How is Toyota faring?

Friday, 05 March 2010 07:56

Toyota's President, Akio Toyoda, has now testified and apologised to the US Congress for all the faults in Toyota cars which have necessitated record recalls (being dragged before the Congress was almost a humiliation in the eyes of the Japanese public).  He gave a tearful apology to his US-based staff (in Japan, tears mean both sincerity and forgiveness).  He even went to China and made an apology, with a deep bow, which until then he had not made during this affair.  He has of course promised to rectify all the many problems.

But, how is Toyota really faring?  Not so well, methinks.  This is no longer a normal case of a carmaker with isolated problems.  What we see is that the "Toyota Way" now has deep systemic failures.

Way back in 2006, Toyota's Japan-based bosses were warned by its North American leadership that quality problems were emerging, and that regulators (the National Highway Traffic Safety Administration, NHTSA) were now looking more closely at them.  Calls to Toyota's Nagoya headquarters to deal with this were also made again 2008.  But all this fell on deaf ears.  A global company cannot survive with a head office that is out of touch with the global markets, now the source of the majority of its revenues.   

An inside report from 2009, reveals that Toyota saved $100 million by negotiating and minimising an equipment recall in 2007.  There are also reports of a secret internal database which documented design problems in Toyota vehicles.  How did Toyota imagine that they would get away with these problems?

Akio Toyoda's presentation to Congress was delivered in only halting English.  And his answers to questions were made through an interpreter, even though he apparently has an MBA from Babson College in Massachusetts.  But despite his undoubted sincerity, and reassurances that Toyota is solving the problems, most people Stateside do not believe that Toyota has gotton to the bottom of the technical problems.  Toyota's engineers may focus too much on individual components, without having an overall control of the functioning of their vehicles.

In his testimony, Toyoda acknowledged that the company's expansion plans in pursuit of the title as world's biggest car producer had been too rapid.  Production increased by 60 per cent from 2000 to 2008.  "We pursued growth over the speed at which we were able to develop our people and our organisation and we should be sincerely mindful of that."  Quality control and safety suffered.  Toyota's and Japan's uniquely excellent engineers and craftsmen could not keep pace.  There were simply not enough as training new ones takes years.  This problem will not be solved overnight.  And in the face of Chinese and Korean competition, price cuts were forced on component suppliers who are prisoners of the Toyota production system.        

As the old saying goes, "it takes two to tango".  It seems clear that the NHTSA may also have fallen asleep at the wheel, just like the American financial sector regulators in recent years.

But it seems that for Toyota to get over this problem, the so-called "Toyota Way" need to be re-invented.  It can no longer remain an ethnocentric, inward-looking enterprise.  It will have to become a globally integrated enterprise with a truly global approach to management and engineering.  It will also have to accept the demands of transparency and accountability from foreign governments, lawmakers and customers.  And above all it will need to reinstall "wa" (harmony) in several ways, most particularly by keeping its expansion objectives in balance with its own internal management capacities.

Are Toyota's corporate bureaucrats capable of such change?  That is the question.