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.