Toyota manufacturing line

How Toyota fought back from the brink

A series of highly publicised product recalls played havoc with Toyota's performance and reputation. We talk to author Jeffrey Liker, whose new book explains what happened.

There can hardly be an engineer out there who didn't follow the dramatic product recall of Toyota car models after the publicity surrounding a road accident in the United States in 2009. Mark Saylor – a veteran California Highway Patrol officer – was driving on a San Diego freeway when his Lexus ran out of control. The ensuing collision caused the deaths of all four passengers as well as a media frenzy, especially in the US. The phrase 'sudden unintended acceleration' entered the language overnight.

There are 30,000 deaths on American roads every year, so what made this accident stand out? The answer, according to Jeffrey Liker, is that 'scrutiny was focused on Toyota, which up until that point had been widely regarded, and rightly so, as the manufacturer of the safest and most reliable cars on the road'.

Toyota's reputation was that its cars don't go wrong. The tragedy caused a cultural shift and, in the way that perhaps only the American media can, they made a uniquely American story out of what they perceived to be an American problem. But the issue was global and, as Liker explains in his new book 'Toyota Under Fire', over the course of the following six months the company 'would recall more than 10 million vehicles'. Toyota was accused in the media of 'turning a blind eye to safety, of losing its way and putting profits before quality, and of deliberately hiding electronic defects that could make vehicles unstoppable'.

Reputation in tatters

The 'sudden unintended acceleration' that caused Saylor's death has now been shown to have been caused by a wrongly fitted out-size floor mat that jammed the accelerator pedal. The error was not a design fault, rather the failure of a car dealership in following Toyota procedures. As Liker says, 'there was no forensic evidence of electronics issues in any of the many accidents investigated'.

But the damage was done. Toyota's carefully fostered public image, nurtured intensively over the past half a century – that of one of continuous improvement and unbroken profit – was in tatters. There's never a good time for a global economic recession, but for Toyota the recall of millions of cars while the world was going bankrupt saw the Japanese company slump into an astronomical $4bn loss.

Toyota is one of the most admired and respected companies in the world, says Liker, and so if it couldn't find a way out of this pincer movement of corporate fate, then maybe none could. After all, the company's roots are in solving problems. In the late 19th century, when the company took its first tentative steps as a designer of automated looms, the challenge to increase productivity through motorising existing technology was met by painstaking trial and error programmes 'born out of the tinkering of Sakichi Toyoda', whose hope was to reduce the labour-intensiveness of the weaving process.

Today, the Toyota's Way manifesto explicitly states that while challenges can be frustrating, they are also there to be considered and solved. This isn't simply a rehash of the management platitude that 'a problem is an opportunity to succeed', but something deeper, more philosophical, with its origins in the concept of respect for those in business with you.

Yet the problem existed in a real and pressing way. While it's tempting to see what happened to Toyota as a PR catastrophe, there were underlying causes that couldn't be addressed simply by employing a media charm offensive. The perceived errors in approach were: a disregard for public safely, a slipping focus on quality and unresponsiveness to customers and the public relations climate. But as Liker says: 'Toyota's entire history is one of facing severe challenges and responding successfully. The automotive company as we know it today literally had to rebuild from the ashes of Japan after World War Two, fighting through a period of near bankruptcy. It proved remarkably resilient to any number of challenges and crises, from recessions to dramatic increases in the strength of the yen, to the 1973 oil crisis, to major spikes in the cost of raw materials.'

Liker goes on to say that 'the recession plus the recall crisis was a greater challenge by an order of magnitude than anything I had seen Toyota face'.

The Toyota way

Liker is an expert on Toyota, having spent most of his professional life analysing its business methods and philosophy. He is the author of the best selling book 'The Toyota Way' and professor of industrial and operations engineering at the University of Michigan.

As he started to research his latest book with Timothy N Ogden, he says that their instinct that there were important lessons to be learned from the 21st century debacle 'were borne out as Toyota began to recover from the negative firestorm. Market share, recognition for quality and profitability began recovering quickly'.

He goes on to say that as more data relating to the alleged product failures emerged it became clear that many of the accusations against Toyota 'had little basis in fact. Various media reports were shown to be inaccurate; supposedly independent experts who were criticising Toyota were revealed to be on the payroll of trial attorneys who were suing Toyota'.

Despite his closeness to the corporate culture of the Japanese multinational, Liker is aware that to look at Toyota 'through rose-coloured glasses distorts the facts', and he admits that there were colossal reverses for the company both in financial and reputation terms. Failure to respond to customer concerns, lengthy delays caused by bureaucracy and localised decision-making taking place exclusively in Japan meant that the famous Toyota Way had literally lost its way.

But as Liker says: 'Considering the non-stop battering Toyota took, first from the recession and then from the full force of the US media and various congressional committees, I was quite impressed by the resilience of the brand and the business rebound.'

The figures speak for themselves. In January 2010 Toyota's sales in the US had plummeted by 16 per cent, and by a further 9 per cent in February. But by March Toyota was up 35 per cent in year-on-year sales, while sales of the car models that had been recalled were up by 48 per cent.

By May, the Camry, Corolla, RAV4 and Prius were all in the top 20 best-selling cars in the US, and by November Toyota had a significant 17 per cent of the retail sales market (a mere 1.3 per cent down from pre-recall figures), making it the number one car manufacturer in the US.

Despite this upswing Toyota still carries long-term damage, but with 'Consumer Reports' publishing the statement that 'Toyota has addressed the problem of unintended acceleration and that its vehicles on sale are now fundamentally safe', there is cause to suppose that as the subtitle of Liker's book suggests, the car giant will 'come out stronger'. A fascinating book, and one from which any manager in any walk of life can learn valuable lessons. *

'Toyota Under Fire', by Jeffrey Liker is published by McGraw-Hill, £15.99

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