Out of Control

How arrogance and bungled recalls sent the once flawless Toyota careening into crisis

Chris Sorensen, Kate Lunau

Out of control

When Akio Toyoda, the chief executive of Toyota and grandson of the company’s founder, stepped in front of a microphone last October at the Japan National Press Club in Tokyo, many observers were shocked and a bit perplexed to hear him say Toyota was “grasping for salvation,” and just steps away from “capitulation to irrelevance or death.” It hardly mattered that he was trying to shake the company’s executives from their complacency by referencing a popular management book, How The Mighty Fall. The peculiarities of Japanese business culture aside, this is not how leaders of global companies are supposed to talk, and Toyota—despite its US$4.4-billion loss in 2008 and a similar forecast for last year, a brutal year for the entire industry—was still widely considered the world’s most successful automaker.

Four months later, Toyoda’s comments sound eerily prophetic, causing some to wonder whether he knew more than he was letting on. Once praised for its manufacturing prowess and relentless efforts to improve quality control, the automaker has suddenly found itself in the midst of a crisis following its biggest-ever vehicle recalls, totalling some 8.5 million of its cars, trucks and SUVs—almost as many vehicles as all carmakers sold in the United States last year. Toyota is facing lawsuits from drivers who allege it knowingly covered up defects, and government officials are accusing the company of foot-dragging when it comes to acknowledging potential safety issues. It’s a far cry from just a few years ago, when Toyota’s ascension seemed unstoppable, and people walked into dealerships ready to pay the full sticker price because they believed Toyotas were the best-made cars on the road.

Though few Toyota vehicles sold to customers have experienced problems, the stories of those affected have been terrifying: some drivers say they experienced “sudden unintended acceleration,” a polite way of describing a car or truck careening down the highway with the throttle stuck open. Last August, in the most high-profile example—which marked the start of Toyota’s very public downhill slide—off-duty highway patrol officer Mark Saylor was driving a 2009 Lexus near San Diego when it suddenly sped out of control. In a 911 call, a passenger is heard frantically relaying the doomed car’s final seconds: “Our accelerator is stuck…we’re in trouble…there’s no brakes…we’re approaching the intersection…hold on.” The car struck another vehicle, tumbled down an embankment and caught fire, killing Saylor, his wife, her brother and his daughter.

It’s still not clear exactly what caused the crash, although a preliminary sheriff’s report blamed incompatible floor mats, which caused the gas pedal to become jammed. Toyota has since recalled millions of vehicles because of floor mats and millions more because of sticky gas pedals. With Toyota’s brand built on quality, such harrowing incidents, coupled with persistent speculation about what could have caused them, are hammering the company’s reputation with each passing day. The fact that separate problems have emerged with the brake systems of Toyota’s Prius hybrid, a flagship vehicle for the automaker’s technological prowess, has only stoked the fire.

How did the world’s most beloved automaker suddenly find itself lurching from one crisis to the next? Observers say it’s no coincidence the recent rash of recalls follows Toyota’s decision in 2002 to overtake General Motors as the world’s biggest car company, setting in motion a period of rapid global expansion that caused the company to stray from its roots, and put a strain on its oft-admired manufacturing system. Others say a culture of arrogance and infallibility has added to Toyota’s problems.

The immediate cost of the recalls are estimated to be US$2-billion in repairs and lost sales, but it’s the potential for long-term damage to Toyota’s painstakingly built brand that executives need to worry about. Not surprisingly, Toyota is desperately trying to limit the fallout before it’s too late. Exposed as just another big, out-of-touch automaker, it’s now more a question of whether Toyota’s vehicles, already described as “boring” even by their fans, will be given the taint of being unreliable too, a poisonous label that can take years—even a decade—to shake. Just ask General Motors, Ford and Chrysler.

One Friday morning last September, George Jusdanis was returning home in his new Toyota Tacoma, purchased just three weeks before. With a load of produce in his pickup truck—Jusdanis and his wife, Jane, ran a fruit and vegetable stand outside their Hamilton home—the 78-year-old reversed into the garage while Jane, 77, waved him in. It was a routine they’d been through countless times, but this day, something went horribly wrong. The truck sped up, crashing into Jusdanis’s wife of 52 years. She later died.

The Tacoma was included in a Canadian “safety improvement campaign” last November that focused on floor mats. The campaign followed the U.S. recall of 4.2 million vehicles because of concerns that accelerator pedals could become jammed in their floor mats, causing a loss of control. But no vehicle defects could be determined in the Jusdanis case and the collision investigator’s findings were inconclusive. Jusdanis and his family remain convinced there was “something electronically or mechanically wrong” with the truck, says Jim Scarfone, their lawyer, and will pursue legal action against Toyota.

Whether it was caused by an automotive defect or not, a growing number of incidents sound eerily similar to the Jusdanis crash. And some observers allege that Toyota—and U.S. federal officials—have known about these kinds of problems for years. Since 1999, at least 2,262 Toyota and Lexus owners have reported instances of sudden unintended acceleration to the U.S. regulators, the media, and the courts, according to a new report from Safety Research & Strategies Inc., a consumer advocacy group based in Massachusetts. These have resulted, it says, in 815 crashes, 341 injuries, and 19 deaths, all potentially related to faulty Toyota vehicles.

The report takes issue with the U.S. National Highway Traffic Safety Administration, noting that it launched the “first of eight separate investigations” into sudden unintended acceleration in 2003, and failed to determine a cause in five of them, while floor mats or vehicle trim were identified as a problem in the other three. But the report is also critical of Toyota, which “initially blamed customers for improperly installing accessory floor mats and resisted taking widespread action.” The report adds that the automaker limited earlier probes into the issue, and attributed complaints to growing media attention.

Even U.S.-based Consumer Reports, which its automotive analyst Mike Quincy admits has been “accused of being pro-Japanese,” found that a whopping 40 per cent of complaints to U.S. authorities about unintended acceleration on 2008 models involved Toyota vehicles. “Seen another way,” the report reads, “Toyota racked up more unintended-acceleration complaints than Chrysler, GM, Honda, and Nissan combined.”
Toyota’s response to the growing crisis has been anything but straightforward and reassuring. Toyota issued its floor-mat recall in late September, one month after Saylor’s high-profile accident near San Diego. At the time, the U.S. government said it had received reports of 100 potentially related incidents, with 17 crashes and five fatalities. The recall was the first major public admission that something was wrong, although Toyota had issued a handful of smaller recalls related to pedals or floor mats on specific models as far back as 2005. It had also already been replacing pedals in European models last August.

Drivers were told to stow their mats safely in their trunks until they reached a dealership, where mechanics were told to use zip ties to secure them in place. In Canada, some 220,000 vehicles were part of a similar floor-mat safety campaign, even though the all-weather mats sold with Canadian cars were different and hadn’t been linked to any problems. “We went above and beyond right from the beginning,” says Sandy Di Felice, a spokeswoman for the company’s Canadian arm.

In the U.S., Toyota also appeared eager to convince its customers that it, too, was doing more than was necessary. It issued a statement on Nov. 2 that said “no defect exists in vehicles in which the driver’s floor mat is compatible with the vehicle and properly secured.” But a few days later it was publicly chastised by regulators for being “inaccurate and misleading.” Officials said the floor mat recall was only an interim measure and that underlying defects did exist in the design of accelerators and floor pans.

The next shoe to drop was a U.S. recall of 2.3 million Toyota vehicles on Jan. 21. This time, the culprit wasn’t mats, but gas pedals that could, under “a rare set of conditions,” become stuck when partially depressed, or return slower than normal. (The gas pedal fix requires a small piece of metal to be inserted into the accelerator to improve its spring action.) It later became evident that Toyota had been pushed to issue the recall by U.S. authorities—Transportation Secretary Ray LaHood suggested the company was “a little safety deaf”—who were investigating drivers’ complaints about unintended acceleration. Toyota also shut down six North American assembly plants, including two in Ontario, and told dealers to stop selling affected models. Another 270,000 vehicles were recalled in Canada. It all left the impression the company was grasping for a solution.

With customers increasingly nervous and confused, uncomfortable-looking Toyota executives took to the airwaves on both sides of the border to offer reassurance. “I drive Toyotas; my family members and friends drive Toyotas,” Jim Lentz, the president of Toyota Motor Sales USA, told Matt Lauer on the Today show. “I would not have them in products I do not believe are safe.” Noticeably absent, however, was the company’s chief executive, who only made a few brief statements from the sidelines of an economic conference in Europe after a Japanese camera crew caught up with him.

But even this media blitz gave rise to more questions than answers. Following Lentz’s appearance, two congressmen wrote him a letter criticizing him for telling viewers that Toyota’s two fixes—floor mats and pedals—would “stop what’s going on.” They argue Toyota privately told officials it was very difficult to identify the causes of such events, and that the sticky pedals wouldn’t result in the sort of high-speed acceleration that had been described in news reports. Similarly, CTS Corp., the Indiana-based company that makes the pedals in question, said in a statement that the problem “should absolutely not be linked with any sudden unintended acceleration incidents.”

While some have attributed the delayed response from the top to Toyota’s methodical approach and to cultural differences (Japan is generally less litigious than the U.S.), others say the world’s largest automaker ought to have known that in North America a crisis of this magnitude must be addressed quickly. That’s what Johnson & Johnson did in 1982 following the deaths of seven people who ate poisoned Tylenol capsules. Without waiting for regulators, the company voluntarily issued a nationwide recall. There’s also an expectation that the CEO apologizes to the public and explains what’s being done to fix things. Michael McCain, the CEO of Maple Leaf Foods, was praised for his handling of a listeriosis outbreak two years ago. He delivered a heartfelt apology on television shortly after dozens of cases were linked to cold cuts processed at the company’s Toronto plant.

Toyota, however, has “really dragged its heels,” says automotive industry expert Peter Morici, a business professor at the University of Maryland, who calls the company “insular” and “arrogant.” What’s more, the two separate recalls have left customers confused: “We saw a massive recall claiming the problem was floor mats. Then we saw the story shift: it was sticking accelerator pedals,” says Sean Kane, who heads Safety Research & Strategies Inc. He, for one, thinks Toyota has done an “abysmal job” of handling the situation. “This is a crisis that’s gone well out of their control.”

Despite Toyota’s insistence that it has identified the problems and is correcting them, experts say some reports of unintended acceleration just can’t be explained by faulty gas pedals or floor mats, causing them to wonder if engine electronics are to blame. Indeed, U.S. officials are looking at whether electronic interference might somehow be causing Toyota’s electronic throttle control systems to malfunction.

Such systems first popped up in the auto industry about 10 years ago, says Raj Rajkumar, a professor of electrical and computer engineering at Carnegie Mellon University. Instead of a direct mechanical link between the accelerator and the engine, the so-called drive-by-wire system uses electronic sensors in the gas pedal to measure how much throttle the driver is applying. While such computerized systems do provide advantages, like better programmability and control, “it’s a question of making them mature and reliable,” Rajkumar says. “Software and hardware can crash when something goes wrong.”

In case something does go wrong, several manufacturers, including BMW, Audi, Chrysler and GM, equip some or all of their vehicles with override systems that tell the engine to ignore the accelerator if it’s being pressed at the same time as the brake. Until recently, Toyota did not. In November, it announced override systems will come standard by the end of this year, and will be installed on some recalled vehicles, including Camry and Lexus models. Donald Slavik, an attorney involved in a suit against Toyota, wonders why they didn’t do it sooner—whether the problem is a sticky gas pedal, a floor mat, or an electronic glitch in the throttle system, he notes, such an override system “takes care of it.”
So far, Toyota has strenuously denied that engine electronics are at fault: “Toyota has never found an incident of unintended acceleration caused by a vehicle’s computer [or] electronic control system,” says Di Felice. As for why override systems exist on some models but not others, Di Felice says the previous practice was to add the feature when the model went through a major update, an event that typically takes place every five to six years.

But Kane, who has looked at thousands of complaints, is skeptical. “In the absence of mechanical problems or driver error, what you have left is a car with a sophisticated electronic system that’s likely contributing to the [problem],” he says. As his new report states, “Random, intermittent electronic faults are hard to detect, but they do occur—the electrical contacts, electromagnetic interference, and the programming of the electronic controls are all possible points of breakdown or interruption in an electronic system.”

The fact that Toyota recalled more than 400,000 of its Prius hybrids this week because of a software program that can result in uneven braking on bumpy terrain (a computerized system switches between hydraulic and regenerative brakes, which are used to recharge the vehicle’s batteries) has only served to highlight the potential for problems with such complicated systems.

Unfortunately for Toyota, solving the acceleration problem could prove exceptionally difficult if it proves to be electronic in nature. “The problem with this is that it’s a very low occurrence [of incidents],” says Steve Witten, the executive director of research in the U.S. automotive group at J.D. Power and Associates. “It’s only happening to a very small number of vehicles, so it’s difficult to isolate what the cause is.” Still, the spectre of suddenly losing control of the vehicle can be terrifying, says Witten. “This is one of those things that’s always in the backs of people’s minds, like what happens when you’re going down a steep hill and you lose your brakes.”

When Toyota decided to redesign its Tundra pickup truck in the middle of the last decade—a vehicle that takes aim at the heart of the U.S. market—it dispatched a small army of designers and engineers into the logging camps, construction sites and cattle ranches of middle America. There, they learned the importance of giant drink holders, oversized door handles (easier to grab wearing work gloves), and compartments where contractors could store their laptops.

This process of seeing it for themselves (genchi genbutsu in Japanese), and the concept of continual improvement (kaizen) when it comes to manufacturing, typifies Toyota’s methodical approach to building automobiles, which has been the envy of the industry for years. “Toyota had an excellent reputation for quality, and deservedly so,” says Craig Hoff, a professor of mechanical engineering at Kettering University in Flint, Mich. “Quite frankly, they wrote the book on it.”

But many argue that Toyota’s legendary attention to detail has suffered alongside its global expansion efforts, which ramped up earlier this decade. “When you become big you have to pay increasing attention to quality control,” says Jesse Toprak, an analyst at TrueCar.com, a U.S. car-pricing website. “Toyota probably felt they were immune to these sorts of errors in production. When these reports [of unintended acceleration] first emerged, there was almost a sense of denial coming from them.”

However, others caution that it’s easy to overreact because vehicle recalls tend to be high-profile events. Mike Quincy, automotive analyst for Consumer Reports, insists the latest recalls—and grisly reports of cars speeding off cliffs, or smashing into trees—must be put into proper context. “It’s not fair to broadly brush a black mark all over Toyota and say they’re death traps,” he says. “The data doesn’t suggest it.” While some models are “not quite as good as they used to be,” he adds, their reliability remains very good. Similarly, the University of Michigan’s Jeff Liker, who wrote several books on Toyota’s manufacturing system, says it’s too early to say whether quality has actually slipped, since today’s vehicles are far more complex than their predecessors, making more recalls inevitable.

Regardless, in today’s market, competition is fierce and the reality is that most other automakers have caught up to Toyota when it comes to quality. And what happens when Toyota’s historical advantage is stripped away? For starters, Toyota’s lineup starts to look pretty ordinary: critics have dubbed them four-wheeled “appliances.” “If people have even the slightest misgivings about looking at a Camry, they know that they can look at a Nissan Altima, a Honda Accord, or a Subaru Legacy,” Quincy says. “Customers have a choice these days.” Toyota’s rivals already smell blood in the water. Led by GM, several are offering buyers a $1,000 incentive to trade in their Toyotas, while Toyota has countered with a buyer “loyalty program” that offers customers similar discounts.

Toyota is now in the fight of its life—and its fate will be decided in the coming weeks. If the company is able to fix its customers’ cars quickly and promptly, it may actually have an opportunity to win their continued loyalty, experts say. In the key U.S. market, the carmaker is reportedly offering dealers up to $75,000 to spend as they see fit to keep customers happy during the recall process. But if Toyota continues to be dogged by questions about its vehicles for which it has no answers—or, worse, if it becomes apparent that the company tried to keep more serious problems from coming to light—there will be little hope of reversing the automaker’s skidding fortunes. Audi, for example, spent nearly 15 years rebuilding its U.S. sales after struggling with a similar rash of unexplained incidents of unintended acceleration.

Toyoda finally came out of hiding last week to offer an apology to Toyota customers and to pledge reforms: a global quality committee, better communication between global executives and improved vehicle inspections.But he knows better than anyone that such changes won’t yield results overnight. It took years for GM, Ford and Chrysler to change their approach in order to better compete with the Japanese automakers. For Toyoda and the company that bears his family’s name, “grasping for salvation” may have been little more than a conceptual pitfall to avoid last October. Now, it’s the real thing.