Toyota Fix Falls Short

This story just broke in the news:


Ten Toyota owners have told federal safety officials that the recall repairs didn't work and that their cars still accelerate when they're not supposed to.

That's enough to trigger a robust response from the National Highway Traffic Safety Administration, which was bashed in congressional hearings for not moving faster on years of Toyota unintended acceleration complaints.

"NHTSA has already started contacting consumers about these complaints to get to the bottom of the problem and to make sure Toyota is doing everything possible to make its vehicles safe," NHTSA Administrator David Strickland said in a statement Wednesday.

"Toyota is aware of the complaints filed with NHTSA and has been working to obtain access to the vehicles," said Brian Lyons, Toyota's spokesman.


Federal law would allow NHTSA to make Toyota replace or buy back the models if it can't repair them. The agency can give an automaker several chances to make repairs, says former NHTSA enforcement chief Bill Boehly.

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As unbelievable as it might sound and beyond my comprehension a few weeks ago, Toyota could be on the cusp of a major failure in the US market, the kind that will be talked about for years and years in business schools. The US government is being pushed into action, and when pushed, governments usually react irrationally. When a foreign company is involved and US regulators want to show that they are protecting citizens against the "evils" of foreign products, the reaction could get downright ugly, egged on by Detroit manufacturers. We are even hearing from those still angry at Japan for barring US beef a few years ago who want to strike back by barring Japanese cars until the problem is fix--never mind that all of the affected cars were made in the US. As I said, governments act irrationally, and when the current US Congress is involved, one can imagine that it could act like a "crazy uncle".

Toyota is in deep, deep trouble. The lawsuits have not even begun to surface. The company's 2010 cars are sitting on lots with no buyers; while the 2011 season has begun. How will Toyota clear all of the inventory it has sitting in the US? This could be a problem that will impact the company for many, many years.

When Toyota first built its reputation in the US, it had fewer competitors. The US car industry was producing shoddy cars and Toyota emerged as a company whose cars delighted customers--the best in terms of price vs. quality. It's a truism in competitive markets that those who differentiate will cause others to follow suit to close the gap and the differentiation becomes more difficult. Not only has Ford closed the gap, but the market now has high quality brand names like Honda, Acura, Infiniti, Hyundai, Nissan, and others. When people decide to buy a car, the alternatives now are plentiful. The category of high quality, high reliability cars with good price has grown. Toyota now will fall from consideration for at least a full cycle. How will it get back into consideration? What will it have to do in terms of price cuts and credit offers? What will that cost the company? What will all the law suits cost?

This is just an amazing unraveling of a great company. Of course, we also are seeing the failures of the Japanese mindset and management style. In Japan, auto design engineers are revered. They have felt almost above reproach. It seems likely that they could not accept responsibility for what they heard was happening and stayed deaf to the problems. The culture that made Toyota great may have been the same culture that could lead to its downfall.