety measures and improvements implemented in its vehicles. These campaigns aimed to rebuild consumer trust and confidence in the brand.  

Continuous Improvement

Toyota embraced a philosophy of continuous improvement (kaizen) across its operations, including quality control and safety measures. The company committed to learning from the recall crisis and implementing ongoing improvements to prevent similar issues in the future.

Through these efforts, Toyota not only recovered from the crisis but also strengthened its position in the automotive industry. The company’s enduring commitment to quality, safety, and innovation allowed it to rebuild its reputation and reassert its position as a leader.

Lessons in Resilience

The Toyota recall crisis of 2010 offers a profound lesson for organizations worldwide. Despite facing monumental challenges, Toyota emerged from the crisis with its legacy of innovation and commitment to excellence unscathed, a testament to its enduring values and unwavering vision.

Key Lessons from the Toyota Recall Crisis (2010):

• Safety and Quality First: Prioritize safety and quality to avoid reputational and financial damage.
• Transparent Communication: Timely and transparent communication builds trust during crises.
• Effective Crisis Management: Swift action and leadership accountability are vital for crisis resolution.
• Continuous Improvement: Embrace a culture of improvement to prevent issues from escalating.
• Collaboration with Regulators: Work closely with regulators for compliance and safety.
• Consumer Trust: Regaining consumer trust is challenging once lost; safeguard it at all costs.
• Long-Term Focus: Maintain a long-term perspective and stay committed to core values.
• Learn from Mistakes: Crises are learning opportunities; use them to enhance processes.
• Brand Resilience: Resilience in adversity strengthens brand reputation and credibility.

Conclusion: Toyota’s Resilience and the Road Ahead

In conclusion, as a seasoned management consultant, I believe the Toyota crisis of 2010 serves as a powerful reminder of the importance of safety, quality, and transparent communication, especially during crises. The key lessons from this experience are effective crisis management , leadership accountability , and a commitment to continuous improvement .

Despite the significant financial impact of the recalls, Toyota reported a profit of $1.2 billion for the fourth fiscal quarter and $2.2 billion for the fiscal year ending March 31, 2010. This demonstrated the company’s financial resilience.

Toyota’s resilience showcases the enduring value of brand reputation and long-term vision. As businesses strive for excellence and innovation, core values, customer satisfaction, and safety must always be at the forefront.

In today’s dynamic business landscape, these lessons guide us in building enduring organizations that emerge stronger and more resilient from challenges, upholding the principles of accountability, quality, and trustworthiness.

Let’s apply these lessons as we navigate our paths to success, ensuring safety, quality, and transparent communication at every step, forging a future where our organizations thrive and legacies endure.

• Accountability
• Financial Impact
• Lessons Learned
• Recall Crisis
• Root Causes
• Safety Measures
• Unintended Acceleration

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A business journal from the Wharton School of the University of Pennsylvania

Quality on the Line: The Fallout from Toyota’s Recall

February 3, 2010 • 13 min read.

More than any other auto manufacturer, Japan's Toyota has built its name on quality. Now, the identity of the world's largest car maker is in question as it recalls millions of vehicles because they may suddenly accelerate, putting the lives of drivers and their passengers at risk. The firm will need to grapple with numerous operational, marketing, ethical, legal, political and strategic issues -- all at a time when the entire industry is struggling, experts say. As one Wharton faculty member notes: "Toyota is having to stop the line at the corporate level in a big way."

More than any other auto manufacturer, Japan’s Toyota has built its name on quality. Now, the identity of the world’s largest car maker is in question as it recalls millions of vehicles because they may suddenly accelerate, putting the lives of drivers and their passengers at risk.

The recall, which affects more than nine million vehicles worldwide, poses operational, marketing, ethical, legal, political and strategic challenges to the firm at a time when the entire industry is struggling, according to Wharton faculty and auto experts. “It’s a huge threat to their reputation,” says Wharton management professor John Paul MacDuffie , co-director of the International Motor Vehicle Program . Toyota’s insistence on quality is exemplified by its policy allowing individual workers to shut down an assembly line — at enormous cost — if they notice a quality defect, he notes. “Now, Toyota is having to stop the line at the corporate level in a big way.”

The recall comes amid allegations that Toyota has had indications for years that some of its models were prone to rapid, unexpected acceleration. Initially, the company said the problem appeared to be related to gas pedals becoming trapped in floor mats, and it issued a first recall. However, following continued complaints — including reports of fatal accidents late last year — the company became the subject of increasing pressure from the National Highway Traffic Safety Administration and ordered a second recall this month. On February 1, Toyota announced it has found a way to fix the accelerator problem and is ordering new parts for dealers to repair recalled cars.

During a meeting with reporters on February 3, U.S. Transportation Secretary Ray LaHood urged owners of recalled vehicles not to drive them until they are repaired. (He later modified his statement to say that he encouraged drivers “to contact their local dealer and get their vehicles fixed as soon as possible.”) He also said he plans to speak directly to Toyota’s chief executive, Akio Toyoda. “We’re going to keep the pressure on,” he said.

Wharton management professor Larry Hrebiniak says Toyota has not been aggressive enough in coming forward to calm consumers’ fears. “This is a very serious issue, and they know it is going to hurt them and their quality image so they are trying to downplay it.” When a business makes a mistake, he notes, it is best to be upfront because delays and uncertainty only make matters worse in the long run. He cites the famous case of Johnson & Johnson, which acted swiftly to remove all Tylenol products from store shelves following the deadly 1982 tampering case. The company’s strong response restored goodwill toward Johnson & Johnson and helped it retain market share. In the case of Tylenol, he adds, the company had no time to plan a strategy to meet the problem.

“What bothers me most is that Toyota had clues there were quality problems — not only general quality problems, but that there was an accelerator problem,” he says, adding that the company should have been able to take that information early on and develop a proactive approach, rather than reacting to regulators and bad press, according to Hrebiniak.

Cost-cutting Operations

Toyota is famous for its cooperative relationships with suppliers that not only take into account cost, but also encourage both sides to work together to innovate and create better vehicles. The supplier of the gas pedals that are the focus of the recall, CTS Corp. of Elkhart, Indiana, insists its parts, which were manufactured in Canada, were made to Toyota’s design specifications.

MacDuffie notes that in recent years, as the company grew rapidly, it initiated a program to reduce costs by working with suppliers, called Construction of Cost Competitiveness in the 21st Century, or CCC21. He also points out that Toyota — and all leading manufacturers — have increasingly moved toward using more virtual or digital prototypes, rather than physical ones, to speed development time. The combination of a shortened product development cycle, cost cutting initiatives focused on component design, and digital as opposed to physical testing could have been factors in the acceleration problem.

According to MacDuffie, Toyota acknowledged nearly three years ago that it may have “pushed the edges” too fast in product development. It has since slowed its product development time frame and reintroduced more physical prototyping into its process. These changes may not have come soon enough to forestall the current problem.

Takahiro Fujimoto, an IMVP-affiliated researcher and professor of economics at the University of Tokyo, says the company did grow quickly in recent years, while at the same time the complexity of auto manufacturing increased. “Toyota faced excessive or overwhelming complexity that even its strong capability could not handle adequately,” Fujimoto writes in an e-mail. “At the same time, simultaneous pressures came from volume over-extension, possible quality arrogance caused by its long track record of quality excellence, collapse of demand in the U.S. (particularly luxury sales due to the financial crisis), plus other mistakes and some bad luck — creating something like a chemical reaction.”

Wharton management professor Michael Useem says the recall will not lead the company to alter its famed lean production system, because it “runs too deep in the Toyota culture and has been too successful and too effective.” Although Toyota is in the midst of a “public relations debacle,” it is likely to recover more quickly than other automakers in the same situation might, Useem predicts. “I would anticipate Toyota is going to get through this with a weakened reputation — but since the company made great cars for a great price for 50 years, they are on a much better platform for restoring the luster of their reputation because the platform was so strong to begin with.”

Increasing Complexity

Matthias Holweg, director of the Center for Process Excellence and Innovation at the Judge Business School at the University of Cambridge in England (and also an IMVP affiliate), analyzed recall records from Europe and the United States for the past 10 years and found that Toyota has performed above average. “I’m a bit surprised that people are jumping on this particular recall with such energy,” he says.

Holweg notes that Audi faced a similar problem with its models in the 1980s. “The interesting thing about Audi is that it was never proven that the accelerator stuck to the floor, but the handling of the issue became a marketing disaster, and Audi was forever known for sudden acceleration. That’s why this Toyota case is so sensitive.”

However, Holweg suggests massive recalls like the one currently underway at Toyota may become more common in the future as a result of two trends in manufacturing. First, car manufacturers are increasingly using the same components and platforms across many different models in order to gain scale and cost advantages. If one part is bad, he says, the number of vehicles affected will be much larger than in the past. Fujimoto adds that parts commonality is the top cause of recalls in Japan, according to a government analysis. “Carryover parts are quality-proven as individual components,” he says, “but when they are used in a wide range of different vehicles, they may become causes of quality problems. It is a double-edged sword.”

The increasing level of complexity in cars is a second major problem that could also contribute to large recalls in the future, Holweg notes. Automobiles used to be primarily mechanical devices, but now they are also ruled by numerous sophisticated electronics overlaid on top of traditional mechanics. “And it is not always such a happy marriage between electronics and mechanical systems.” As an aside, Holweg points out that safety and reliability may ultimately be improved with the development of an electric car, because the level of integration between mechanical and electronic systems would be reduced.

As for the current controversy, Holweg says he has no idea whether electronics play any part in Toyota’s recalls. However, lawyers for crash victims allege the company has an underlying problem with its electronic components and argue that Toyota’s plan to fix the gas pedals will not address this. Apple co-founder Steve Wozniak has gained attention with his own complaints that his 2010 Toyota Prius, which is not included in the recall, accelerates under certain conditions that indicate the problem is related to software, not a mechanical problem with the gas pedal.

James Lentz, president of Toyota Motor Sales U.S.A., has insisted that the problem is not related to electronics. Susan Helper, an economics professor at Case Western Reserve University and an IMVP research affiliate, says it is possible that floor mats, sticky gas pedals and faulty electronics may all cause unintended acceleration. She notes that it is difficult to isolate, reproduce and test all the conditions that could affect the many parts and systems in today’s increasingly complex vehicles. “And perhaps that’s why Toyota was slow to pick up on these reports,” says Helper. “Maybe there was a little bit of arrogance, but some of it has to do with the newness of some of these systems. We have not had 100 years to study electronics the way we have with mechanics.”

There are a number of things we still don’t know, adds Helper. Toyota gets its accelerator pedals from two suppliers, Denso in Japan and CTS in North America. In both cases, the design specifications are set by Toyota. “It seems that the older, Denso pedal does not have these problems. How the two designs differ and why different designs were chosen is likely to shed light on the roots of the problem.”

According to Helper, another question is why Toyota, unlike many other automakers, did not install “brake override” systems that allow a driver to stop a car with the footbrake even if the accelerator is depressed. Honda also has not installed this type of system. One argument for not adding a brake override system is that the driver maintains more ability to control the vehicle under certain conditions by being able to use the brake and accelerator simultaneously. However, Helper notes, Toyota has now announced it will switch to brake override in all future models.

Needed: A Grand Gesture

Aside from the mechanical and production issues, Toyota now faces major marketing challenges, according to Wharton faculty. Lentz appeared on NBC’s “Today Show” on February 1 to explain the new fix for gas pedals, but the leadership in Japan has not been front-and-center in addressing concerns about the recall.

In addition to its about-face on floor mats as the only source of the problem, the company was accused of insensitivity when it first announced it would ship replacement parts to assembly plants to restart halted production before making them available to dealers for existing customers. Toyota has now reversed that decision.

Maurice Schweitzer , a Wharton professor of operations and information management, says Toyota needs to make a grand gesture to maintain its position in the market. He suggests the company should contact owners individually in order to get them into dealerships for repairs, and then compensate them in some way — perhaps by offering a rebate for another free service. Offering cash toward a new purchase would be viewed as too self-serving, and straight cash compensation would come across as “cold,” he notes. “They need to do something warmer, something that demonstrates caring. I think they can recover, but that window is closing. They will have to do something big and fast.”

The recall is already having an impact on Toyota’s business results. On February 2, the company reported a 16% decline in sales to a 10-year low of 98,796 vehicles. At the same time, General Motors’ sales rose 14% and Ford’s were up 25%.

Meanwhile, General Motors has added fuel to the fire by offering $1,000 discounts and zero-percent loans for Toyota owners. MacDuffie says General Motors’ strategy is risky because, given the underlying industry trends mentioned above, it could well be forced to make its own major recalls. “No auto company is immune to a recall problem like this one.” Volkswagen AG, Europe’s biggest carmaker, has said specifically that it will not target Toyota owners with discounts.

Honda and Hyundai, Toyota’s traditional rivals which compete largely on quality, are more likely to benefit, says MacDuffie. “The other beneficiary is Ford. [Its models] are getting positive quality ratings across their product line in Consumer Reports . It is the comeback kid, and it now has the quality advantage — at least for the moment.”

Lacking PR Muscle

As Toyota continues to grapple with the manufacturing and marketing issues accompanying the recall, it is also facing legal and political problems. In addition to lawsuits filed by individuals who claim they were harmed by Toyota products, the company also faces several class-action suits related to sudden unanticipated acceleration.

Meanwhile, Congressional committees are gearing up to launch their own hearings on the problem. Henry Waxman, chairman of the House Energy and Commerce Committee, and Bart Stupak, a subcommittee chair, have asked Toyota to provide documents showing that the computer systems on its cars did not cause the acceleration problem.

According to Schweitzer, Toyota must appear contrite during the hearings to avoid creating more bad feelings among consumers. “If I were advising Toyota, I’d tell them this is an opportunity to regain trust, to demonstrate unparalleled commitment to its customers.” The company should show that it is “willing to do what it takes to make sure [its] customers are driving safe vehicles,” he notes. “If they miss this opportunity, it will be very costly. The politicians will be trying to score political points by raking some [Toyota officials] over the coals and painting them as profit-hungry executives. It’s going to be a tough crowd.”

MacDuffie says the current crisis suggests that Toyota’s public relations expertise does not match its overall strengths as a manufacturer. Despite some slippage in its quality performance, Toyota continues to win more top quality rankings than any other automaker, and its past performance on recalls is also strong, he notes. The greatest damage to Toyota’s public reputation would be if, beyond this recall, the company reveals more problems associated with acceleration. “The other real possibility is that Toyota will take this opportunity to display its famed ability to focus intensively on a revealed problem, to get to its root cause, and to solve it permanently,” he adds. “This would reinforce its image as a company that is capable of continuous learning in order to meet customer needs. For the sake of this company that has taught the world so much about better ways to make things, I hope it is the latter.”

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U.S. Department Of Transportation Releases Results From NHTSA-NASA Study Of Unintended Acceleration In Toyota Vehicles

The U.S. Department of Transportation released results from an unprecedented ten-month study of potential electronic causes of unintended acceleration in Toyota vehicles. The National Highway Traffic Safety Administration (NHTSA) launched the study last spring at the request of Congress, and enlisted NASA engineers with expertise in areas such as computer controlled electronic systems, electromagnetic interference and software integrity to conduct new research into whether electronic systems or electromagnetic interference played a role in incidents of unintended acceleration.

NASA engineers found no electronic flaws in Toyota vehicles capable of producing the large throttle openings required to create dangerous high-speed unintended acceleration incidents. The two mechanical safety defects identified by NHTSA more than a year ago – “sticking” accelerator pedals and a design flaw that enabled accelerator pedals to become trapped by floor mats – remain the only known causes for these kinds of unsafe unintended acceleration incidents. Toyota has recalled nearly 8 million vehicles in the United States for these two defects.

U.S. Transportation Secretary Ray LaHood said, “We enlisted the best and brightest engineers to study Toyota’s electronics systems, and the verdict is in. There is no electronic-based cause for unintended high-speed acceleration in Toyotas.”

In conducting their report, NASA engineers evaluated the electronic circuitry in Toyota vehicles and analyzed more than 280,000 lines of software code for any potential flaws that could initiate an unintended acceleration incident. At the Goddard Space Flight Center in Maryland, NASA hardware and systems engineers rigorously examined and tested mechanical components of Toyota vehicles that could result in an unwanted throttle opening. At a special facility in Michigan, NHTSA and NASA engineers bombarded vehicles with electromagnetic radiation to study whether such radiation could cause malfunctions resulting in unintended acceleration. NHTSA engineers and researchers also tested Toyota vehicles at NHTSA’s Vehicle Research and Test Center in East Liberty, Ohio to determine whether there were any additional mechanical causes for unintended acceleration and whether any of the test scenarios developed during the NHTSA-NASA investigation could actually occur in real-world conditions.

“NASA found no evidence that a malfunction in electronics caused large unintended accelerations,” said Michael Kirsch, Principal Engineer at the NASA Engineering and Safety Center (NESC).

While NASA and NHTSA have identified no electronic cause of dangerous unintended acceleration incidents in Toyota vehicles or any new mechanical causes beyond sticking pedals and accelerator pedal entrapment, NHTSA is considering taking several new actions as the result of today’s findings, including:

• Propose rules, by the end of 2011, to require brake override systems, to standardize operation of keyless ignition systems, and to require the installation of event data recorders in all passenger vehicles;
• Begin broad research on the reliability and security of electronic control systems;
• Research the placement and design of accelerator and brake pedals, as well as driver usage of pedals, to determine whether design and placement can be improved to reduce pedal misapplication.

NHTSA and NASA will also brief the National Academy of Sciences panel currently conducting a broad review of unintended acceleration and electronic throttle control systems on the reports released today.

“While today marks the end of our study with NASA, our work to protect millions of American drivers continues,” said NHTSA Administrator David Strickland. “The record number of voluntary recalls initiated by automakers last year is also very good news, and shows that we can work cooperatively with industry to protect consumers.”

Based on objective event data recorder (EDR) readings and crash investigations conducted as part of NHTSA’s report, NHTSA is researching whether better placement and design of accelerator and brake pedals can reduce pedal misapplication, which occurs in vehicles across the industry. NHTSA’s forthcoming rulemaking to require brake override systems in all passenger vehicles will further help ensure that braking can take precedence over the accelerator pedal in emergency situations. The ongoing National Academy of Sciences study, which will examine unintended acceleration and electronic vehicle controls across the entire automotive industry, will also make recommendations to NHTSA. The NAS study was launched in spring 2010 alongside the NHTSA-NASA investigation and will be finalized later in 2011.

In 2009 and 2010, Toyota recalled nearly eight million vehicles as part of the sticky pedal and pedal entrapment recalls. Toyota also paid $48.8 million in civil penalties as the result of NHTSA investigations into the timeliness of several safety recalls last year. Across the industry, automakers voluntarily initiated a record number of safety recalls in 2010.

To read the executive summary and findings of the NASA report, click here: http://www.nhtsa.gov/staticfiles/nvs/pdf/NASA_report_execsum.pdf

To read NASA’s full report, click here: http://www.nhtsa.gov/staticfiles/nvs/pdf/NASA-UA_report.pdf

To read the executive summary and findings of the NHTSA report, click here: http://www.nhtsa.gov/staticfiles/nvs/pdf/NHTSA_report_execsum.pdf

To read NHTSA’s full report click here: http://www.nhtsa.gov/staticfiles/nvs/pdf/NHTSA-UA_report.pdf

FACT SHEET: Unintended Acceleration in Toyota Vehicles

Background & Timeline

Toyota has recalled nearly eight million vehicles in the United States for two mechanical safety defects that can cause unintended acceleration: ‘sticking’ accelerator pedals and a design flaw that can cause accelerator pedals to become trapped by floor mats. When NHTSA first identified the two defects more than a year ago, the agency pushed Toyota to conduct recalls quickly. Toyota later paid nearly $33 million in civil penalties as the result of investigations into whether the company notified NHTSA in a timely manner about these defects.

During Congressional hearings on the Toyota recalls in February 2010, Members of Congress asked NHTSA to study whether electronic or software problems in Toyota vehicles could be to blame for unintended acceleration. At Congress’ request, NHTSA simultaneously launched two studies: one designed to evaluate possible electronic causes for unintended acceleration in Toyotas, and a broader effort to look at unintended acceleration across the automotive industry.

In March 2010, NHTSA enlisted top NASA engineers and experts in areas such as electromagnetic compatibility to study whether electronic flaws can cause unintended acceleration. In its final report, NASA engineers found no evidence of an electronic defect in Toyota vehicles capable of producing dangerous, high-speed unintended acceleration incidents. The two mechanical safety defects originally identified by NHTSA remain the only known causes of dangerous unintended acceleration incidents.

Nevertheless, NHTSA has announced several new actions it may take as a result of their work with NASA to address the safety of vehicle electronics systems. NHTSA will consider rules to require brake override systems, standardize operation of keyless ignition systems, and require the installation of event data recorders in all passenger vehicles. NHTSA will conduct broad research on the reliability of electronic throttle control systems across the vehicle fleet. The agency will also initiate new research on driver behavior and the placement and design of floor pedals in an effort to identify strategies that can reduce pedal misapplication.

The second study launched by U.S. DOT in March 2010 remains under way. The Department has enlisted the prestigious National Academy of Sciences (NAS) to undertake a broad review of unintended acceleration and electronic vehicle controls across the automotive industry. An independent panel of scientific experts at NAS is currently working to identify possible sources of unintended acceleration, including electronic vehicle controls and human error. Later in 2011, the panel will make recommendations to NHTSA on how its rulemaking, research, and defect investigation activities can help ensure the safety of electronic control systems in motor vehicles.

Timeline of Major Events

    March 29, 2007:  NHTSA opens a preliminary investigation into pedal entrapment on MY’07 Lexus ES350 models based on five consumer complaints alleging three crashes and seven injuries. The all weather floor mat is identified as the possible cause of these incidents.      July 26, 2007:  A fatal crash occurs in San Jose, CA involving a ‘07 Camry in which the driver suffers serious injuries and the driver of the struck vehicle is killed. The incident also appears to have been caused by a pedal trapped by an all weather floor mat.     September 13, 2007:  After determining the fatal San Jose crash was caused by floor mat entrapment, NHTSA tells Toyota a recall is necessary.     September 26, 2007:  Toyota recalls 55,000 floor mats in ’07 and ‘08 Camrys and ES350s.     August 28, 2009:  A fatal crash occurs in Santee, CA, involving a loaner ’09 ES350. The vehicle is found to have an all weather floor mat from another Lexus vehicle. Investigators find that the vehicle’s previous driver had reported an entrapment incident to the dealership.     September 25, 2009:  NHTSA meets with Toyota and tells the company that the floor mat recall is insufficient and the agency expects a recall for the defect in pedal design. Three days later, Toyota tells NHTSA the company will recall the gas pedals.     October 5, 2009:  Toyota recalls 3.8 million vehicles for pedal entrapment by floor mat and sends an interim letter to consumers telling them to remove floor mats. The defect remedy involves gas pedal reconfiguration, floor pan/carpeting revisions, and ‘brake pedal override’ software for vehicles with keyless ignition.     December 15, 2009:  NHTSA officials meet with Toyota executives in Japan to explain NHTSA’s defect recall process and underscore Toyota’s obligations under U.S. law to find and report defects promptly. Toyota commits to making improvements.     January 16, 2010:  Toyota informs NHTSA that certain CTS-brand pedals may have a dangerous ‘sticking’ defect.  NHTSA calls an in-person meeting on January 19.     January 19, 2010:  At the meeting, Toyota provides field reports on sticky pedal incidents, and NHTSA tells Toyota the agency expects prompt action.  Toyota informs NHTSA several hours later that the company will issue a recall.     January 21, 2010:  Toyota recalls 2.3 million vehicles for the sticky pedal defect.     January 27, 2010:  At NHTSA’s urging, Toyota expands its pedal entrapment recall to cover an additional 1.1 million vehicles.     February 16, 2010:NHTSA launches an official probe into the timeliness and scope of the pedal entrapment and sticky pedal Toyota recalls.     March 30, 2010: At the request of Congress, the U.S. DOT announces two studies into unintended acceleration. One looks at possible electronics causes for unintended acceleration in Toyotas; the other examines unintended acceleration and the safety of vehicle electronics across the automotive industry.     April 5, 2010: NHTSA demands the maximum, $16.375 million, civil penalty on Toyota for its failure to notify the agency of the sticky pedal defect for more than four months after discovering it. Auto manufacturers are legally obligated to notify NHTSA within five business days of determining that a safety defect exists. Toyota pays the full fine on April 19.     December 20, 2010:Toyota agrees to pay the maximum $16.375 million civil penalty as the result of another NHTSA investigation into whether their recall of 5.5 million vehicles for pedal entrapment was conducted in a timely manner.

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Toyota Recall: Five Critical Lessons

Jan 31, 2010 | Business Ethics , Corporate Social Responsibility , Economy & Society , Regulation & Legislation

by Michael Connor

Having already halted sales and production of eight of its top-selling cars in the U.S. – and recalled more than 9 million cars worldwide, in two separate recalls – Toyota faces the prospect of billions of dollars in charges and operating losses. The Toyota brand, once almost synonymous with top quality, has taken a heavy hit.

While all the facts are not yet in, it’s clear that Toyota’s crisis didn’t emerge full-blown overnight.   Fixing the problem and ensuring that something like it doesn’t happen again will require an all-out effort, from assembly line to the boardroom.  Even then, there are no guarantees. Maintaining a good corporate reputation in the 21 st century is tricky business indeed.

Toyota’s case offers a number of valuable lessons for other business people and companies to consider.  Here, for starters, are five:

Aggressive growth can create unmanageable risk. Toyota’s desire to supplant General Motors as the world’s number-one car-maker pushed it to the outer limits of quality control.

“The evidence that Toyota was expanding too much and too quickly started surfacing a couple of years ago.  Not on the company’s bottom line, but on its car-quality ratings,”   writes Paul Ingrassia , a Pulitzer Prize-winning former Detroit bureau chief for The Wall Street Journal.

Ingrassia , who has just authored a new book on the auto industry , notes that in 2005 Toyota recalled more cars and trucks than it sold; by 2007, Consumer Reports magazine stopped automatically recommending all Toyota models because of quality declines on three models.

One wonders if, when accepting management’s plan for aggressive growth, Toyota’s board of directors exercised appropriate diligence to ensure that growth could be achieved without betting the entire franchise.  Were quality control and safety part of the discussion?  Maybe gaining market share wasn’t worth the trade-off.  Quick tip to directors of other high-growth-oriented companies: read up on Merrill Lynch’s experience with dominating the sub-prime mortgage market.

Get the facts quickly and manage your risks aggressively. One of the more troubling aspects of Toyota’s recalls ( there have been two ) has been the company’s differing accounts of the source of the problem.  The current recall, covering 4.1 million cars, involves potentially sticky gas pedals.  Late in 2009, Toyota also recalled 5.4 million cars whose gas pedals could get stuck on floor mats.  Plus, Toyota says there are some cars affected by both problems.  (For an interesting technical analysis of some of the issues involved, go here .)

Uncertainty is not an asset, especially when lives could be at stake.  A Los Angeles Times investigatio n , for example, casts doubt on Toyota’s explanation, quoting one auto safety consulting group as saying, “We know this recall is a red herring.”  (Read Toyota’s position here .)

And the questioning is just beginning. A U.S. Congressional committee headed by Rep. Henry Waxman has already requested copies of emails and other documents from both Toyota and the National Highway Traffic Safety Administration, which regulates Toyota with regard to the recalls.   Congressional hearings are scheduled for Feb. 25.

In cases such as this, investigators almost always start with two time-worn questions.  What did you know?  And when did you know it? Answers to those questions provide the groundwork for analysis of a company’s response and handling of a problem.  Were employees encouraged to flag safety issues to senior management?  Were sufficient resources devoted to investigating the problems?   When did the board become aware of the situation and what did it do about it?

Companies generally can’t predict when crises might occur.  However, good internal risk assessment programs can help identify those areas of the business where management should be on the alert.   Robust risk management programs help a company address problems as they pop up on the internal corporate radar screen – and before they explode in public.

Your supply chain is only as strong as your weakest link. The reality is that auto companies make hardly any of their parts.  They assemble cars from parts made by others.  In this case, the offending gas pedal assembly was made for Toyota by a company called CTS of Elkhardt, Indiana.

It’s far from certain how much blame the parts supplier deserves.  In fact, CTS says Toyota’s acceleration problems date back to 1999, years before CTS began supplying parts to Toyota. (And the replacement gas pedal parts Toyota has announced as a fix for the problem will be made by CTS, suggesting a degree of confidence in the supplier.)

Nonetheless, “(if) you are outsourcing for your entire vehicle line, [and] the outsourced component is defective, the recall and the embarrassment is much greater,” iconic car company critic Ralph Nader told Toronto’s Globe and Mail last week. “The overall message is that quality control [means] daily vigilance,” Nader said. “You can’t coast on your reputation because it can fail very quickly.”

Supply chain monitoring is a critical factor for companies that rely on third-party suppliers. That’s increasingly true for a broad variety of industries, not just automobiles, as business grows ever more global.  Smart companies will know their suppliers and their respective strengths and weaknesses.

Accept Responsibility .  This is one area where Toyota seems to be doing a good job, albeit maybe a year or more too late.

Toyota's National Ad on Recall - January 31, 2010

Two decades ago, when Audi encountered a safety issue similar to Toyota’s, Audi took the position that “it was the driver’s fault,” David Cole, Director of the Center for Automotive Research, told Design News .  Coles says that reaction ultimately hurt Audi’s reputation.

Toyota seems to be avoiding the appearance of passing the buck.  When pressed by the New York Times about problems that might have been caused by supplier CTS , for example, Toyota spokesman Mike Michels said: “I don’t want to get into any kind of a disagreement with CTS. Our position on suppliers has always been that Toyota is responsible for the cars.”

Accountability matters enormously.   Johnson & Johnson’s 1982 recall of its painkiller Tylenol, following the deaths of seven people in the Chicago area, has earned it a permanent place in the annals of crisis management.  But that recall stemmed from the deadly act of an outsider (who has never been caught), not any problem with the product itself, as is the case with Toyota.

Take the Long View. The three leading factors burnishing corporate reputation these days are “quality products and services, a company I can trust and transparency of business practices,” writes public relations executive Richard Edelman, who last week released his corporate “Trust Barometer” survey for 2010 .

That’s unfortunate news for Toyota, given the hand that it’s currently playing.  But the company doesn’t have much choice.  By one estimate, auto industry recalls conservatively cost an average of $100 per car – suggesting that Toyota might be on the hook for at least a one billion dollar charge.   That doesn’t include lost revenue to Toyota and its dealers from the production shutdown.  And competitors are already trying to woo customers away and capitalize on Toyota’s misfortune.  Disgruntled investors and Wall Street analysts will make the company aware of their feelings; class action lawsuits are almost a certainty (one lawyer is already searching for Toyota customers as clients).

Reputation can be easily lost – and Toyota’s reputation is indeed threatened – but it’s highly unlikely the company will collapse completely.  And that may be one of the one of the biggest lessons for other companies as they study how Toyota emerges from this recall crisis.  The reality is that Toyota is positioned for recovery about as well as it could be – owing, in large measure, to the reputation for quality products and corporate responsibility it has developed over the last two decades.  That reputation is a valuable asset, and one that Toyota will undoubtedly be citing and calling upon, in the weeks and months ahead.

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Toyota recalls vehicles with defective brake components

Plano, Texas – July 20, 2022 – Toyota Motor Engineering and Manufacturing has remedied issues with 5,350 vehicles including the 2018 Toyota Camry, the 2018 Toyota Highlander, and others in which the brake assist vacuum pump may fail. Additionally, 461 of these Toyota models have been categorized as unreachable and 17 have been removed from the recall. Three groups of these 2018 Toyota Camry and 2018 Toyota Highlander with a defective brakes vacuum pump were remedied in 2018 and three other groups were remedied during 2019.

Plano, Texas – April 19, 2018 – Toyota Motor Engineering and Manufacturing has recalled more than 6,000 vehicles potentially equipped with defective brake components , according to documentation submitted to the National Highway Transportation Safety Administration. The campaign affects models across multiple brands, including:

• 2017 Lexus RX350 sport utility vehicles produced between Oct. 2, 2017, and Oct. 18, 2017.
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What Really Happened to Toyota?

Given the spate of recalls and quality problems, managers wonder whether toyota’s difficulties throw its legendary manufacturing model into question..

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Toyota’s quality problems in the United States were signaled with a recall in late 2009 for problems with floor mats, but they didn’t end there.  Since then, more than 20 million cars have been recalled.

Image courtesy of Flickr user kenjonbro.

Consumers were surprised in October 2009 by the first of a series of highly publicized recalls of Toyota vehicles in the United States. Citing a potential problem in which poorly placed or incorrect floor mats under the driver’s seat could lead to uncontrolled acceleration in a range of models, Toyota announced that it was recalling 3.8 million U.S. vehicles. The recall was triggered by the report of a fiery crash in California, where the accelerator of a Lexus sedan got stuck, resulting in the driver’s death.

Additional reports of unintended acceleration from sticky gas pedals prompted the National Highway Traffic Safety Administration to pressure Toyota to recall additional vehicles and models.

To car buyers and students of manufacturing excellence, Toyota was no ordinary company. It was in a class by itself, long known, even revered, for its sterling quality. For manufacturing executives who have strived for decades to emulate Toyota, the mere suggestion that it had quality issues was a serious matter, to say the least. All over the world, executives paused to wonder if they had been chasing after the wrong manufacturing model.

Despite Toyota’s long record of building reliable, low-defect vehicles, public perceptions about quality are often greatly influenced by reports in the media and their overall timing. The public view can be at odds with the objective measures. In the case of Toyota, there were definitely indications that the quality level of its products had fallen off in recent years. What’s more, the changes had occurred during a period of time when many of Toyota’s competitors, including Ford, Chevrolet and Hyundai, were producing better and better cars. The key question was the source of Toyota’s problems: To what extent did they originate with the product designs and assembly, and to what extent could they be pegged to the company’s manufacturing systems?

About the Research

I began collecting data for this paper systematically in early 2010 and continued the research until May 2011. However, my long history as a researcher of automotive quality provided the underpinnings for this initiative. The initial efforts consisted of monitoring the media, both print and online, to see both what they reported and how they reported it. I also gained access to publicly available data from internal Toyota documents related to vehicle safety and defects submitted in response to congressional subpoenas, and I consulted with officials at the U.S. National Highway Traffic Safety Administration. Depositions from Toyota executives were made available to me. I showed early drafts of the paper to a variety of individuals, including former Toyota employees, retirees and quality experts in Japan, the United States and elsewhere. I interviewed and discussed particular issues with Japanese academics with deep knowledge of the auto industry. I also had access to a report commissioned by Toyota from the Japanese Union of Scientists and Engineers, titled “Findings by Independent Experts about Quality Assurance at Toyota.” Databases from Automotive News , NHTSA, the Project on Excellence in Journalism and information from Toyota annual reports also proved useful.

The Leading Question

Why has Toyota been struggling with quality issues?

• Management’s recent focus on growth weakened the emphasis on quality.
• The quality of competitive products has improved.
• Public perceptions about quality can be greatly influenced by media reports.

The degree to which Toyota’s quality problems should be seen as serious depends to some extent on whether we view them in absolute terms or relative to its competitors and on the size of the gap between consumer perceptions and objectively identified problems. Even before the March 2011 earthquake and tsunami hit Japan, the company had incurred huge financial and reputational costs stemming from the recalls and subsequent publicity. Since then, the effects of the earthquake and tsunami on both Toyota and many of its supplier companies have been significant, resulting in cutbacks in production and delays in the delivery of new vehicles. With reduced product availability, some prospective Toyota customers are likely to choose another brand, and the long-term risk is that some of these buyers will find that the other brands meet their quality expectations just fine.

Defining the Problem

It would be difficult to overstate Toyota’s role in shaping the modern approach to quality improvement. Beginning in the early 1960s, Toyota, together with its supplier companies, pioneered numerous quality improvement methodologies, providing the operational basis for Japanese total quality control. TQC, in turn, provided the basic building blocks for the Six Sigma methodology, which has been actively embraced by leading U.S. companies such as GE and Boeing. In the 1960s, Toyota management began to understand the critical links between quality, customer satisfaction and profit. The importance of these connections became deeply rooted in Toyota’s management philosophy and an integral part of the company’s employee training and growth. Quality emerged as a central element in Toyota’s global strategy and became embedded in the renowned Toyota production system. In this context, referring to Toyota’s recent quality problems as a “fall from grace” is not an exaggeration.

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Toyota’s quality problems in the United States were signaled with the initial recall in late 2009 for problems with floor mats, but they didn’t end there. Over the next four months, the company recalled 3.4 million more vehicles in three separate recalls over and above the initial 3.8 million, for a total of more than 7 million. There were several issues: potentially sticky gas pedals, pedal entrapment and software glitches that affected braking on some models.

Back in 2006, well before Toyota’s difficulties became public, the company’s management commissioned a survey of U.S. consumers that included the following question: How much influence does having a recall on your current vehicle have on subsequently purchasing that same automotive brand again? At the time, 11% of U.S. car owners said a recall was influential, and 20% said it was highly influential. 1 But in Toyota’s case, at least, the actual reaction was harsher than the hypothetical: A Gallup national survey in late February 2010 found that 31% of Americans believed Toyota vehicles were unsafe; the percentage among Toyota owners was only 14%, but for non-Toyota owners the figure shot to 36%. 2 Even if the media exaggerated the seriousness of problems and politicians politicized them, customer perception is the final arbiter.

Moreover, the number of safety-related recalls kept growing. Between February and August 2010, there were 13 separate Toyota recalls. They affected old and new models and were based on a wide range of issues (including steering control and fuel leakage). Just as things seemed to be settling down last winter, the company announced two further recalls in January and February 2011. In May 2011, Automotive News reported that more than 20 million Toyota vehicles had been recalled since autumn 2009. 3

The Consumer Perspective

There is no question that Toyota’s quality image among consumers suffered with the recalls. Not only is the decline visible in survey data, it has also been greatly amplified by the media. David Champion, senior director of Consumer Reports ’ Auto Test Center, has said that Toyota vehicles’ quality measurably decreased in recent years. In 2007, the magazine observed that the fit and finish of some Toyota models, as well as overall vehicle quality, had declined. In 2008, Consumer Reports decided no longer to give automatic “recommended” ratings to all Toyota models based on their previous evaluations. 4 J.D. Power and Associates, another influential evaluator of autos, also noted a recent decline in the quality of Toyota’s products. 5 Its Initial Quality Study surveys car owners and lessees 90 days after purchase, asking some 160 detailed questions. In 2009, before the recalls, Toyota was tied with Mercedes Benz for sixth place overall and was the top company among mass-market producers. The 2010 results, released in June 2010, told a different story. Toyota fell to 21st out of 33 brands, while the Lexus brand fell from first place to fourth place, behind Porsche, Acura and Mercedes-Benz. 6

At first glance, the change between 2009 and 2010 appears to be stunning. However, J.D. Power’s data show that between 2000 and 2009, the quality of Toyota’s products actually improved . Part of the issue is in the way quality gets measured: J.D. Power looks at the number of defects per 100 vehicles. In 2009, Toyota had 101 problems per 100 vehicles; in 2010, the number of defects increased to 117. Although that may seem like a significant change in quality, for the individual car owner it is actually quite small (an increase from 1.01 problems per vehicle to 1.17), and it hardly suggests a collapse in quality. This method of reporting can make the differences among brands appear more substantial than they are.

At the same time, the auto quality ratings across brands have become compressed over the last three decades. That means that the relative changes in brand rankings from year to year, which are widely featured in the media, do not necessarily reflect important absolute changes in performance. J.D. Power reports in detail on brand performance in different categories of mechanical and design quality. From 2009 to 2010, the most notable decline involving Toyota’s models was in power train design, which declined from “about average” to “below average.” 7 These findings are consistent with other observations that Toyota’s quality problems are largely engineering rather than manufacturing problems.

Another factor worth noting involves the role of changing owner perceptions. People who bought a Toyota in 2009 likely did so in the belief that they were buying a high-quality car. They were reacting to what market researchers call a positive halo effect. All things being equal, buyers in this situation pay less attention to small problems (or don’t even notice them) when filling out surveys. If there were any initial irritants, owners in this environment frequently become used to them. But in 2010, in the midst of a barrage of negative news about Toyota’s problems, customers became far less forgiving about Toyota’s product flaws. Whereas consumers tended to overestimate Toyota’s objective quality with low reports of defects in 2009, in 2010 they tended to underestimate the quality with high reports of defects. Toyota’s objective quality problems, while significant, became greatly exaggerated by the media. While the objective data about the company’s quality performance suggest it has deteriorated, there is no evidence showing that it collapsed. The dynamics of specific measurements, combined with negative media coverage and the improved quality of competitors, have contributed to a further tarnishing of Toyota’s quality reputation and weakened consumer trust. 8 For years, Toyota’s core brand theme in the United States and Europe was advertised as quality, durability and reliability, with an added emphasis on value. 9 Increasingly, those themes were less effective in differentiating its products. That raises the question about how Toyota will market its vehicles going forward.

Damage to the Brand

A possible parallel to the challenges Toyota faces can be found with Ford, which experienced significant negative fallout from rollover incidents involving the Explorer/Firestone tire failures in 2000 and 2001 and the company’s alleged subsequent cover-up. Like Toyota, Ford received enormous media attention. 10 Ford was able to fix the problem relatively quickly by changing tire suppliers and redesigning the model. But the damage to its market position was costly and long-lasting. In the highly profitable light truck market between 2000 and 2005, Ford went from being the market leader, selling about 100,000 units more than rival GM, to being about 500,000 units behind.

Negative quality perceptions can linger long after the objective quality problems have been corrected. While many auto analysts predicted early in 2010 that Toyota would rebound from its troubles quickly, Ford’s experience suggests that this view may be overly optimistic. Indeed, managers need to understand the relation between perceived and objective quality. Despite the growing volume and availability of real data, consumers form perceptions of auto quality on what is often limited information and personal experiences (“My brother loves his Camry”). They may hold on to their beliefs even in the face of objective information to the contrary.

Part of the reason brand reputations don’t recover quickly can be traced to the media and to ongoing interest by government regulators. During January and February 2010, when Congress conducted hearings on the Toyota recalls, the recall story was among the top 10 news stories in all but one week. In a U.S. media fixated on celebrities and brands, stories about endangered icons are, by nature, eminently newsworthy. In this case involving unintended acceleration, with the safety of millions of drivers and passengers at stake, there was the added concern for public safety. 11

Beneath the Problems

A basic principle of risk management is to identify risks early and eliminate them while they are still minor problems. Toyota executives had a number of warnings about its deteriorating quality. In early 2009, for example, before the massive recalls, Toyota disbanded a high-level task force that had been set up in 2005 to deal with quality issues. A Toyota manager explained the decision by saying that management had come to believe that quality control was part of the company’s DNA and therefore they didn’t need a special committee to enforce it.

We have already discussed early signs of Toyota’s quality problems as reported in Consumer Reports . In January 2008, Chris Tinto, Toyota’s U.S. vice president in charge of technical and regulatory affairs, further warned his fellow executives that “some of the quality issues we are experiencing are showing up in defect investigations (rear gas struts, ball joints, etc…).” 12 These and other early warnings were ignored. In a pattern not uncommon in large organizations, politically powerful executives shrugged off early warnings of lower-ranking executives. 13

There appear to be two root causes for Toyota’s quality problems. The first is an outgrowth of management’s ambitions for rapid growth. The second is the result of the increasing complexity of the company’s products.

Growth Toyota’s drive for growth moved into high gear in 1995 with the appointment of Hiroshi Okuda as the company’s new president. Okuda, known for his aggressive efforts to remake Toyota, was the architect of an ambitious global growth strategy, known as the “2005 vision.” It called for rapidly increasing Toyota’s global market share from 7.3% in 1995 to 10% over the next decade. The company achieved a global market share of 9.7% in 1998 and then set a new target of 15% by 2010. Toyota was well on its way to achieving that goal (its global market share reached 13% in 2008) when the global financial meltdown and Toyota product recalls threw the effort into disarray.

Akio Toyoda, Toyota’s current president (and grandson of the company’s founder), puts the turning point at 2003; from then on, sales grew faster than the company could manage. He acknowledges that the strategic focus on growth warped the “order of Toyota’s traditional priorities.” 14 In other words, growth had taken priority over the company’s traditional focus on quality.

Toyota’s aggressive growth targets were out of character for what historically had been a conservative company. Under family leadership, Toyota had pursued growth cautiously; for example, it was the last of the major Japanese auto companies to begin manufacturing vehicles in the United States. Given its huge cost and quality advantages, it is likely that Toyota could have gained U.S. market share much more rapidly than it did. However, to avoid protectionist sentiment, management had been careful not to exploit the company’s ability to reduce prices to build market share, preferring to rely instead on its reputation for reliability and durability.

Okuda convinced corporate leaders to pursue rapid sales growth and profits while downplaying the risks associated with this strategy. The 15% market share target meant surpassing GM as the global volume leader and expanding production to new locations. It also meant hiring significant numbers of new employees, contracting with new non-Japanese suppliers and hiring large numbers of contract engineers. Between 2002 and 2008, Toyota’s overseas manufacturing facilities increased from 37 to 53, and global sales rose an average of 9% per year. 15 That expansion gave management little opportunity for adjusting its systems and practices to accommodate such strong growth. Organizational incentives, especially informal ones, became skewed toward growth. Without specific policies that preserved the traditional quality focus, key decisions affecting product development, supplier management and production became biased in favor of meeting sales, delivery, cost-cutting and profit targets. Many of the changes were subtle (for example, tilting promotion criteria more in favor of success at meeting growth targets), and they may not have been what Okuda and members of Toyota’s executive team intended. But cumulatively, they had negative impacts on quality. Top corporate leaders tend to underestimate how their mandates get transformed as they travel down the hierarchy.

Product complexity The other root cause of Toyota’s quality problem can be linked to the growing technical complexity of today’s vehicles. 16 For a variety of reasons — stricter government regulations on safety, emissions and fuel consumption, and rising customer demand for vehicles with “green” and luxury features — cars are becoming increasingly sophisticated both in terms of how they are designed and how they are manufactured. A typical auto sold in the United States or Europe has more than 60 electronic control units and more than 10 million lines of computer code — a fourfold increase over what was common a decade ago. 17 In effect, cars have become computers on wheels.

To be sure, other auto companies, not just Toyota, have had to come to grips with the issues of product complexity. The competitive pressures to produce vehicles that are safe, clean, fuel-efficient and comfortable are industrywide. But for Toyota the challenges were even more intense, complicated by the already considerable challenges associated with global growth, including rapid expansion of manufacturing capacity and the proliferation of hybrids and other technologically advanced new models. Between 2000 and 2007, Toyota’s North American sales increased from 1.7 million units to 2.9 million units, and the company’s offerings grew from 18 to 30 models. Lead time between exterior design approval and start of sales was compressed to less than 20 months. Accelerated design cycles strained the company’s development and production systems and pushed human resources to the limit, creating the conditions for quality failures. Although Toyota’s Lexus and Prius models accounted for less than 25% of its sales in 2010, they were among the most technologically complex products and were involved in more than half of the number of recalls.

The combination of rapid growth and increased product complexity has had major implications for Toyota’s supplier management system and its overall performance. Around 70% of the value added in Toyota’s vehicles comes from parts and subassemblies produced by its suppliers. So the consequences of the growth and complexity were felt across the company’s supply chain. First, Toyota personnel were stretched increasingly thin as the company’s growth accelerated. In response to the growth, Toyota had to delegate more design work to outside contract engineers and take on new suppliers because the internal engineering resources and existing supplier base couldn’t keep up with the demands.

A high-level Toyota executive publicly acknowledged in 2010 that, facing internal manpower shortages, the company had no choice but to use a large number of new contract engineers to boost engineering capacity. In his view, that contributed to the increases in quality glitches. 18 The company came to use outside engineers for as much as 30% of its development work globally. 19 That meant hiring contract engineers overseas; it also gave rise to a new policy of hiring temporary engineers in Japan, which challenged the company’s established ways of doing business. Toyota engineers had been accustomed to communicating among themselves and with Japanese suppliers with whom they had established long-term relationships that often relied on tacit knowledge built up over the years. The influx of new, mostly non-Japanese-speaking engineers and overseas suppliers during a short period of time led to problems of coordination and miscommunication. Less experienced Toyota engineers were increasingly assigned to global technical centers to work with and monitor new overseas suppliers, who were also inexperienced in Toyota practices and standards. The result was a convergence of inexperience, with the key parties insufficiently trained in Toyota’s standard practices.

Takahiro Fujimoto, a leading Japanese researcher on Toyota, reports that in the wake of rapid growth, Toyota increasingly failed to properly evaluate and approve components designed by outside overseas suppliers. 20 As a result, Toyota’s relationships with suppliers became less collaborative, thereby weakening the company’s distinctive “relational contracting” system characterized by long-term close OEM relationships with suppliers. Ironically, it was the collaborative practices that had originally distinguished Toyota from its Western competitors. 21 We can see this play out in the results of the annual U.S. auto-parts supplier surveys since 2007. Toyota traditionally has ranked best in its relationships compared with other automakers. Its ranking, however, while still high, has fallen steadily from 2007 through 2010. Suppliers attributed their growing problems with Toyota to less experienced staff in Toyota’s purchasing group who had not internalized the “Toyota Way.” 22

As much as growth and product complexity were at the root of Toyota’s recent quality problems, any thorough analysis would also need to acknowledge the role of the company’s centralized management structure. Toyota’s information and decision making has been highly centralized. The result: Top management in Japan has been less sensitive to the expectations of regulators, culture and politics in overseas markets, and consequently, they have been slower to respond to local problems. For example, in October 2004, Toyota recalled pickup trucks and SUVs in Japan for steering defects, but it didn’t extend those recalls to the United States until September 2005. As one executive commented, “[Toyota headquarters] is the kind of brain of the company. We don’t have any independent knowledge outside of them.” 23

It is too early to know how quickly Toyota can overcome its quality problems. However, it is clear that senior executives have worked hard to understand the magnitude of the problems and are acting to eliminate them. This determination is demonstrated by several major initiatives in North America and elsewhere to improve product quality. For example, Toyota is reportedly seeking to reduce its percentage of outside engineers to 10%. 24 In addition, Tokyo headquarters has delegated more power to the company’s North American executives to make decisions affecting recalls and strengthening the independence of quality management activities in each region. Furthermore, Toyota has reorganized and, in effect, deliberately slowed down the product development process by establishing a new team of about 1,000 quality engineers and by greatly expanding its rapid quality response teams around the globe. Although driver error appears to have been the primary cause of the acceleration problems, user error can be reduced by good design. In today’s environment, that is a corporate imperative. To that end, Toyota has reconfigured the shape of the accelerator pedal in response to its floor mat problems.

Still, there is a lingering question raised by Toyota’s recent quality problems: What do the product recalls say about the effectiveness of the company’s legendary production system? Why should other companies try to emulate Toyota if it is struggling with so many serious design and production issues itself? The reality is that Toyota’s problems were not caused by a faulty production system but by poor management decisions. In particular, the company’s executives failed to respond aggressively to early signs of quality problems. Toyota’s stumbles are a powerful reminder that there is no such thing as corporate DNA, and that superior production systems, important as they are, cannot be taken for granted. As new senior management teams move into positions of power, they need to recognize that there are no guarantees that the systems and values that have provided the underpinnings for the organization’s success can be sustained without renewed commitment. Ensuring continuity requires clear incentives for the promotion of best practices, adhered-to processes, especially strong problem-solving processes, flexibility, effective socialization of new employees and a supportive organizational culture. In any organization, there will be internal and external factors that threaten to weaken the foundation, be they opportunities for growth, temptations to skimp on training or pressures to lower costs. Therefore, corporate leaders need to be vigilant in maintaining practices and values that support high-quality production systems, even as they learn to adapt to emerging challenges. Despite its vulnerabilities, the Toyota production system still represents state of the art in manufacturing and continues to provide an important model to companies in a wide range of industries.

About the Author

Robert E. Cole is a professor emeritus at the University of California Berkeley Haas School of Business and a visiting researcher at the Institute of Technology, Enterprise and Competitiveness at Doshisha University, in Kyoto, Japan.

1. J. Press, “A New Era for Toyota and TMA in North America,” (internal Toyota presentation, Sept 20, 2006), http://commerce.senate.gov .

2. Gallup, “Americans, Toyota Owners Still Confident in Toyota Vehicles,” March 2, 2010, www.gallup.com .

3. N. Roland, “Toyota Doesn’t Go Far Enough on Safety Management Changes, Panel Says,” Automotive News, May 23, 2011.

4. D. Sedgwick, “Toyota Likely to Win Back Consumer Reports ‘Recommended Rating,’” Feb. 26, 2010, http://autos.aol.com .

5. J.D. Power and Associates, “J.D. Power and Associates 2010 U.S. Initial Quality Study” (Westlake Village, California: J.D. Power and Associates, 2010).

6. C. Jensen, “Toyota’s Image Falls in J.D. Power Survey,” New York Times, June 18, 2010, sec. B, p. 5.

7. J.D. Power redesigned the IQS survey in 2006, doubling the number of items ranked, going beyond defects that can, presumably, be repaired to include design problems. With quality differentials sharply diminishing, the survey was in danger of becoming irrelevant, but with a doubling of items to be scored, brand differentials were increased. Many of these new items have little or nothing to do with the fundamental safety, quality, value and performance (in that order) that consumers, on average, say is most important when buying a vehicle.

8. Ordinarily, just equaling longtime quality leaders is not enough to dislodge them from their leadership position. In Toyota’s case, however, these developments combined with the publicity given its successive recalls.

9. M. Rechtin, “Fay in the Fray of Toyota Image Turnaround,” Automotive News, Sept. 13, 2010, 20.

10. Parker Waichman Alonso LLP, “Chronology of Events in Ford/Firestone Controversy,” May 21, 2001, www.yourlawyer.com .

11. Adding to Toyota’s woes, its recalls are getting far more publicity than those of other automakers. In late October 2010, Toyota issued a voluntary recall on 1.5 million cars globally to replace a brake master cylinder seal. A few days later, Nissan recalled 2 million cars for ignition problems. Both recalls were reported on msnbc.com. The Toyota article was 966 words and described the company as “lurching from recall to recall”; the Nissan article was only 285 words long and suggested that there was nothing unusual about Nissan’s recall. P.A. Eisenstein, “Dark Clouds Gather Over Toyota After New Safety Setback,” Oct. 21, 2010, http://msnbc.com ; and “Nissan Recalls 2 Million Cars Worldwide,” Oct. 27, 2010, http://msnbc.com .

12. A. Frean, “Fears Over Potential Toyota Problems Surfaced in 2006, U.S. Senate Told,” Times Online, March 3, 2010, http://business.timesonline.co.uk .

13. J.S. Busby, “Failure to Mobilize in Reliability-Seeking Organizations: Two Cases from the UK Railroad,” Journal of Management Studies 43, no. 6 (2006): 1375-1393.

14. N. Shirouzu, “Toyoda Concedes Profit Focus Led to Flaws,” Wall Street Journal Asia, March 1.

15. Toyota Industries Corporation, “A New Direction for a New Millennium: Annual Report 2001” (Kariya, Aichi, Japan: Toyota Industries Corporation, 2001); and Toyota Motor Corporation, “Driving to Innovate New Value: Annual Report 2008” (Aichi, Japan: Toyota Motor Corporation, 2008).

16. J.B. White, “What’s Safer: A Chevy or Mercedes?” Wall Street Journal, Sept. 22, 2010, sec. D, p. 1.

17. D. Barkholz, “Fixing Cars’ Brains Saves Ford Millions,” Automotive News, May 11, 2010, 12B.

18. N. Shirouzu, “Inside Toyota, Executives Trade Blame Over Debacle,” Wall Street Journal, April 13, 2010.

19. M. Ramsey and N. Shirouzu, “Toyota Is Changing How It Develops Cars,” Wall Street Journal, July 6, 2010, sec. B, p. 6.

20. T. Fujimoto, “Toyota Overwhelmed by Demon of Complexity,” Asahi Shimbun, March 3, 2010, http://www.asahi.com .

21. R. Dore, “Taking Japan Seriously” (Stanford, California: Stanford University Press, 1987), 173-192.

22. R. Sherefkin, “Detroit 3 Score Higher with Suppliers,” Automotive News, May 24, 2010, 16B; and R. Sherefkin, “Toyota Loses Luster with Suppliers,” Automotive News, May 25, 2009.

23. N. Roland, “Toyota’s U.S. Execs: Japan Didn’t Share Info,” Automotive News, Aug. 9, 2010, 3.

24. Ramsey and Shirouzu, “Toyota Is Changing.”

Acknowledgments

More like this, comments (8), what happened in toyota – lean six sigma consultant directory, darren relty, trent harding, martin dressler, siswanto gatot, charles h. green.

HYDE STREET JOURNAL

Toyota’s recall crisis case study.

• INTRODUCTION

In 2009, Toyota has recalled nearly eight million vehicles in the United States for two mechanical safety defects that can cause unintended acceleration: ‘sticking’ accelerator pedals and a design flaw that can cause accelerator pedals to become trapped by floor mats. These recalls were triggered by a car collision in August 2009 that took the lives of four people. When NHTSA(National Highway Traffic and Safety Administration) first identified the two defects more than a year ago, the agency pushed Toyota to conduct recalls quickly. Toyota later paid nearly $33 million in civil penalties as the result of investigations into whether the company notified NHTSA in a timely manner about these defects. During Congressional hearings on the Toyota recalls in February 2010. Members of Congress asked NHTSA to study whether electronic or software problems in Toyota vehicles could be to blame for unintended acceleration. In March 2010, NHTSA enlisted top NASA engineers and experts in areas such as electromagnetic compatibility to study whether electronic flaws can cause unintended acceleration. In its final report, NASA engineers found no evidence of an electronic defect in Toyota vehicles capable of producing dangerous, high-speed unintended acceleration incidents. The two mechanical safety defects originally identified by NHTSA remain the only known causes of dangerous unintended acceleration incidents.

Consumer attitudes toward Toyota began to change. Prior to Toyota’s historic recall in November 2009, over three-quarters (83%) of U.S. adults surveyed were positive about the brand while fewer than 1 in 5 (17%) were negative.

• CASE ANALYSIS
• Toyota Brand

Toyota Motor Corporation is a Japanese automotive manufacturer headquartered in Japan. In 2013 the multinational corporation consisted of 333,498 employees worldwide and, as of November 2014, is the twelfth-largest company in the world by revenue. The company was founded by Kiichiro Toyoda in 1937. Toyota is the world’s first automobile manufacturer to produce more than 10 million vehicles per year.

Consumer Reports’ Car Reliability Survey finds that Toyota dominates the industry when it comes to the most reliable cars. The findings come from Consumer Reports’ 2012 Annual Auto Survey, which is based on subscribers’ experiences with 1.2 million vehicles. Toyota is one of the top-selling brands in America and Toyota is committed to safety and dependability and to creating the most reliable cars. It strives for continuous improvement in everything it does, along with creating breakthrough products for the future.

• Products Quality

Some say that Toyota grew too fast, and its quality decreased. On the other hand, quality experts say that in spite of Toyota’s rapid growth, quality has remained at better than industry average levels. In fact, Lexus, a Toyota luxury brand, often leads the industry in quality.

( http://www.qualitydigest.com/inside/quality-insider-article/so-does-toyota-really-have-quality-issue.html )

All makes and models of automobiles are found to have issues from time to time. The only way that these issues can be put in perspective, however, is to compare them to competitive makes and models. As the media fueled the notion that Toyota automobiles had serious defects, the actual data did not support this notion. A definitive joint study by the National Highway Safety Administration and NASA found no electronic flaws in Toyota vehicles that would cause dangerous self-acceleration issues.

For 2012,Toyota topped the Insurance Institute of Highway Safety’s list with 15 models in 2012. The National Highway Traffic Safety Administration gave the 2012 Toyota Camry a 5-star rating. This is not to say that individual vehicles did not have flaws that caused problems. Any electro-mechanical device made by man can malfunction. There seems to be no definitive data that shows that there was a systematic problem with Toyota vehicles.

• Investigations and Results

There is absolutely no evidence of sudden unintended acceleration caused by electronic problems in Toyota vehicles. The only causes NASA found were improperly installed floor mats and sticky gas pedals that can be slow to return. There has been only one documented accident caused by the floor mats — the one involving the loaner Lexus, where the dealer had used the wrong floor mat and failed to attach it properly with the provided restraining clips — and there have been no documented cases of accidents caused by the very small number of sticky pedals. Most accidents have been attributed to driver error.

When complaints of self-acceleration were first reported, Toyota did not know how to handle them. Rather than say that they are investigating the complaints and will issue a complete report at the conclusion of their investigation, Toyota representatives reacted to the complaints in ways that confounded marketing and crisis management experts. They confused everyone by jumping to conclusions and suggesting different causes in rapid succession. First, they attributed the problem to operator error, which is the most frequent cause of self-acceleration problems in automobiles (the issue that nearly triggered demise of Audi in the US market during the mid-1980s).

Then, Toyota suggested the cause of the problem was floor mats that trapped the gas pedal. Some engineers blamed “sticky” gas pedals. This was followed by the suggestion that faulty electronics caused the unintended acceleration. Instead of reassuring the marketplace, Toyota acted in a way that caused owners to fear for their safety and prospective buyers to look for other makes and models. For example, Jim Lentz, president and chief executive officer of Toyota Motor Sales, USA, went on the Today Show and looked like a “deer in the headlights” in response to Matt Lauer’s cross-examination. In a poll taken before Lentz spoke, 37% said they were less likely buy Toyota cars. The negative numbers jumped to 56% after he spoke. The uncertainty created by Toyota representatives triggered a series of costly recalls, lawsuits, and lost business – causing Toyota and their dealership network to incur further losses from hefty discounts and implementing the recalls.

Feb. 24, 2010, Akio Toyoda, the president and CEO of Toyota, issued the following statement in regards to the recalled vehicles:

“ Toyota has, for the past few years, been expanding its business rapidly. Quite frankly, I fear the pace at which we have grown may have been too quick. I would like to point out here that Toyota’s priority has traditionally been the following: First; Safety, Second; Quality, and Third; Volume. These priorities became confused, and we were not able to stop, think, and make improvements as much as we were able to before, and our basic stance to listen to customers’ voices to make better products has weakened somewhat. We pursued growth over the speed at which we were able to develop our people and our organization, and we should sincerely be mindful of that. I regret that this has resulted in the safety issues described in the recalls we face today, and I am deeply sorry for any accidents that Toyota drivers have experienced. Especially, I would like to extend my condolences to the members of the Saylor family, for the accident in San Diego. I would like to send my prayers again, and I will do everything in my power to ensure that such a tragedy never happens again.”

• Market share
• Quality, Safety
• Brand image, Reputation
• Responsibility
• Customer supports
• ACTION PLANS

Toyota got into a crisis that drove it to reflect intensively and to make dramatic changes to improve its responsiveness to customer concerns — but lost billions of dollars of value in the process.

• Proposed a solution so the defects are unlikely to reoccur
• Providing sufficient, independent, and credible data
• Making ads to back up historic quality and safety
• Getting in touch with every customer
• Improving the communication channel with other companies
• Create and monitor database of repairs and concerns
• Improve technology to communicate with customers
• Bring back the customer loyalty

APPENDIX: Timeline of Major Events

March 29, 2007 :  NHTSA opens a preliminary investigation into pedal entrapment on MY’07 Lexus ES350 models based on five consumer complaints alleging three crashes and seven injuries. The all weather floor mat is identified as the possible cause of these incidents.

July 26, 2007 :  A fatal crash occurs in San Jose, CA involving a ‘07 Camry in which the driver suffers serious injuries and the driver of the struck vehicle is killed.

September 13, 2007 :  After determining the fatal San Jose crash was caused by floor mat entrapment, NHTSA tells Toyota a recall is necessary.

September 26, 2007 :  Toyota recalls 55,000 floor mats in ’07 and ‘08 Camrys and ES350s.

August 28, 2009 :  A fatal crash occurs in Santee, CA. The vehicle is found to have an all weather floor mat from another Lexus vehicle. Investigators find that the vehicle’s previous driver had reported an entrapment incident to the dealership.

September 25, 2009 :  NHTSA tells the company that the floor mat recall is insufficient and the agency expects a recall for the defect in pedal design. Three days later, Toyota tells NHTSA the company will recall the gas pedals.

October 5, 2009 :  Toyota recalls 3.8 million vehicles for pedal entrapment by floor mat and sends an interim letter to consumers telling them to remove floor mats.

January 21, 2010 :  Toyota recalls 2.3 million vehicles for the sticky pedal defect.

March 30, 2010 : The U.S. DOT(Department of Transformation) announces two studies into unintended acceleration. One looks at possible electronics causes for unintended acceleration in Toyotas; the other examines unintended acceleration and the safety of vehicle electronics across the automotive industry.

April 5, 2010 : NHTSA demands the maximum, $16.375 million, civil penalty on Toyota for its failure to notify the agency of the sticky pedal defect for more than four months after discovering it.

December 20, 2010 :  Toyota agrees to pay the maximum $16.375 million civil penalty as the result of another NHTSA investigation into whether their recall of 5.5 million vehicles for pedal entrapment was conducted in a timely manner.

Y.K, Z.L, T.H

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The Toyota Recall Crisis Case Study

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What Toyota’s $1.2 billion settlement means for the auto industry

PBS NewsHour PBS NewsHour

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• Copy URL https://www.pbs.org/newshour/show/toyotas-1-2-billion-settlement-means-auto-industry

The Justice Department announced a record $1.2 billion dollar penalty leveled at automaker Toyota. A four-year criminal investigation determined the car company had concealed unintended acceleration issues, a serious safety concern. That case could serve as a warning to General Motors, now facing its own federal investigation. Gwen Ifill talks to David Shepardson of the Detroit News and Joan Claybrook, president emeritus of Public Citizen.

Read the Full Transcript

Notice: Transcripts are machine and human generated and lightly edited for accuracy. They may contain errors.

GWEN IFILL:

Four years after launching a criminal investigation of Toyota, the government wrapped up its case today by announcing a major settlement, in which the company admitted criminal wrongdoing for concealing safety concerns.

ERIC HOLDER, Attorney General:

Today, we can say for certain that Toyota intentionally concealed information and misled the public about the safety issues behind these recalls.

In a toughly worded statement, Attorney General Eric Holder announced the record $1.2 billion settlement this morning. Toyota, the federal investigators said, purposely concealed what it knew about the full scope of unintended acceleration issues, linking them to faulty brakes, sticking gas pedals and tangled floor mats.

ERIC HOLDER:

Toyota confronted a public safety emergency as if it were simply a public relations problem. Put simply, Toyota's conduct was shameful. It showed a blatant disregard for systems and laws designed to look after the safety of consumers. By the company's own admissions, it protected its brand ahead of its own customers.

Recalls began in 2009, and ultimately spread to more than 10 million Toyota vehicles. Company sales plunged, but have since rebounded.

In a news release today, Toyota USA's chief legal officer, Christopher Reynolds, insisted the auto giant has become more responsive since 2009.

He said, "This agreement, while difficult, is a major step toward putting this unfortunate chapter behind us."

But Holder said the case also serves as a warning to others in the auto industry.

Other car companies shouldn't repeat Toyota's mistake. A recall may damage a company's reputation, but deceiving your customers makes that damage far more lasting.

That's a not-so-veiled reference to General Motors, now facing its own federal investigation over its handling of faulty ignition switches. The company finally recalled 1.6 million vehicles last month, amid revelations it had known of the problem since 2004.

Another 1.7 million vehicles were recalled for different problems on Monday. GM says there have been 13 deaths, but a study for the Center for Auto Safety found the real number could total more than 300, a number GM disputes.

In a video posted to GM's Web site Monday, new CEO Mary Barra promised the company is completely focused on the problem.

MARY BARRA, General Motors:

And we are putting the consumer first, and that is guiding every decision we make.

Yesterday, Barra apologized, saying she's very sorry for the loss of life tied to the defects. The GM probe could last months. As for Toyota, federal prosecutors say they will dismiss a criminal wire fraud charge in three years if the company fully complies with the settlement.

Some further detail now on today's settlement and what it means for the auto industry. David Shepardson covers it for The Detroit News. And Joan Claybrook is a past president of Public Citizen and she served as chief of the National Highway Traffic Safety Administration under Jimmy Carter.

How does this, David, compare to previous settlements we have heard about?

DAVID SHEPARDSON, The Detroit News:

The Toyota settlement is by far the biggest ever. This was a huge blow to the company from the attorney general.

You don't see this type of language used, I mean, shameful, cover-up, and said that Toyota, during the 2009 time frame, knew it had problems and not only did it opt not to do anything, but it canceled a proposed fix. So this is as strong as the company — as the government could be and finally extracted an admission of wrongdoing from Toyota, which it had steadfastly refused to do for five years.

For the record, we invited representatives from Toyota and GM to join us tonight, and they declined.

How big deal does this seem to be to you in your experience following these issues, Joan Claybrook?

JOAN CLAYBROOK, Former President, Public Citizen:

I think it wants huge.

It's huge because the National Highway Traffic Safety Administration doesn't have criminal penalty authority. And so it depends on the Justice Department to do something they never have before. And it's also suggests, the settlement, that they're going to do something more with General Motors and they're putting out a warning to all the companies.

I think that the chief executives of every single auto company around the world is taking a hard look at their defect files, and what they have not reported and what they should have reported. This is going to force them to behave and act in the consumer interest.

Often, in these kinds of business settlements, the company — the affected company says, I'm not admitting wrongdoing, but I'm willing to settle this so it doesn't go to court.

Reading the statement of fact that Toyota itself agreed to, they admit criminal wrongdoing.

DAVID SHEPARDSON:

Right. They're not — they're going to enter this deferred prosecution agreement, so they're not pleading guilty. But that was something the Justice Department really wanted in these negotiations that have gone on for a long time.

They didn't want Toyota to simply write a check. They wanted them to admit that they had done wrong. But on the other hand, Toyota has turned the page, like other companies. They're now recalling vehicles a lot faster. The company has changed dramatically since then, but they are still paying the price from what happened then.

Is that true, Joan Claybrook, that companies are already learning the lessons of the lawsuits and threats and investigations?

JOAN CLAYBROOK:

They are, because the auto companies have been able to keep a lot of this information secret.

And the National Highway Traffic Safety Administration has not had a lot of transparency. It's something that we'd like to see changed. So it's very hard for the consumer. They may write a letter, but it goes no place. And so here these companies have been unmasked. It's very embarrassing. It means they're going to change, they're going to more responsive, reactive.

And I hope that certainly all of them are going to be more responsive to consumer complaints and lawsuits, because that's a source of information about problems on the road.

A billion dollars is a lot of money, $1.2 billion, but there have been a lot of lawsuits, federal, state, civil lawsuits, which I assume are still out there?

The legal bills for GM — for Toyota total — will top at least $3 billion. There's a $1.6 billion settlement with over 10 million owners of Toyotas for various reasons. They have settled with state attorney generals.

There are individual claims for crashes. So when you would all the costs up for Toyota, it will be well over $3 billion. But, remember, for this year, Toyota expects to make about $19 billion in profits, about half — double what they made the year before and 30 percent of the revenue comes from the U.S. So, their…

This hasn't affected their bottom line?

Well, certainly a little bit, but certainly one out of $19 billion is still significant.

But what this is really about Toyota about getting past this, because this is a very profitable market. And the more they can do to show customers that they have gotten the lesson, that they're way beyond this, the better, since they're making a lot of money here.

Now, David, you and I were here just last week talking about the General Motors recall. And I wonder whether this rings a bell for you, Joan Claybrook, that this is very — you're Mary Barra, the new GM CEO, that you're looking at this and thinking, oh…

… next.

Oh, General Motors is definitely next. And there's definitely been a cover-up of the General Motors problem. The campaign knew.

Do we know that yet?

Oh, absolutely. The company found it on the testing ground in 2004. They sent out bulletins to their dealers in 2005 and 2006 in which they identified what the problem and what the fix was.

They had a meeting with the Department of Transportation in 2007, where the Department of Transportation had an investigation where the investigators said the air bags didn't inflate, and, by the way, the ignition switch was on accessory, which means it wouldn't operate the car, but you could play the radio, but it wouldn't inflate the air bag.

And so it was clear way back then. And I think that the Department of Transportation has completely failed in its duty here. And General Motors has harmed the public terribly. And I think there are going to be many more deaths and injuries that are going to show up. Now that the public is aware of this, they're calling General Motors. They have all these 50 people who are answering the phones, and you're going to hear a lot more about…

If it is true that there's handwriting on the wall here, what strategy is General Motors using to respond to try to get out ahead of it?

I think Mary Barra publicly apologized this week, said they are going to take care of the victims, although they haven't explained how.

But I do think there's a lot of questions left unanswered. Yes, the chronology that GM has laid out shows that they did know of significant problems with this over 10 years. We don't have the e-mails, the memos that Congress and NHTSA are seeking to know. What did they know, when did they know it, did GM really think this was a serious problem, or was it, as someone have suggested, a failure to connect the dots?

So I think there are still a lot of questions. We don't know if what happened to GM rises to the same level as Toyota. But that's what Congress and NHTSA are going to get to the bottom of. And that's what GM has got to be worried about. Is this — are they going to take the same public relations hit?

Let's end this by talking about government's role, because that was very strong language we heard from the Justice Department today, not just from the attorney general, but also from the secretary of transportation, the investigator from the FBI.

So what does that say about a change in attitude maybe in the federal government towards these kinds of investigations?

Isn't that interesting that NHTSA, as Joan said, can only impose penalties of about $60 million on Toyota. And the Justice Department said, no, we are going to fine you $1.2 billion for all the vehicles you sold that we believe fraudulently were sold.

So that basically means, hey, they can fine GM or any other auto company, sky is the limit, if they determine they broke the law. And absolutely every auto company has got to be very nervous and checking their books very carefully.

Briefly, do you think it's a change in the federal government's approach?

We need new legislation. We need criminal penalties at NHTSA, which they don't have. We need higher civil penalties. We need more transparency at that agency.

Yes, it's sort of like don't ask, don't tell. No one asked, they didn't tell. And they should have. And so I believe that there are a number of changes, including more submission of documents and data. And they need a higher budget. Their budget is $134 million for the whole auto safety program for the entire United States. Totally insufficient.

Joan Claybrook, Public Citizen, of course, is how we know you, and David Shepardson of The Detroit News. Thank you both very much.

Thanks, Gwen.

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