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.
1Ed. Wallace, "Toyota, The Media Owe You an Apology."
2Jeffrey Liker, Toyota Under Fire: Lessons for Turning Crisis into Opportunity, McGraw-Hill, 2011; "Toyota's Recall Crisis: What Have We Learned," Harvard Business Review.