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Toyota Troubles Mounting, Reputation Slipping

Opinion: Automaker’s problems may only get worse.

by on Sep.30, 2009

What went wrong? Perhaps no product is more emblematic of Toyota's current troubles than the Tundra full-size pickup.

What went wrong? Perhaps no product is more emblematic of Toyota's current troubles than the Tundra full-size pickup.

These were supposed to be the best of times for Toyota.  Instead, they’re turning into the worst.

It was just barely a year ago when the Japanese giant finally surged past its American rival, General Motors, to become the world’s best-selling automaker.  For years, that had seemed like an eventual inevitability; and though Toyota officials routinely insisted that being number one wasn’t their goal, a high-placed executive, now retired, said it was the consuming desire for Toyota’s top management.

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On the way up, it seemed like the company could do no wrong.  It steadily rolled out an array of new products that connected with American consumers the way domestic makers couldn’t.  Models like Camry, RAV4 and the Lexus LS460 routinely topped the quality charts, while also delivering some of the market’s best resale values.  The Prius, meanwhile, became the darling of the environmental movement, giving Toyota the image of being the greenest of automakers.

Politically savvy Toyota, once burned by so-called “voluntary” import restraints, rapidly expanded its North American production base, which had the added advantage of winning it solid political support, both in Congress and among the U.S. public.

But the spotlight has a way of uncovering problems, and suddenly, stories that were once buried in the back of the business section are suddenly front page news. Like the latest announcement that Toyota is recalling 3.8 million vehicles, a move triggered by the well-publicized death of a state trooper and his family, killed when a loose floor mat jammed the accelerator pedal.

It’s not just the biggest recall ever by the maker but, in fact, just the latest in a steadily growing stream of mandatory repairs.  During the last half decade, Toyota has had several years where it recalled more cars, in the U.S., than it sold here.

In many cases, the problems were minor and often caused by a single part shared among many different products.  But the fact is that a growing number of customers have been impacted by a company with a long-standing reputation for building flawless products. And none of the headlines can diminish the fact that when Toyota does it well, it does it near perfectly.

The maker’s big Lexus LX sport-utility vehicle not only topped the latest J.D. Power Initial Quality Survey, but set an all-time record with barely a half a “problem” per vehicle.  But that doesn’t diminish the fact that Lexus has also been passed in several J.D. Power surveys – by Buick, of all things, in Power’s long-term reliability measure, the Vehicle Dependability Index.  Even Consumer Reports had to rethink its long-standing policy of automatically giving every new Toyota and Lexus model an automatic “Buy” recommendation as readers started reporting more and more problems.

Complicating matters, Toyota dealers are more used to simply stamping the paperwork “Sold” than actually servicing customers who traditionally seldom needed much repair work.  In recent years, I’ve fielded more reader complaints about trouble with Toyota dealers than any other brand.  And even company officials, like the second-in-command Don Esmond, acknowledge that’s an issue they’re struggling to address.

When it comes to product, no company is perfect, and even during the best of times, Toyota did make some big mistakes, like the awkward and ungainly Echo sedan.  But the best companies are those that are willing to take calculated risks, fail only occasionally, and move on quickly, as Toyota did when it pulled the slow-selling model and switched to other offerings, such as the much more impressive Venza.

But the Tundra is a problem that Toyota doesn’t know what to do with.  The full-size pickup was supposed to knock the domestic kingpins, like Ford’s F-Series and Chevrolet’s Silverado, out of the box.  But the first sign of trouble came when Toyota wound up running way over budget, spending an estimated $1.5 billion, to bring the latest Tundra to market – only to see potential buyers give it a collective yawn.  The situation grew worse when word got around that the new pickup was plagued by quality problems, something buyers in this segment won’t tolerate.

Today, the San Antonio, Texas truck plant is grossly underutilized, Tundra sales running but a fraction of what was anticipated.  Indeed, with U.S. sales running nearly a third below last year’s levels, Toyota plants across North America, and indeed, in other parts of the world, are operating well below normal – which typically meant a fair bit above straight time rated capacity.  What was supposed to be the company’s newest plant, in Tupelo, Mississippi, is sitting idly, only partially completed.

So far, we’ve only looked at the situation in the U.S., but the cracks are spreading around the world.  The maker reported its first loss in more than a half century for the fiscal year that ended March 31st, and the current year isn’t likely to produce much better results. Meanwhile, Europe’s dominant manufacturer, Volkswagen AG, is fast rising up the global sales charts and could challenge Toyota’s brief supremacy.

Though the list of problems could go on, Toyota’s still has plenty going for it.  After an unexpected slump in sales, early this year, a third-generation Prius hybrid has regained much of its momentum.  But the competition is aggressively targeting Toyota’s hold on the green car segment – and its image.  Ford, for one, made no secret of the fact that its latest Fusion Hybrid model got 4 mpg better mileage than the Camry Hybrid in the EPA’s ratings.

It’s no surprise the Japanese automaker recently shook up its top management, and its new CEO, a Toyoda family heir, has vowed to give regional executives, like those in the U.S., more autonomy to directly address their challenges.

Maintaining the confidence of the American public is one of the most crucial of those tasks.  Just ask General Motors what happens when you can’t.  In much of the country, Toyota is still seen as building the better mousetrap.  But the more it winds up in the headlines recalling millions of vehicles, the more brittle that image becomes.  An ongoing battle with a former corporate attorney, who claims Toyota hid information in a number of vehicle rollover lawsuits could potentially shatter that image into a thousand bits if things go against the company.

As the old adage goes, be careful what you ask for.  Being number one carries a lot of baggage with it.  Toyota doesn’t have much time to fix things or it could begin to look more like GM than it had ever anticipated.

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