POINT OF VIEW/ Noriyuki Matsushima: Lack of discipline worsened Toyota's recall woes

The product recall system allows manufacturers to repair goods as soon as they are found to be defective. While flaws recently found in cars made by Toyota Motor Corp. may not necessarily have been more serious than in other recall cases, the company made the situation worse by failing to properly explain to consumers what exactly was wrong and how it was going to repair the defects.

When the problem of floor mats jamming accelerator pedals on some cars first came to light, top management should have publicly explained the situation and ensured company-wide efforts to deal with the problem. With regard to the brake system problem with the Prius hybrid model, initially, the company repeated an ambiguous explanation, arguing that it was "a matter of feeling" of drivers. Such an attitude amplified distrust among consumers.

The accelerator pedal problem was attributed to U.S.-manufactured parts. Why did the company fail to spot the problem in tests before adopting the parts and using them in millions of cars? Toyota forged ahead with local procurement of parts under its global strategy. Unfortunately, however, quality control at Toyota's North American arm was apparently not up to the standards in Japan. My impression is that the U.S. operation was not as mature as the Toyota headquarters in Japan had thought.

Toyota's North American unit has been facing a problem of low profitability, despite its large unit sales, due to high costs for procuring parts. There is a possibility that cost-cutting efforts resulted in the gas pedal problem.

The parent company in Japan was also slow to react. Why did it take so long for President Akio Toyoda to hold a news conference? He finally did so on Feb. 5 but he could have said the same thing a week earlier. The first thing he should have done was to put out the fire of crisis. As a top executive, he failed to fulfill his most important duty of demonstrating leadership for crisis control. It was clearly a major setback for the company.

Bureaucratic culture

Referring to the news conference, a foreign newspaper reported that Toyoda did not bow deeply enough when he first appeared before reporters. When making a public apology, one must make careful preparations. Isn't there anyone close to the president to advise him on such matters? This is not a question of manners. It appears that discipline in the organization as a whole has become lax. The fact that the company tried to cut short the conference after 30 minutes also gave a stronger impression that it was trying to dodge public scrutiny.

Why did things go so wrong for the automaker? Perhaps Toyota had turned into "too good a company." Few Toyota employees underwent a stormy management crisis. It is my guess that more people who join Toyota today do so because they believe they will be guaranteed a job for life rather than because they love cars. As is often the case with major companies, Toyota may be also turning into a bureaucratic organization. If this is true of Toyota, which had been constantly making an effort to activate itself with such measures as kaizen practice of continually improving manufacturing and other functions, the same thing could very well happen to other companies.

However, in the Feb. 9 news conference in which the president officially announced the recall of the Prius, explanations about technical points were much easier to understand. He also spent nearly two hours to carefully answer questions. Apparently, Toyota management underwent kaizen and its response also became quicker.

What Toyota's Japanese head office needs to do in the short term is to take the initiative to firmly control its U.S. operation.

Toyota will be repairing more than 4 million cars recalled in the United States. Being busy is no excuse for dealers to use bad language or keep customers waiting for a long time. Instead, dealers should regard the opportunity as a good chance to have their customers visit them and treat the visitors politely. If they do, they can recover customers' trust. Perhaps they can even persuade customers to buy Toyota cars again when they replace their cars.

Japanese dealers know this point well. Repairs of the Prius in Japan have got off to a good start. It is imperative that U.S. dealers also develop a strong awareness to win back consumer trust. President Toyoda should make a tour of U.S. dealers, see the progress of repairs with his own eyes and encourage them.

But seen from a different angle, it may not be off the mark to say the ongoing situation unfolded because Toyota's hybrid vehicles reached the final phase of becoming ordinary cars.

Toyota had initially posted considerable losses from the Prius but continued mass production of the hybrid model for more than 10 years. To be honest, the first- and second-generation Prius models were like experimental cars in some areas. I had the impression that their braking responses were not sophisticated. I often heard Toyota officials who developed the Prius models say, "With the third generation, Prius finally became an ordinary car."

Toyota's efforts to eliminate the unpleasant feeling about the brake system resulted in the unexpected problem with the brake control system.

Technological advantage

From now on, other automakers are also expected to release hybrid models. They, too, must clear the problems that Toyota has faced in the last decade. The same thing can be said of electric cars. It may not be difficult to make prototypes, but when it comes to mass production, the matter is not so simple. In particular, securing safety of a commercial model is a tough challenge. I don't think the massive recalls will have a serious impact on Toyota's advantage as an automaker that gives consideration to the environment.

Toyota's share in the U.S. market is expected to drop this year. It may see a decline of 1 to 3 percentage points from last year's share of 17 percent. Sales results in April and May will serve as a test for Toyota when the situation is expected to subside following the public hearings in the U.S. Congress.

Meanwhile, the impact on Toyota's presence in the global market needs to be considered from the following two points: "reduction of carbon dioxide emissions" and "development of low-price models for emerging markets such as China and India." Automakers around the world need to tackle these two challenges simultaneously. The global auto industry is facing a once-in-a-century major change.

As far as the environment technology is concerned, Toyota's lead will remain unchallenged. Toyota is good at making 2,000cc-class cars. But in emerging markets, smaller cars with engine displacements of about 1,000cc sell better. Toyota is also trying to develop low-cost small cars, but whether the project will succeed or not remains to be seen. If it fails, Toyota must make a second attempt. That is where Daihatsu Motor Co., a Toyota subsidiary which specializes in 660cc minicars and other small vehicles, can step in. The idea is to cover the segment by the Toyota group as a whole.

It is difficult for automakers to survive without paying attention to the environment or expanding into emerging markets. This fact remains unchanged with or without Toyota's massive recalls. Moves to reorganize the global auto industry are gaining momentum.

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The author is managing director of the Fundamental Analysis Division of Citigroup Global Markets Japan Inc. He has been covering the automobile industry since 1991.