Rapid Growth Has Its Perils, Toyota Learns

Toyota executives set an ambitious goal in 2002 to own 15 percent of the global auto industry by 2010, meaning it would surpass General Motors as the world’s largest carmaker. To get there, it would have to grow by 50 percent. It would have to build new plants in the United States, China, and elsewhere in Asia, and introduce dozens of new models.

Toyota managed to win bragging rights as the world’s biggest car company. But that focus on rapid growth appears to have come at a cost to its reputation for quality, creating an opportunity for others to potentially take back market share they lost to Toyota.

Toyota said Thursday that it was extending the recall to Europe, and that "the models and exact number of potentially affected vehicles is under investigation. It added that "details of corrective action and implementation will be communicated directly to customers with vehicles potentially affected."

Toyota Motor Corporation President Akio Toyoda
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Toyota Motor Corporation President Akio Toyoda

The company said it had already made the necessary changes to its production lines, so there would be no need to halt output in Europe.

Some 75,000 vehicles will also be recalled in China.

On Tuesday, after prodding by the Transportation Department, Toyota announced it was temporarily stopping production and sales of eight models that make up more than half of its annual sales in the United States, after two major recalls since November, while it tries to fix a problem with their accelerator pedals.

“There was always a question about how fast they could go,” James P. Womack, an author and expert on Toyota’s manufacturing methods, said of the automaker’s growth. “I’m sure they regret that they stomped on the gas so hard.”

Mr. Womack said Toyota was also paying for taking its eye off the message that has been central to its marketing. “When your whole deal was quality, every mistake is a big deal,” he said.

Transportation Department officials in the United States said Wednesday that they had advised the automaker to act quickly. “The reason Toyota decided to do the recall and to stop manufacturing is that we asked them to,” Raymond LaHood, the transportation secretary, said.

In an interview with WGN radio in Chicago, Mr. LaHood added, “We were the ones that really met with Toyota, our department, our safety folks, and told them, ‘You’ve got to do the recall.’”

Japanese media raised fears that Toyota’s problems might damage the reputation of other Japanese companies.

“The discrediting of Toyota could even destroy the world’s trust in Japanese manufacturing, which relies on its reputation for high quality,” warned the Tokyo Shimbun, a daily newspaper.

But fears about lasting damage to Toyota may be overblown, given the short attention span of consumers, said Jeffrey K. Liker, a professor of engineering at the University of Michigan and the author of the best-selling book “The Toyota Way.”

“This is an unfortunate series of events that aren’t a good reflection of the health of the company,” he said.

“But if they aren’t selling cars, nothing else matters.”

Toyota announced a similar halt to sales and production in Canada, where it has two assembly plants in Ontario. It is considering the same steps in Europe, although it has not yet come up with a plan.

Late Wednesday, Toyota added 1.1 million more vehicles to its November recall, which already was the largest in its history.

Halting production and sales of the eight models in North America represents the latest setback for Toyota’s president, Akio Toyoda, who has been buffeted by problems since taking the job seven months ago.

He has already apologized for the company’s losses, its bland cars and its overconfidence. Last fall, Mr. Toyoda said the automaker was “grasping for salvation.”

At the time, it seemed an overstatement. Despite its red ink, Toyota still has ample cash, and it gained market share in 2009 in the United States, where it ranks as the second-biggest player behind G.M.

On Monday, before Toyota announced the sales and production shutdowns, the company said it expected its global sales to grow by 6 percent in 2010, to about 8.27 million vehicles.

But as it has gained sales, Toyota has moved away from some of the business practices it adopted in its years of slow but steady growth.

One example is its decision to buy parts from companies around the world, rather than from a small group of Japanese suppliers that have been longtime partners. For example, the pedals in the vehicles affected by the production and sales stoppages come from a supplier’s Canadian plant.

The move to expand its supplier network was necessary to save money, given cost pressures on Toyota and other manufacturers, said Ulrike Schaede, professor of Japanese business at the University of California, San Diego. But the shift also makes it harder for Toyota to control quality. “At one level, it’s the right thing to do,” Professor Schaede said. “At another, what you pay is what you get.”

In Japan, “many of us weren’t surprised over the big recalls,” said Masahiro Fukuda, manager of research at Fourin, a global automotive research company based in Nagoya, Japan. “We were more surprised that it took Toyota so long.”

For Toyota, the timing of this problem is working somewhat in its favor. The production and sales halts are coming at one of the slowest times of the year, allowing the company to begin repairs before the car market picks up in the spring.

On Wednesday, Mr. LaHood said engineers at the Transportation Department were working closely with the company to find solutions.

Mr. Womack said an open question is whether consumers will be patient with the company, because they could choose from a variety of well-built cars from many other companies.

“They’re trying to regain their image of quality at a time when everyone has gotten so much better,” he said. “If everyone else is building almost-perfect vehicles, you have to make absolutely perfect products.” Mr. Womack said he was still rooting for Toyota to fix its problems.

“I’m saddened to see a company known for building good things make some unnecessary mistakes,” he said.