Toyota Heir Faces Crisis at the Wheel

Toyota Motor Corp.'s U.S. sales halt is a nightmare come true for Akio Toyoda, who took the helm last year of the giant auto maker founded by his grandfather.

The Toyota president, who set out to overhaul how the world's No. 1 car maker designs, manufactures and sells cars, had been worried that a backlash like the one he's now facing over quality would hit Toyota sooner or later, according to a longtime associate. Now he is scrambling to contain just such a disaster.

Toyota's decision Tuesday to stop selling eight popular models in the U.S. and Canada because of possible defects that cause unintended acceleration threatens to damage its reputation for reliability, hinder its return to profitability and unleash a wave of lawsuits. The debacle raises a troubling question for Toyota's leadership: Has it sacrificed quality in its push to capture global market share?

The company's safety woes continue to grow. On Wednesday Toyota announced it was expanding a recall announced late last year involving pedals catching on floor mats. That recall originally affected 4.3 million Toyota and Lexus vehicles, making it the company's biggest recall ever. Toyota has added 1.1 million more vehicles to that recall, representing four models. The original recall followed a fatal car accident on a San Diego highway of a Lexus ES350 sedan that accelerated out of control, killing all four occupants.

In response to the current crisis, the company is planning to announce a new round of incentives to lure buyers into dealerships to purchase models unaffected by the sales halt, including the Prius hybrid and the Sienna minivan. That could help minimize the potential loss of revenue, which analysts estimate could run as much as $500 million a week. The company is struggling to find a fix for the gas-pedal issue, but it could be weeks away.

The company said Tuesday that it is committed to the safety of its customers and to restoring confidence in Toyota. Last week, when it recalled 2.3 million vehicles because of potential sticky accelerators, it said it would continue "to investigate incidents of unwanted acceleration and take appropriate measures to address any trends that are identified." Toyota spokesman Mike Michels said Wednesday that the sales halt was required by law after the recall. "It's not a voluntary thing," he said.

Toyota's competitors are eager to grab customers. General Motors Co. and Ford Motor Co. on Wednesday offered cash or free financing to Toyota owners who would switch to their vehicles.

"We have customers saying, 'We don't want these cars anymore,' " says Steve Hill, general manager of GM retail activities. Mr. Hill says GM dealers have received thousands of calls from dissatisfied Toyota owners since Tuesday night.

With Toyota's reputation as a safety and reliability leader at stake, Mr. Toyoda's mission is all the more urgent. In a news conference immediately after taking over last June, Mr. Toyoda said that the company erred in the last decade with an all-out push to become the world's largest car maker, drifting away from its core value of focusing on the customer. "I do not think we were wrong to expand our business to meet the needs of customers around the world, but we may have stretched more than we should have," he said at the time.

A senior Toyota executive reached Wednesday declined to say how long Toyota had known about possible defects that may have caused its vehicles to accelerate unintentionally. "That [time frame] is a very important point, and it could become a very difficult problem for us legally," he said.

Lawyers say the full extent of Toyota's problems likely won't become clear until it more clearly determines how many cars are affected. Edwin Baum of New York's Proskauer Rose LLP, who defends companies in product-liability suits, foresees Toyota's problems "getting worse before they get better," and says the potential liability could be quite big.

Avis Budget Group Inc., Hertz Global Holdings and privately held Enterprise Holdings Inc. said Wednesday they are removing from their fleets those Toyotas affected by the sales halt.

Records at the National Highway Traffic Safety Administration show complaints dating back several years about sudden, unintended acceleration in Toyota and Lexus vehicles. In 2004, NHTSA investigated reports of speed-control issues in Lexus ES350 and Toyota Camry sedans from the 2002 and 2003 model years. At that time, no action was taken. The NHTSA report that closed the cases said: "A defect trend has not been identified at this time and further use of agency resources does not appear to be warranted."

The NHTSA said Wednesday it "has been working with Toyota to address serious defects in its vehicles over the last several months….We will continue our discussions with Toyota and undertake a review of the remedy offered to vehicle owners affected by this recall."

Toyota spokesman Brian Lyons says the company has received more than 2,000 complaints about engine-speed control over the past 10 years. He says there so many elements that make up the NHTSA category that it makes diagnosing the underlying problem very difficult. "It is so hard to get your hands around just the complaints," he says. "Your best method of determining what has gone wrong is examining an individual vehicle."

A former Toyota executive who was involved in the earlier recall cases said the company's focus on growth and profits "at all cost" caused it to allow quality issues to go unresolved.

The company's growth plan began with the ascent of former executive Hiroshi Okuda, who became president in 1995 and took over as chairman in 1999. Under Mr. Okuda, the company aimed to become the biggest auto maker in the world. Over the next decade, Toyota grew rapidly in the U.S., increasing sales and expanding its U.S. manufacturing footprint. In 2007, it sold 2.6 million vehicles in the U.S., up from 1.6 million in 2000.

In 2005 Toyota tried to challenge the dominance by the U.S. auto makers in the full-size pickup market, making a big bet on a plant in San Antonio. In 2008, it completed a new plant in Ontario to build RAV4 sport-utility vehicles. And it also announced plans to build another plant in Mississippi, where it originally intended to build the Highlander sport-utility vehicle. As it expanded, Toyota was confronted with quality problems. In 2005, it recalled 2.38 million vehicles in the U.S., slightly more than it sold that year.

In the face of the problems, Katsuaki Watanabe, the former president, in 2006 delayed the introductions of some new models by as much as half a year. The move was designed to give engineers more time to work on vehicle and component design. In some cases, Mr. Watanabe decided to eliminate planned products altogether, in others, to introduce new products.

After a two-month review, Toyota concluded that its product-development process was fraying at the edges due to its emphasis on its global expansion. Mr. Watanabe noted in an interview at the time that in some cases company engineers may have rushed out products without conducting enough quality checks, such as building physical prototypes, and relying too much on computer simulations. Toyota tapped the brakes on that practice.
Toyota engineers reached on Wednesday said they wondered whether current problems are an echo of product-development problems tackled under the former president. Mr. Watanabe's "remedies were supposed to have fixed the problem," said one Toyota engineering director. A Toyota spokesman said Mr. Watanabe declined to comment.

As the company resumed its rapid growth, more problems surfaced.
In 2007, Sue Goodman, a portfolio manager and mother of two in Maplewood, N.J., returned from an overseas trip to learn that her au pair had totaled her 2004 Toyota Corolla, Ms. Goodman recalled on Wednesday. Her au pair was leaving the YMCA in nearby Summit when the car reversed uncontrollably at high speed, she said. The car crossed the parking lot and smashed into the front tire of tractor-trailer, she said.
"It buckled the frame of the car," Mrs. Goodman said. No one was injured. At the time, Ms. Goodman had no explanation for what happened. Now she thinks it may be because of the problem Toyota disclosed this week. She said she reported the incident to the government this week. A Toyota spokesman said he wouldn't comment on individual cases without knowing all the details.

At least three class-action lawsuits have been filed in federal courts against Toyota, one in West Virginia in November and two in California earlier this month. All three allege Toyota knew the electronic throttle in its vehicles had defects that could potentially endanger drivers and other occupants, yet continued to sell them.

A plaintiff in one California suit, Un Jin Choi of Irvine, Calif., was preparing to park a 2004 Toyota Camry on Nov. 9 when the vehicle suddenly accelerated. According to the lawsuit, the driver swerved to avoid hitting a building, and the vehicle sped across a street and struck a telephone pole. The suit seeks unspecified restitution and damages for customers who bought vehicles with defective accelerators.

The Toyota that Mr. Toyoda inherited last June wasn't the profitable, expanding powerhouse of the prior decade. The company had its first loss in 59 years in the fiscal year ended last March, and is expected to log another loss this year. The company faces pressure from shareholders to trim capacity and cut jobs, an idea generally loathed in Japan.

The company is now facing dropping global sales, overcapacity in Japan and the U.S., and thousands of idle workers. Mr. Toyoda decided to close a manufacturing facility connected to a joint-venture with General Motors in California, marking the first time Toyota has been involved in U.S. plant closure.

Mr. Toyoda has developed a reputation in Japan for being elusive. He has given only a handful of public speeches and news conferences since becoming Toyota president, and he rarely meets with reporters individually. Mr. Toyoda wasn't available for comment for this article.

Those who know Mr. Toyoda say he isn't avoiding the media or public appearances, but is trying to spend more time in the field. His aim is to embrace a traditional Toyota practice called genchi genbutsu, a leadership maxim that boils down to getting out of the office and visiting the source of the problem, according to those people.

After Toyota's relationship with GM dissolved last summer, Mr. Toyoda has taken steps to cultivate closer ties with Ford, according to his longtime associate. His motivation is to bolster Toyota's political standing in the U.S., the associate says, at a time when U.S. car makers face severe financial problems.

In September, Mr. Toyoda and Ford CEO Alan Mulally arranged to meet in San Francisco, this person says. The two executives "talked about how Toyota and Ford could cooperate to form a close relationship...and agreed to cooperate in a very general sense," he says.

No specific deals were hammered out at the September meeting, but Messrs. Toyoda and Mulally "identified the environmental area as a possible way of cooperation," he says.

The two companies could help one another by jointly developing and manufacturing gasoline-electric hybrids and plug-in electric cars, he says. Mr. Mulally declined to comment.

Last summer at an industry conference in Michigan where he gave the keynote speech, Mr. Toyoda showed a video of himself driving the company's new Lexus LFA sports car to illustrate his desire to revitalize the company.
"The severe drop in the economy and auto market has created some of the most challenging times Toyota has ever faced," he said. "I aim to take us back to what made Toyota successful for many years—making high-quality products at an affordable price."

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CHELTENHAM, Pa. - January 27, 2010 (WPVI) -- Investigators want to know if Toyota's gas pedal problem contributed to an accident in Cheltenham.

The elderly driver tells police she had her 2007 Toyota Camry in a parking space. She was trying to put the vehicle in park when she says it just lurched forward and smashed into the Melody Cleaners.

The laundromat's linoleum floors have skid marks, the pricey washers and dryers aredented, and a pile of rubble blocks the front entrance.

The 86-year-old owner, Lou Rizzo, is just thankful no one was injured when the Camry crashed through the place.

"It's a good thing it didn't happen on a Saturday or Friday because we're jammed here. There would have been 4 to 5 people killed," Rizzo said.

The 68-year-old driver of the car was taken to a local hospital and has since been released.

No charges have been filed because police haven't determined exactly what caused the crash.

"The vehicle has since been impounded and is being further investigated by our highway safety unit," Lt. John Weed of the Cheltenham Police said.

Detectives will be looking at the accelerator because of the recent controversy surrounding Toyota's vehicles.

"The cases that Toyota is citing, the pedal sticks and becomes resistant to returning and eventually it may not, and that is the fear they're trying to address," Jeff Bartlett of Consumer Reports said.

"I just felt sorry for the lady, but it wasn't her fault," Rizzo said.

Police are not releasing the name of the driver and Lou Rizzo says it may be several months before he reopens.


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