Repairing Some Dents in an Image (vaguely OT, but I think of interestto the group)

August 5, 2006
Repairing Some Dents in an Image
By MICHELINE MAYNARD and MARTIN FACKLER

The news is something no car owner wants to hear. Power steering on
their hard-to-get hybrid could fail. Tires on their small pickups could
bulge and possibly burst. Air bags may not inflate during a crash.

These recalls are the type that have long bedeviled American carmakers,
but this time it was Toyota of Japan, long known as the crème de la
crème in quality.

Just as Toyota appears poised to pass General Motors to become the
world’s largest automaker, it has a growing problem with recalls that is
sullying its carefully honed image.

In the United States, Toyota’s largest market, the number of vehicles
recalled soared to 2.2 million last year. That was double the number of
vehicles recalled in 2004, and more than 10 times the 200,000 cars it
recalled in 2003, according to the National Highway Traffic Safety
Administration.

In Japan, the number of recalled vehicles has jumped 41-fold since 2001,
to 1.9 million last year. And because many of the recalls are for
vehicles that are more than 10 years old, analysts fear that another
wave of bad quality news may be in store.

The situation has alarmed Toyota’s top executives and angered the
Japanese government. It ordered Toyota to explain itself, which the
company did in a report delivered Thursday, accompanied by the latest in
a series of apologies. In it, the company promised to create a new
computer database to obtain information more quickly from dealers on
repairs and complaints. The police in Japan said three Toyota officials
were under criminal investigation on suspicion that they concealed
vehicle defects over eight years.

Inside Toyota, the spate of recalls and the criminal investigation has
caused a flurry of high-level efforts to diagnose and fix the problems,
which have affected its Prius hybrid, the gold standard among
fuel-efficient vehicles; the Tacoma pickup; and cars in its Lexus luxury
lineup.

Quality problems can befall any company, whether based in Detroit,
Europe or elsewhere. This week, in fact, Ford expanded a recall of its
vans, sport utility vehicles and pickup trucks because of problems with
cruise control systems that were prone to catching fire.

For now, Toyota’s quality issues do not seem to be damping its
operations either in Japan, where it is the biggest automaker, or the
United States, where Toyota passed Ford in July to rank as the No. 2
company in terms of auto sales. Nor is it affecting Toyota’s net income,
which climbed 39.2 percent during the second-quarter, to $3.2 billion,
the company said yesterday. [Page C4.]

But executives know they cannot let the situation fester, because it
ultimately threatens Toyota’s ability to grow. If they fail to get their
arms around the problem, they will have to pull back on the company’s
expansion plans, which are set to include more assembly and engine
plants for the United States, as well as factories elsewhere.

At Toyota’s annual executive meeting in June, its departing chairman,
Hiroshi Okuda; the new chairman, Fujio Cho; and its chief executive,
Katsuaki Watanabe, all vowed to managers that the quality issue would be
addressed, according to a senior Toyota executive who attended the meeting.

“The quality issue is a big concern. They’re embarrassed about it,” said
the executive, who insisted on anonymity because the meeting was private.

“You think about Toyota, and quality is in our DNA,” he continued. “We
are concerned about looking like the rest of the pack. The market is
forgiving because of our long reputation, but how long will they be
forgiving?”

Interviews with car owners and dealers show they have some latitude.

Bruce Wachtell, 71, bought a 2006 Prius in March after years of driving
a Toyota Tacoma pickup without any problems.

“It’s never seen a dealer,” he said of the truck.

Mr. Wachtell, a retired ship’s radio officer living in Stinson Beach,
Calif., began buying foreign cars after growing frustrated with the
quality of American-made vehicles. That sentiment is confirmed, he said,
whenever he peruses repair records for various brands in Consumer
Reports, and he has not lost any confidence in Toyota because of the
recent recalls.

“I think recalls are just simply a function of the fact that no design
is perfect,” he said.

Mr. Wachtell called his dealership after discovering recall notices that
included the 2006 Prius on the Internet, but he was told his vehicle was
not among those affected. Both the Tacoma and the Prius, however, are
among the vehicles in Toyota’s recent recalls.

At Bredemann Toyota in Park Ridge, Ill., Don Ziemke, the general sales
manager, said only a few shoppers had asked about the implications of
the recalls. Other dealers said they had prepared their employees to
answer such questions, but that no one had even brought up the topic.

“Toyota’s longevity and reliability has always been a strong suit,” Mr.
Ziemke said. “That kind of takes a hit when there are recalls out there.”

Still, he said, “It’s against the grain as far as what Toyota has
provided its dealer body and customers in the past.”

The primary reason for the recalls is Toyota’s overloaded engineering
staff, say company executives and industry analysts.

Despite its global expansion during the 1990’s, it failed to hire enough
engineers to keep up with production increases.

And it kept most of its development in Japan, even though it built
research and development centers in places like Ann Arbor, Mich., and
Brussels. At the same time, a new Japanese law required companies to pay
for overtime for white-collar workers, raising the costs incurred by
engineers, whose long hours on the job were the stuff of industry legend.

Analysts say that all this may have contributed to a number of errors
introduced during vehicle development. There have been fewer problems on
the assembly line, however, which has been a more common cause of recent
recalls at other carmakers like Nissan.

Another issue is that Toyota, like other global auto companies, has
farmed out the development of key components to its suppliers, both
companies with which it has been doing business for years, like Denso of
Japan, and newer ones, like the Delphi Corporation, the biggest American
parts maker.

The damage has been slow to emerge — indeed, most recent recalls involve
cars produced in the 1990’s. But that means potential problems from
hectic growth years in the early 2000’s have yet to appear, and analysts
warn that Toyota’s quality woes may only become worse before they get
better.

“I’m more concerned about the future,” said Kunihiko Shiohara, an auto
analyst for Goldman Sachs in Tokyo. “A fundamental turnaround in quality
levels will take at least four years.”

It also does not help that some rivals appear to be gaining quality
ground on Toyota, whose Toyota-brand cars and Lexus line of luxury cars
had long topped quality rankings. It still dominated the recommended
list from Consumer Reports this year. But in June, a survey of
new-vehicle quality by J. D. Power & Associates, a marketing research
company, ranked the German luxury carmaker Porsche in the top spot, and
with Hyundai of South Korea in second place, ahead of Toyota at No. 3.

To be sure, rising recall numbers are not limited to Toyota. A reason
that recalls have gone up is that automakers are using an increasing
number of common parts across a number of car models, which saves money,
but also means that flaws affect larger numbers of vehicles.

Another is the increasing complexity of vehicles, as companies rely more
heavily on electronics and computerized features that used to be
mechanical. “It’s not fair to single out Toyota for many problems,” said
Takaki Nakanishi, an auto industry analyst with J. P. Morgan in Tokyo.

Still, the rapid rise in recalls at Toyota stands out in comparison with
other carmakers. In Japan, where Toyota is the largest auto company,
with about 39 percent of the market, its recalls quadrupled over the
last four years, to 1.9 million in 2005. That compares with 199,000 at
No. 2 Nissan and 205,000 at Honda in 2005, according to the
transportation ministry.

In Toyota’s case, 68 percent of its recent recalls can be blamed on
design flaws, according to Goldman Sachs. They include rubber parts not
made thick enough to withstand engine heat and joints too weak to hold
together. Of Toyota’s recalls in 2004, 68 percent were because of design
problems, Goldman Sachs said.

Analysts say Toyota’s problems stem from the mid-1990’s, when Mr. Okuda,
who was president, began expanding its global production. Toyota did not
hire enough engineers to keep up with production increases because it
was trying to meet tough self-imposed cost-cutting targets, analysts said.

Understaffed design centers have also forced Toyota to rely on large
parts makers to help design major components “Toyota’s resources have
been stretched quite a bit by the big increases in volume,” said Andrew
Phillips, an analyst at Nikko Citigroup in Tokyo. “What’s remarkable is
that most the recalls now predate the really big ramp-up.”

That came after 2000, when Toyota’s annual vehicle sales rose to the
almost 8.85 million expected this year, from about 6 million.

But Toyota has increased the hiring of new engineers, bringing on 979
last year, compared with 310 in 2001. A company spokesman, Paul Nolasco,
said Toyota planned to hire at least another 850 this year.

In a departure from corporate tradition that stressed spending a career
at a single company, Toyota wants 200 of its new hires to be experienced
engineers hired in midcareer from elsewhere.

In June, Toyota assigned a second executive vice president to its
quality control division and created a new senior managing director spot
dedicated to improving quality.

“Everyone is taking this very seriously,” said a top-ranking executive
in Toyota’s North American operations who spoke only on condition of
anonymity because of the sensitivity of the situation. The stakes are
high, he added: “If we can’t lick it, we will have to slow down” — a
decision Toyota hopes it does not have to make.

Nick Bunkley contributed reporting for this article.

Copyright 2006 The New York Times Company

Sparky Spartacus wrote:
<snip>

sparky, can't you spot detroit-paid lobbyist fud when you see it? sit
back and enjoy the quite incredible irony of realization that if detroit
spent the same amount of time and effort on consulting engineers, q.c.
and management attitude adjustment as they did on placing fear-mongering
drivel like this, they'd be able to compete with the japanese head to
head. and win.

The bottom line is that Toyota at least works to fix their problems, unlike
the big 3.

I agree about the increased use of electronics for a lot of things being a
significant problem. Electronics does not necessarily equate into greater
reliability.

High Tech Misfit wrote:
> The bottom line is that Toyota at least works to fix their problems, unlike
> the big 3.
>
> I agree about the increased use of electronics for a lot of things being a
> significant problem. Electronics does not necessarily equate into greater
> reliability.

The more lights and blinky things, the more lights and blinky
available to break. This is called "Ruprects Law".
MK