How Toyota Lost Its

HOW TOYOTA LOST ITS WAY FROM TOYOTA CITY TO KENTUCKY AND FROM DETROIT TO WASHINGTON AND TOKYO, REUTers’ repORTERS EXAMINE WHAT WENT WRONG AT THE WORLD’S LARGEST AUTOMAKER IN THIS SPECIAL REPORT FEBRUARY 2010 REUTERS SPECIAL REPORT ON TOYOTA INSIDE TOYOTA’s epic breakdOWN By Nathan Layne, Taiga Uranaka and Kevin Krolicki TOYOTA CITY, Japan/DETROIT - Toyota Motor in a deposition room being grilled by lawyers Corp, the world’s most dominant and profitable for the family of a 77-year-old Michigan woman automaker, was not accustomed to outsiders telling who was killed in 2008 when her Camry took off it what to do, let alone some obscure bureaucrat uncontrollably and slammed into a tree just four from the United States, whose own car industry was blocks from her home. on taxpayer-funded life support. Medford’s warnings went unheeded. By late But in the middle of December, on a cloudy day January, Toyota’s safety problems would explode in the middle of the Japanese archipelago’s main into a crisis that has battered its finances and island, Ron Medford, the acting head of the U.S. shaken consumer confidence in one of the world’s agency that regulates auto safety, was reading best-known brands and an icon of Japan’s Toyota executives the riot act. spectacular post-war economic success. Medford had been quietly dispatched by the Obama Since the American team’s visit, an additional 4.7 administration to deliver a firm message: Toyota, he million Toyota cars have been recalled globally, told them, had better get its act together, according the largest safety action ever for the automaker. to U.S. regulators. Reported problems with acceleration now shadow the Camry, the plain-vanilla sedan that powered By the time Medford arrived in Japan, Toyota was working through a recall that would involve over 5 million vehicles in the United States. The problem was mundane but potentially lethal: floor mats were trapping the accelerator pedal. U.S. safety regulators had tied five deaths to accidents where that seemed to be the cause, and there were growing doubts about whether the Toyota floormat and pedal design -- a relatively cheap fix -- was the only flaw that needed to be addressed. Over the prior seven years, the number of U.S. consumer complaints about unintended acceleration in Toyota cars had been steadily climbing, hitting 400 reported cases for the 2007 model year, according to an analysis of National Highway Traffic Safety Administration (NHTSA) data. But five previous investigations into Toyota opened by NHTSA under the Bush administration had hit a dead end, with no action taken. Two safety probes resulted in relatively cheap floormat recalls by Toyota in 2007 and early 2009. Neither attracted much notice. In the closed-door meeting in Nagoya, Medford told four Toyota executives that the automaker was moving too slowly in addressing safety defects under investigation by U.S. authorities. He said he wanted changes, and he wanted them fast. NHTSA regulators, who face new scrutiny for the agency’s response to consumer complaints about Toyota vehicles, provided an account of the watershed meeting to Reuters. One of the Toyota officials in the room, Chris Santucci, had spent two days the week before 2 REUTERS SPECIAL REPORT ON TOYOTA Toyota’s success in the 1990s, and braking glitches AKIO TOYODA threaten to unplug the Prius, Toyota’s green “halo Grandson of Kiichiro car” for a new era. Toyoda who founded the automaker in 1937. Akio What’s more, critics charge that the automaker Toyoda took the helm in still has not come to terms with the root causes June 2009 after 25 years of the safety issues and it has only just begun to with Toyota, the sixth acknowledge how badly it has lost its way. Toyoda family member to “Anybody working on the Toyota assembly line can head the firm. His father pull the cord and stop the line if there’s a problem tried to talk him out of that needs to be fixed,” said Ed Hess, a business joining the company in the consultant and professor at the University of 1980s, saying "no one will Virginia who has studied the risks of growth for big want to be your boss." companies. “Why did it get to where we are now? Toyoda, 53, was long Why didn’t somebody at Toyota pull the cord?” seen as a candidate to head the world's larg- Versions of that same question are being asked est automaker as he rose on Wall Street and on Capitol Hill -- as well as through the ranks at in Toyota City, a company town where veteran nearly twice the speed of workers confronted the crisis with a sense of shared his predecessor, Katsuaki responsibility that the carmaker has prided itself on Watanabe. fostering. Toyoda vowed to quash “We are not sitting on our hands in Japan,” said a big-company disease" 30-year veteran production manager at Toyota at and steer Toyota "back to a bar in Toyota City where the automaker’s recalls “Toyota used to be a great listener,” said one basics" after a decade of dominated the chatter. Said another worker: “We consultant who asked not to be named because massive expansion as the have a sense of crisis. How can we not with all the he still has business with the company. “But about firm grappled with a steep media attention? Everyone feels that way.” three to five years ago, there was something that downturn in global auto On Feb. 24, the U.S. House of Representatives suddenly shifted. There was a view that nobody sales. Oversight Committee is set to grill U.S. outside Toyota had the answer. It got to the point A car enthusiast and ac- Transportation Secretary Ray LaHood and Toyota’s where the organization was hearing, but not tive amateur racer, Toyoda senior U.S. executive, Yoshi Inaba, about why listening.” joined the automaker Toyota’s safety complaints appeared to have mid-career in 1984 after When crisis hit in late January, Toyota stumbled spiraled out of control and whether the causes have earning a master's degree to provide a clear message to consumers and been fully identified. in business administration investors. The company’s secrecy and tendency to from Babson College in A day later the House Energy and Commerce centralize decision-making in Japan contributed to Massachusetts. Committee will hold its own hearing on the Toyota the public relations debacle, experts say. Picture credit: REUTERS/Kim safety crisis. “Toyota had the perfect model for the 1980s and Kyung Hoon “I just don’t accept that Toyota couldn’t put the 1990s, but its approach now looks outdated,” said dots together,” said Joan Claybrook, former Stefan Lippert, a business professor at Temple administrator of the National Highway Traffic Safety University in Japan. “The concentration of decision- Administration and one of the expert witnesses making at headquarters is one of the factors behind called to testify in Congress. Toyota’s problems right now.” In a sense, insiders say, Toyota has become a victim of its own dizzying success. GETCHA BOOTS ON Consultants, suppliers, dealers and analysts say One of the organizing principles of Toyota’s fast growth strained the company’s resources to industrial ideology is that you have to “genchi breaking point. The additional stress of achieving genbutsu” a problem. In Japanese that means you near constant cost reductions in parts added to the have to go to the place, to touch the thing itself. You pressure. have to meet the customer, lift the hood, get your hands dirty. Walk, don’t talk, Toyota instructs its Others say a hint of complacency crept into dealings workers. with outsiders as Toyota moved toward taking over the industry’s top spot by sales in 2008 from It is a phrase that Akio Toyoda, grandson of the General Motors. The protracted back-and-forth company’s founder, is fond of trotting out. “Quality with U.S. safety regulators on the acceleration is Toyota’s lifeline,” he said in his first public complaints also suggests an organization hunkering appearance in the United States after becoming down against change, critics say. Toyota’s president in June. 3 REUTERS SPECIAL REPORT ON TOYOTA In its relentless quest for quality, said Toyoda, the KATSUAKI WATANABE company had to live and breathe the two big ideas Former Toyota president that had made it great: “customer first” and “genchi Katsuaki Watanabe rose genbutsu.” to the helm of the automaker in 2005 after a Some of Toyota’s first U.S. production workers hired 41-year career that began for its flagship plant in Kentucky two decades ago with the role of cafeteria joked that they heard that latter phrase differently in manager in charge of English. To them, it sounded like “Getcha boots on.” trimming costs from the After three months of busy and sometimes kitchen. frustrated exchanges with Toyota’s U.S. staff on Watanabe, 67, was best safety issues, the U.S. Department of Transportation known as a cost-killer in- decided last December to try a very Toyota tactic side Toyota who pressed to get the automaker’s attention. Medford got his subordinates to wring boots on and headed to Japan. costs out of operations by simplifying components In a crowded meeting hall in Toyota’s headquarters and sharing them across on Dec. 15, Medford and two other senior NHTSA model lines. By slam- officials first delivered what amounted to a remedial ming the brakes on costs, lesson in U.S. safety regulation for about 100 Toyota Watanabe put his career engineers and executives, a primer in how the and Toyota's profits in the system is supposed to work.

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