case study

Toyota: Accelerating Problems

O ver the last three decades, Toyota built its reputation around admired American traits: durability, reliability, and affordability. In 2008, Toyota became the number-one vehicle manufacturer in the world. The cars passed from one generation to the next because of confidence in the vehicles' reliability. With product line diversification, Toyotas became “the every car for everyone.” 1  As Americans felt let down by the Big Three American car companies (General Motors, Ford, and Chrysler), Toyota provided reliable cars that drivers desired.

On August 28, 2009, an accident on a San Diego highway involving a Lexus (a Toyota brand) threatened this ascendency. It began with the airing of a horrifying 911 call from a passenger in a Lexus ES350 with a jammed accelerator. A veteran California Highway Patrol officer, driving three family members, lost control of the vehicle after the throttle stuck open. The car accelerated to high speed, hit another vehicle, rolled over several times, and burst into flames. The call ended with the sound of a crash. All four people in the vehicle were killed.

Toyota executives hoped this accident was a unique situation and responded with a wait-and-see approach. Only after the accident totals reached significant numbers did the recalls begin. What makes this story such a shocking one is “the vapor lock that seems to have seized Toyota's mythologized corporate culture and turned one of the most admired companies in the world into a bunch of flailing gearheads.” 2  The US media heavily scrutinized Toyota's handling of the issue, and many experts wondered how the major vehicle manufacturer would ever recover from such a crisis.

TOYOTA'S HISTORY

Established in the 1930s, Toyota climbed to global prominence after World War II as the company became an example of Japan's recovery. Ironically, Japan's dire postwar poverty spurred Toyota to experiment with efficient manufacturing methods. Toyota found the excessive production techniques of American car companies, with warehouses to store components awaiting assembly and mechanics to fix damaged inventory, just too wasteful and expensive. The situation required Toyota to learn to do more with less. It developed the Toyota Production System (TPS) or, more generically, lean manufacturing. See the Information Box: Toyota Production System (TPS) Principles for a discussion of the TPS philosophy.

INFORMATION BOX

TOYOTA PRODUCTION SYSTEM (TPS) PRINCIPLES

Toyota built its competitive advantage on what it calls the Toyota Production System (TPS). The primary purpose of the TPS is cost cutting through complete elimination of waste, including excess production resources, production surpassing demand, surplus inventory, and unnecessary capital investment. Waste is anything that does not add value to Toyota's product in the eyes of customers. The objective is to make “the vehicles ordered by customers in the quickest and most efficient way, in order to deliver the vehicles as quickly as possible” using a guiding principle of kaizen—Japanese for “continuous improvement.” Toyota established two key concepts to embed continuous improvement in the Toyota culture: just-in-time and jidoka.

Just-in-time (JIT) delivery techniques involve suppliers bringing components to Toyota's assembly line only when needed, resulting in the elimination of excess inventory. JIT continues throughout the entire production system, as each process produces only what is needed by the next process, thus eliminating surplus inventory throughout the entire system. Kanban, a pull production system, ensures that the quantity of work performed at each stage of a production process is dictated solely by demand for materials from the next downstream stage. Suppliers are an integral part of JIT and therefore are trained in kanban and ways to reduce inventories.

Jidoka, “automation with a human touch,” allows workers to pull a cord to shut down a manufacturing process anytime they believe something is wrong. When a piece of machinery malfunctions or a defective part is discovered, production equipment is immediately shut down. Operators correct the problem before production resumes. This process ensures prevention of defective products being mass-produced. In addition, it is believed that line workers closest to a work process are in the best position to identify and immediately fix machine defects. Toyota employees are well-trained as multi-skilled, multi-function workers.

Toyota began developing the TPS in the 1950s. It was many years before US vehicle manufacturers began investigating the use of lean manufacturing principles. In the beginning, US manufacturers did not experience the same efficiency experienced by Toyota. Why do you think it took so long for US manufacturers to catch on to lean manufacturing techniques such as JIT? Why do you think US manufacturers didn't immediately find cost savings and efficiencies?

Source: Compiled from Yasuhiro Monden, Toyota Production System: An Integrated Approach to Just-In-Time, Norcross, Georgia: Engineering & Management Press, 1998; and Toyota Production System (1995–2011), Toyota Motor Corporation, retrieved December 4, 2011 from  http://www.toyota-global.com .

By the early 1970s, Toyota was selling more than 300,000 cars a year in the US. Toyota positioned its line of fuel-efficient, midsize sedans to take advantage when the energy crisis hit the US in 1973 and Americans began downsizing from their US-made gas guzzlers. In 1986, Toyota built an enormous manufacturing plant in central Kentucky, 300 miles south of Detroit—in the Big Three's backyard. The US manufacturing plant in Kentucky not only churned out top-selling Camrys, it also ingratiated Toyota with a patriotic community that historically drove Chevys and Fords. Suddenly, this community found itself working in a plant producing Japanese sedans. Toyota represented a paycheck while its unionized counterparts working for the Big Three faced layoffs.

Toyota built its reputation on quality. It positioned itself in the marketplace as an affordable provider of reliable and safe vehicles. Toyota successfully transferred its expertise in making high-quality Toyota cars and trucks at low cost to making premium Lexus models at prices below other luxury car manufacturers. Toyota differentiated the Lexus brand by establishing exclusive dealerships (separate from Toyota dealerships) that offered unmatched customer service. These efforts allowed Toyota to create two successful brands: the Toyota brand based on an image of reliability and safety and the Lexus brand that went beyond quality and added a luxury aspect.

In 2008, Toyota passed GM as the world's largest carmaker. It covered the entire American spectrum: the best truck—Toyota Tundra won Motor Trend Truck of the Year in 2008; the best sedan—in 2007, Camry was voted Car of the Year; and, with the Prius, the best hybrid. 3

TOYOTA'S GROWTH PLAN AND EARLY PROBLEMS

Toyota's growth plan began with the climb of Hiroshi Okuda to president in 1995 and later to chairman in 1999. Under Mr. Okuda, the company aimed to become the largest automaker in the world. Over the next decade, Toyota grew rapidly in the US, increasing sales and spreading its US manufacturing footprint. In 2007, it sold 2.6 million vehicles in the US, an increase of one million vehicles over the number sold in 2000. 4  In 2005, Toyota began to challenge the dominance of the US auto makers in the full-size pickup and sport-utility vehicle markets by building more manufacturing plants in North America.

As it expanded, Toyota was confronted with quality problems. For decades, Toyota and US government agencies negotiated over a growing list of safety issues. The National Highway Traffic Safety Administration's (NHTSA, a department of the US Department of Transportation) records show complaints dating back to 1986 about sudden, unexpected acceleration in Toyota and Lexus vehicles. In September 1986, NHTSA issued a recall and began an investigation into sudden acceleration problems. In April 2003, Toyota encountered an “unwanted acceleration” incident during production testing of the Sienna minivan. It concluded the incident was “isolated,” and did not report it to the NHTSA until five years later when NHTSA made a blanket request for information. From 2004 to 2006, the NHTSA conducted several defect investigations regarding speed control problems. It closed these investigations citing that it failed to find a “defect trend” and that Toyota owners' concerns were of “ambiguous significance.” 5

In 2006, Katsuaki Watanabe, the Toyota president from 2005 to 2009, decided Toyota's problems warranted delays in the introductions of some new models by as much as six months because its product-development process needed repair. 6  Reportedly, Mr. Watanabe put the brakes on practices that rushed out products without proper quality checks. But the sudden, unintended acceleration problems continued. For example, in July 2007, Troy Edwin Johnson was killed when a Camry accelerated out of control and hit his car at approximately 120 m.p.h. The driver had been unable to slow the car for the twenty-three miles leading up to the deadly crash. Toyota eventually settled out of court with Johnson's family for an undisclosed amount. 7

Between 2006 and 2009, the NHTSA opened more investigations into unwanted and uncontrollable acceleration problems with Toyota vehicles. The NHTSA issued several small recalls during this time, but for the most part ignored Toyota owners' complaints. In April 2009, the NHTSA received a petition to investigate throttle-control problems in Lexus ES vehicles—a precursor to the deadly August 2009 crash. Some wondered if the recall problems of 2010 echoed product-development problems under Mr. Watanabe's watch. 8

Akio Toyoda, the grandson of the company's legendary founder, Kiichiro Toyoda, became president in June 2009. In a news conference after he took over as president, Mr. Toyoda said that the company made a mistake 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.” 9  Mr. Toyoda didn't step into the profitable, growing giant of the prior decade. The company suffered its first loss in fifty-nine years in the fiscal year ended March 2009, a loss of $4.9 billion. Toyota executives faced the same problems facing other vehicle manufacturers—rising consumer fuel prices, a global economic crisis, and consumers agonized by a recession holding onto their money. 10

THE TOYOTA RECALLS

The first of three separate but related major recalls of Toyota cars in the US came on September 29, 2009, a month after the deadly accident in California. Toyota issued a recall for 3.8 million US vehicles, citing floor mat problems that could potentially trap the accelerator pedal and cause it to stick. This recall involved eleven Toyota and Lexus models over seven model years (2004 to 2010). Toyota executives maintained that the problems were not “vehicle-based” but most likely caused by driver error; however, on November 25, 2010, Toyota announced additional measures aimed at preventing accelerators from sticking, including floor mat redesign, accelerator system reconfiguration, and brake override installation.

After more accidents occurred, a second recall on January 21, 2010, of an additional 2.3 million vehicles in the US was for accelerator pedals. This recall added that accelerator pedal sticking could occur even without the presence of floor mats. Five days after the second recall, Toyota suspended sales in the US and Canada of eight popular models, including Camry and Corolla (the two most popular Toyota models), and said it would halt production at five of their manufacturing plants for the week of February 1, 2010. US law forced the sales halt. On January 27, 2010, Toyota widened the recall of vehicles affected by the floor mat and accelerator problems. This third US recall was for 1.1 million vehicles that could experience pedal-entrapment problems. On January 29, 2010, Toyota announced a recall of up to 1.8 million vehicles in Europe. 11

On February 1, 2010, Toyota declared it had developed a plan to fix the accelerator pedals and that parts were being shipped to dealers for repairs of vehicles. The company called the equipment repair a “spacer” to be inserted into the gas pedal, increasing spring tension to help prevent the accelerator from sticking in position. Toyota said it revised the design of the gas pedal in conjunction with its parts supplier, CTS Corp. of Elkhart, Indiana. 12

By now, Toyota owners faced frustration and uncertainty. What should they do? Should they drive their cars? Were they safe? Should they park their cars until Toyota found a remedy? US Transportation Secretary Ray LaHood added to the confusion of Toyota owners by warning Americans not to drive recalled cars. He later recanted, saying that he misspoke. He meant to say that concerned drivers should take their cars to a dealer for repair. He also sharply criticized Toyota's response to the acceleration concerns, saying Toyota may be “a little safety-deaf.” 13

Toyota President Akio Toyoda, who had a reputation for being elusive, kept a low profile throughout the recalls. Reportedly, Mr. Toyoda wasn't avoiding the media or public appearances, but rather engaging in a traditional Toyota practice called genchi genbutsu, a leadership tenet that embraces getting out of the office and visiting the source of a problem. Mr. Toyoda eventually grasped the seriousness of the situation—albeit belatedly—and tried to make amends. He held a news conference on February 5, 2010 (more than five months after the deadly crash in California), apologized for the car recalls, and promised to boost quality control. He said, “I apologize from the bottom of my heart for all the concern that we have given to so many customers.” 14

After these major recalls, the US Congress summoned Toyota executives to Washington, D.C. in late February to testify before them. Testifying before a US House committee, Jim Lentz, the top US executive for Toyota, said the company continued to investigate the gas pedal system for electronic malfunctions. During a Congressional hearing the next day before the US Government Committee on Oversight and Reform, President Toyoda apologized again and pledged Toyota's full cooperation with the US government officials investigating safety problems. 15

SEVERE CONSEQUENCES

The crisis faced by Toyota endangered its reputation for reliability and safety, hindered its return to profitability, and opened a groundswell of lawsuits. In April 2010, US regulators fined Toyota $16.4 million to settle allegations that the company was too slow to recall vehicles with defective gas pedals. In December 2010, Toyota was fined an additional $32.4 million—the maximum allowed by US law—for failing to properly disclose what it knew about safety defects linked to the millions of recalled vehicles. 16

How Toyota should respond to the fines levied by the US posed a dilemma for the automaker. The company faced over 130 class-action lawsuits over falling vehicle values and nearly 100 personal injury and wrongful death cases in federal courts. Toyota's payment of the fines could hurt it in courtrooms. But battling the government over penalties could undermine the automaker's attempts to move on from the recalls. Toyota decided to pay the almost $49 million in civil penalties levied by the US NHTSA, but did not admit any violations of US auto safety laws. 17

COMPETITORS' REACTIONS

Once a point of differentiation, Toyota's quality and safety image became questionable. Competitors reacted quickly. GM offered Toyota owners incentives to swap their cars for GM models. Ford offered cash or free financing to Toyota owners switching to Ford models. While Honda and Nissan decided not to take direct advantage of Toyota's misfortune, they gained from Toyota's loss because of the comparability of their models to Toyota's models. In February 2010, of the key manufacturers selling autos in the US, Toyota was the only one to see a decrease in the number of vehicles sold (see  Table 20.1  February US Auto Sales). Estimates indicated that Toyota's loss of revenue was about $500 million per week from the sales and production halts. 18

TABLE 20.1 February Year-to-Year Comparisons, Number of Vehicles Sold in the US

While competitors did not engage in outright celebration over Toyota's troubles, there was a certain amount of pleasure seeing the criticism focused on a foreign carmaker. A senior GM executive summed it up by saying that the mainstream media always assumed Toyota was better than the US domestic carmakers. He hoped Toyota would now be “treated as just another car company.” “Hopefully this will help even things out a little bit.” 19

AFTERMATH

Toyota executives desperately hoped the worst was behind them. The company resumed production at five factories in North America. Dealers sold existing inventory once the pedals were repaired. New vehicles coming off the assembly lines got redesigned pedal assemblies. 20  It may have been too late, however.

For the first time in years, the 2011 Ford and Chevrolet brands outsold Toyotas. The Japanese automaker lost market share, forcing it to offer incentives on its vehicles, which were once among the least discounted in the industry. (See  Table 20.2  for market share comparisons to GM and Ford before and after the recall.) Rivals introduced cars with great gas mileage and sharper designs. Toyotas started to look stale to consumers. 21

It appears GM will likely retake the title of number-one automaker, which it fumbled away to Toyota in 2008 as the Detroit giant sped toward bankruptcy. With 6.79 million vehicles sold through September of 2011, GM led Toyota by one million vehicles. GM's revival cut short Toyota's intention to permanently take the mantle from the old smug king. The industry shifted as GM rebounded and Toyota reflected on whether its race to be number one was wise. 22

Toyota suffered other setbacks after the disastrous recalls of 2009 and 2010. In early 2011, an earthquake in Japan disrupted suppliers and production in Japan. This allowed other carmakers to snatch up plenty of buyers. Then floods in Thailand shut down suppliers, making it difficult for Toyota to recover lost production.

In late February 2011, Toyota agreed to an additional recall of 2.17 million US vehicles to settle the probe by US regulators. The settlement dated back to 2003 model year Toyotas. At the same time, the NHTSA, assisted by National Aeronautics and Space Administration (NASA), absolved Toyota of electronics malfunctions related to sudden acceleration mishaps. NHTSA concluded “driver error” caused most of the incidents. 23  Did this finding vindicate Toyota?

TABLE 20.2 Market Share Comparisons, Toyota vs. GM

ANALYSIS

Although the crisis took off after the accident in August of 2009, it began long before that deadly day. Toyota initially built the company around producing an affordable vehicle with high quality and safety features. This focus helped Toyota grow its brand loyalty among customers and eventually it became the number-one vehicle manufacturer in the world. With this rapid growth came a gradual change in emphasis for the company. Priorities became confused, and Toyota executives took their eye off safety, quality, and continuous improvement. In an attempt to please investors, the Toyota culture changed from one focused on safety and quality to one where cost-cutting and increased production became top priorities. This turned out to be a grave mistake, resulting in the biggest crisis in the company's history.

The US is Toyota's largest market. The struggling US economy negatively affected auto sales. This situation added pressure on auto manufacturers, Toyota included, to eliminate waste and increase efficiency. Toyota appeared to be dealing with the pressure successfully, continuing to create safe and reliable vehicles for which there was adequate demand. Somewhere along the line, Toyota executives chose to ignore production and quality issues, though, and pushed ahead with cost-cutting and efficiency initiatives. Did Toyota sacrifice quality in its pursuit of global market share? It appears it did. There seemed no real ramifications for Toyota of the pre-September 2009 recalls. This led it to lean more heavily on low-cost strategies. Only after fifty-two deaths did Toyota come to the sobering realization of the vital importance of quality management.

Winning back market share may not be as easy for Toyota as it was in the past. For the past two decades, Detroit's Big Three automakers suffered financial problems and quality issues. It became easy to steal buyers when the US competitors produced low-quality cars. But that changed. Now, in addition to the Big Three, other car manufacturers such as Renault, Nissan, Hyundai, Suzuki, and Kia all sell competitive cars and possess the financial strength to invest in technology, new models, and marketing. Toyota owners now have reasons to look around.

TOYOTA'S RESPONSE

Toyota maintained a wait-and-see attitude. Once the media frenzy took off, however, Toyota belatedly made changes. It issued a recall, redesigned floor mats and accelerator pedals, installed new brake override systems, and even suspended sales and production of several models. (Toyota can't take credit for all of these actions—US law required some of them.) In the months following the initial recall, Toyota's situation only worsened. The number of recalls grew beyond initial expectations, and Toyota recalled vehicles for reasons completely unrelated to the original recall issue. Not even the Lexus luxury line was spared. Toyota's President was forced to testify at congressional hearings in the US, where he finally issued a public apology. He only apologized, however, after the situation was out of hand. He continued to cite driver error as a reason for the accidents. And while it appears that he was correct, consumers wanted Toyota to take responsibility and find a fix when drivers reported sudden, unexpected acceleration of their vehicles—not to blame them.

Toyota's crisis management by top executives was unimpressive. They were slow to own the problem, and even when they did issue apologies, like the one from Toyota President Toyoda, they appeared insincere. And they continued to deny any accountability for structural defects or systematic cover-ups. Their contrition amounted to a slap on the wrist for its most senior officials—a 20 percent pay cut for three months of 2010. 24

Was there a cultural element to Toyota's mismanagement of the crisis? The company was entirely unprepared for crisis management and embarrassed by the recall problems. Producing defective cars was not supposed to happen to Toyota—other car companies suffered this shame, but not Toyota. Company image and hierarchical structure put company loyalty and deference to superiors above concerns about customers. 25

A close examination of Toyota's decisions during the recall crisis reveals that it lost sight of its founding principles. For example, while Toyota promised to be “customer-focused,” it repeatedly blamed “driver error” as the main cause of the accidents. Toyota's awareness of customer complaints about sticky gas pedals and floor mat problems clearly violated its kaizen (i.e., continuous improvement) principle. It touted “sincere communication” as one of its core values, yet withheld information about safety problems and slow communication with customers reveal violations of this principle.26

SHIFTING BLAME

Toyota

The fact that Toyota produced so many imperfect vehicles provides evidence that the TPS developed faults. The blame for this can be placed on the company's reckless growth. In a little over a decade, Toyota doubled its production capacity and added almost one-third more production sites. This amounted to Toyota adding the capacity of a company the size of Chrysler in a determination to become the world's number-one auto company. 27

Toyota officials blamed former management for placing quantity over quality in a race to meet increased demand for its vehicles. President Aiko Toyoda said that in the past, Toyota's priorities were safety and quality, and sales came last. But as Toyota grew to become the world's biggest carmaker, these priorities became confused. Rapid expansion puts tremendous pressure on any company's ability to internally diffuse knowledge, especially over long distances and across national cultures. 28

When weak signals began in 2003, Toyota's executives did not listen. A sinister tone crept in—allegations that Toyota knew about its accelerator problem internally for years; a perception of secrecy on the part of Toyota heightened consumer tension; growing unease among Americans about something deeply wrong with Toyota. 29  (See Issue Box: Toyota's Secrecy for additional information about Toyota's legal tactics regarding crashes of Toyota vehicles.)

The Toyota management team became enamored with itself and too insular to properly handle the recall crisis. Its focus on the customer disappeared. It was too used to dealing with successes that it were not sure how to respond to a problem of such magnitude. Management was unprepared to deal with media questioning because Toyota's culture made it difficult for those lower in the organization to deliver bad news to managers. This situation conveyed an image of stonewalling the media and US regulators and indifference to customers' complaints. 30  See the Information Box: “Groupthink” Influence on Decision Making for a discussion of how such a situation could arise.

ISSUE BOX

TOYOTA'S SECRECY

The Associated Press (AP) reviewed dozens of lawsuits filed across the US and interviewed auto crash experts. They concluded that Toyota had for years blocked access to data stored in event data recorders, commonly known as EDRs. These devices, similar to “black boxes” in airplanes, could explain crashes of Toyota vehicles blamed on sudden, unexpected acceleration. Most other automakers routinely allow reasonably open access to information from their EDRs. Toyota, however, is extremely secretive.

The AP investigation found Toyota frequently claimed it did not have information it was required to produce, or redacted from documents key information sought by crash victims and survivors; it ignored court orders to turn over key documents; it hid the presence of vehicle tests harmful to its legal position; it provided inconsistent—even contradictory—information about what its EDRs recorded; and it settled lawsuits rather than provide EDR information.

When directly asked by the AP to explain exactly what its EDRs collect, Toyota pinpointed five pieces of information captured by the EDRs: vehicle speed; accelerator angle; gear shift position; seat belt use; and driver's seat angle. No mention of brakes—a key point in the sudden, unexpected acceleration problems. When the AP prompted Toyota specifically about brake information, Toyota responded that its EDRs do, in fact, record “data on the brake's position and the antilock brake system.”

Toyota argued that EDRs are experimental devices, never intended for use in accident reconstruction. Some accident experts agree—EDR systems were initially built for air bag deployment, not to reconstruct crashes.

Court rules allow a company that is sued to object to turning over requested information. Attorneys are allowed (even expected) to be aggressive and challenging regarding turning over information, but claiming evidence does not exist, when it does, is a breach of law. Attorneys who regularly defend corporate clients say that Toyota's tactics do not necessarily indicate corrupt or unethical intent. Toyota defends itself by saying that it plays by the rules and acts appropriately during product-liability litigation.

What do you think? Do you think the behavior on the part of Toyota's top management implies that Toyota was extremely secretive about problems with recalled vehicles (and other vehicles involved in crashes resulting in lawsuits)? Do you think Toyota was intentionally hiding relevant information from crash victims during lawsuits? Or do you think that Toyota is being wrongly accused? How do you think a company justifies engaging in the type of secretive behavior that the AP investigation suggests? How could a company defend itself against such accusations, if they are false?

Source: Compiled from Curt Anderson and Danny Robbins, “Toyota Blocked Access to Crash Data,” Wichita Eagle, March 5, 2010, pp. 2A, 3A; and Curt Anderson and Danny Robbins, “Toyota's Lawsuit Tactics Raising Questions,” The Columbus Dispatch, April 12, 2010, retrieved December 7, 2011 from  http://www.dispatch.com .

Supplier

Toyota attempted to shift some blame for the vehicle sudden acceleration problems to a US gas-pedal supplier, CTS Corp. of Elkhart, Indiana. Toyota singled out this supplier of gas pedals while absolving a Japanese company, Denso, that made the same part. But CTS CEO Vinod Khilnani wasn't about to take the blame.

Mr. Khilnani defended his company by saying Toyota designed the pedals—not CTS. CTS consistently met Toyota's engineering specifications for the pedals. CTS felt attacked and believed other auto manufacturers might think its CTS-supplied pedals could also be faulty. CTS assured them that gas pedals were designed and manufactured to each car manufacturer's specs—Toyota pedals were not shared by other vehicles.

INFORMATION BOX

“GROUPTHINK” INFLUENCE ON DECISION MAKING

Toyota's situation is not unique. Somewhat similar situations occurred with the GM Corvair (during the 1960s) and with the Ford Explorer with Firestone tires (during the early 2000s). The Corvair was a rear-engine car that exhibited instability under extreme cornering conditions, causing it to flip over. GM executives also refused to admit there was any problem—until eventually the evidence was overwhelming, lawsuits flourished, and the federal government stepped in with the National Traffic and Motor Vehicle Safety Act of 1966. Among other things, this act required manufacturers to notify customers of any defects or flaws later discovered in their vehicles.

In the second situation, Firestone tires mounted on Ford Explorers were linked to more than 200 deaths from rollovers in the US, as well as more than 60 in Venezuela and a reported 14 in Saudi Arabia and neighboring countries. Ford executives also refused to admit there was any problem with their vehicles. On April 20, 2001, Ford gave the NHTSA a report blaming Firestone for flawed manufacturing of its tires (which Firestone refuted). It eventually came to light that Ford knowingly equipped the Explorer with C-rated Firestone tires rather than the more heat-resistant B-grade tires that were the near universal standard on similar SUVs.

GM and Ford executives were honorable people. Yet something seems to happen to the conscience and the moral sensitivity of top executives. They commission acts in their corporate personas that they would hardly dream of doing in their private lives. John DeLorean, former GM executive, was one of the first to note this dichotomy:

These were not immoral men who were bringing out this car [the Corvair]. These were warm, breathing men with families and children who as private individuals would never have approved [this project] for a minute if they were told, ‘You are going to kill and injure people with this car.’ But these same men, in a business atmosphere, where everything is reduced to terms of costs, corporate goals, and production deadlines, were able to approve a product most of them wouldn't have considered approving as individuals. (J. Patrick Wright, On a Clear Day You Can See General Motors, Grosse Point, Mich.: Wright Enterprises, 1979, pp. 5–6.)

The callousness about “killer” cars would, as John DeLorean theorized, probably never prevail if an individual made decisions outside the corporate environment. But bring in groupthink, which is decision by committee, and add to this a high degree of organizational loyalty (vs. loyalty to the public interest), and such callousness can manifest itself. Why can the moral standards of groupthink be so much lower than individual moral standards?

Perhaps the answer lies in the “pack mentality” that characterizes certain committees or groups highly committed to organizational goals. All else then becomes subordinated to these goals, bringing a single-minded perspective. Within any committee, individual responsibility for a decision is diluted since this is a committee decision. Furthermore, without the contrary arguments of a strong devil's advocate (one who argues the opposing viewpoint, sometimes simply to be sure that all sides of an issue are considered), a follow-the-leader syndrome can take place, with no one willing to oppose the majority views.

But there is more to it than that. Chester Barnard, a business executive, scholar, and philosopher, noted the paradox:

People have a number of private moral codes that affect behavior in different situations, and these codes are not always compatible. Codes for private life, regarding family and religion, may be far different from codes for business life. Throughout the history of business, it has not been unusual to find that the scrupulous and God-fearing churchgoer is far different when he or she conducts business during the week: A far lower ethical standard prevails during the week than on the Sabbath. Nor has it been unusual to find that a person can be a paragon of love, understanding, and empathy with his or her family but be totally lacking in such qualities with employees or customers. (Chester I. Barnard, The Functions of the Executive, Cambridge, Mass.: Harvard University Press, 1938, p. 263).

We might add that even tyrants guilty of the most extreme atrocities, such as Adolph Hitler and Saddam Hussein, have been known to exude great tenderness and consideration for their intimates.

What does it take for a person to resist and not accept the majority viewpoint? What do you think would be characteristics of such a person? Do you see yourself as such a rebel? Do you think the Japanese culture will allow the existence of such a person—a strong devil's advocate—to be effective in a company such as Toyota? How about the US culture?

Two facts exonerated CTS of blame. First, sudden acceleration occurred even in vehicles for which CTS did not supply gas pedals. Second, CTS did not become a Toyota supplier until 2005. The unintended acceleration problems preceded CTS supplying the pedals to Toyota. CTS contended faulty design of Toyota's pedals caused the problems rather than CTS's electronic sensors in the pedal assembly. 31

Government

Beginning in 2003, the NHTSA fumbled at least six separate probes into possible safety problems with Toyota vehicles. In each case, the NHTSA ended the inquiry with comments such as no defect trend, ambiguous significance of problems, or no problem identified. Disclaimers in each report explained that safety-related defects could exist even though the NHTSA decided not to investigate an issue further. In October 2009, following the recall of 3.8 million Toyotas, the NHTSA denied a petition from April 2009 to investigate Lexus throttle control problems. In its report, regulators stated “the only defect trend” was the floor mat problem, and because Toyota already issued a recall, the “contentions that any further investigation is necessary are unsupported.” 32  These actions indicated lax oversight on the part of the government.

Finally, in December 2009, NHTSA officials got serious and traveled to Japan to discuss the recall process. A press release from US Transportation Secretary Ray LaHood's office stated that the “NHTSA indicates that it expects improvement in [Toyota's] responsiveness in the future.” 33  This visit influenced Toyota's actions little. It wasn't until the summoning of President Toyoda to Washington to testify before Congress that Toyota began to take notice that the US government considered the recall problems serious. Essentially, the NHTSA neglected to pay attention to the abnormal number of investigations into acceleration-related problems with Toyota vehicles beginning in 1986 and culminating in the 2009–2010 massive recall.

Consumers

On numerous occasions, Toyota executives blamed customers: car owners drove their cars in potentially hazardous ways; customers improperly installed floor mats; drivers misunderstood the feeling of the ABS braking system. Even though the NHTSA concluded that driver error caused most of the accidents, weren't there enough instances of sudden, unintended acceleration that Toyota should design a better, mistake-proof system?

Not everyone believes Toyota has solved the problems that led to the initial recall disaster. 34  Critics say Toyota's changes are window dressing and a continuation of the “blame the victim” mentality.

The Media

Intense US media coverage of the Toyota recalls gave the situation the appearance of a national emergency. It is arguable that other companies with similar recalls did not receive the “swift dressing down” that Toyota received by the US media. Toyota may be something of a scapegoat for the US media looking to blame “foreign” companies for the destruction of the US auto industry. 35

WHAT CAN BE LEARNED?

A Sterling Reputation, Once Tarnished, is Difficult to Restore

It took Toyota decades to build an exceptional reputation for its brand, but only a few months to tarnish it. During the crisis, Toyota issued three major US recalls, costing it billions of dollars in repairs and lost sales. To regain its reputation, Toyota is now delaying production or recalling vehicles for minor issues that in the past would not have resulted in recalls. Toyota is attempting to show consumers that safety and quality are again top priorities, even if it requires short-term losses in revenue. The integrity of a product and a firm's reputation must not be sacrificed in pursuit of rapid growth. This should be an especially major consideration when customers' safety is jeopardized.

Don't Confuse the Core Values of a Company (e.g., Reliability and Continuous Improvement) with the Numbers Produced by Those Values

Toyota turned its obsession with safety and reliability for customers to an obsession with sales and profitability for investors. Toyota lost sight of quality in a quest for global sales. Companies can become arrogant and lose sight of their core values. While short-term cost cutting resulted in profits, Toyota faced increased costs of lawsuits, recalls, marketing expenses, and quality management. These problems could have been prevented by a continued obsession with providing customer value.

Rapid Growth Should Not Impede a Company's Responsibility to its Customers

To grow sales and profits, Toyota valued cost cutting and efficiency more than providing quality and safety for customers. This led Toyota to engage in production practices that were not in the best interest of customers. As it gained market share and confidence, top executives stopped listening to feedback from manufacturing plants and dealers, and turned a “tin ear” to its customers. When a company is growing, it must pay attention to its customers' complaints. Customers made the company what it is, and in the long term, attention to their complaints allows continued growth.

Top Management Is Ultimately Responsible for a Company's Actions

Top executives cannot escape blame when something goes wrong for a company. Toyota's top management failed to recognize issues important to customers and respond in a transparent, timely, and effective way to a mechanical problem. Because they did not, it grew into a public safety and public relations disaster. Toyota's leaders showed indifference to customers' problems and engaged in self-righteous denial of the company's responsibility for the problems. They merely wished the problem to go away, rather than taking ultimate responsibility for the company's actions.

Customers Don't Care Whose Fault It Is, They Just Want Assurance a Problem Is Fixed

During the early months of the sudden acceleration instances and well-publicized accidents in Toyota vehicles, consumers were confused and frustrated by Toyota's response. Toyota owners were uncertain if they should drive their cars; car shoppers were wary of purchasing Toyotas. Consumers wanted someone to assure them, rather than blame them (or suppliers). Even if problems are the fault of customers, don't blame them; tell them what they can do to avoid the problems—educate them. Toyota should have immediately taken full responsibility for fixing the problems and assured customers of their honesty, openness, and sincerity about fixing the problems.