Toyota is in serious trouble. The Japanese juggernaut should be celebrating its recent ascension to the top spot among global automakers. Instead, it is slogging though a multistage recall of millions of its most popular vehicles, a situation that wasn’t much improved by Friday’s awkward, contentious press conference with Akio Toyoda, the company’s president (and the founder’s grandson). Managing spin, as is becoming glaringly apparent, is not something that Toyota does very well.
Recalls never look good, but this one, which involves faulty floor mats and balky gas pedals, is particularly ugly. It has morphed into a fast-moving disease, an engineering infection that has not only forced Toyota to suspend sales of eight models and hammered down the company’s stock price by 20 percent, but also blackened the company’s fastidiously tended reputation for quality. And it isn’t over yet. The National Highway Traffic Safety Administration indicated this week that it will investigate an alleged braking problem in Toyota’s celebrated hybrid, the Prius.
This chain of events could cripple Toyota for years. After all, the fanatical devotion that the company has inspired in owners is based on the perception that the cars and trucks it builds are nearly perfect. They always start. They never leak. In the case of the Prius and other hybrids, they save the planet.
These seemingly perfect automobiles are the blissful result of the Toyota Production System, a vaunted industrial process in which everyone from the lowliest assembly-line worker to the most powerful executive adheres to the principles of the Toyota Way. Based on the concept of “kaizen,” or continuous improvement, the Toyota Way is the philosophy that has supported the company’s steady rise since its origins in textile manufacturing in the 1930s and has long provoked envy and consternation in competitors. It wasn’t even fully written down until the early 2000s; before then, it was disseminated in training classrooms and informally from employee to employee.
The Toyota Way broke from 20th-century mass-production methods and a rigid, Western-style bureaucracy in favor of an equally rigid insistence on doing everything with maximum efficiency. Ruthlessly eliminate waste. Fix problems immediately. Think long-term. Not exactly a stick-on-the-bumpers-and-roll-’em-out-the-door strategy.
But Toyota doesn’t just build cars and trucks. It creates a state of mind, and that state of mind enables absolute trust in Toyota.
You could call it bad luck or bad timing that this spate of recalls arrived just as Toyota finally surpassed its longtime rival, General Motors, to seize the prize of being the world’s top automaker that it long coveted. But the reality is that its management and manufacturing culture was ideally prepared to get to No. 1, but stunningly ill suited to actually be No. 1.
Comfortably preoccupied with rooting out internal weakness, the Toyota Way is lost when it comes to contending with outside threats. For such an intense system to function properly, employees have to blindly adhere to it; overconfidence is the natural outcome of this arrangement. Yes, any worker is empowered to stop the assembly line because he spots a flaw. But if a flaw does get through, the company as a whole is loath to admit that the system broke down.
The drawbacks of the Toyota Way are unique, but the experience of rising to a peak in business, only to suffer a precipitous fall, isn’t. In the early ’90s, America Online leveraged its Everyman attitude toward the intimidating Internet into a dominant position, only to almost destroy itself in a disastrous merger with Time Warner. An aggressive Web pioneer couldn’t sustain innovation while simultaneously being the No. 1 destination for digital media.
The point is that the climb often requires a distinct, unyielding philosophy, while setting up shop on the pinnacle requires something else entirely, like the ability to absorb some punishment. Companies that aim for cultish loyalty are vulnerable in this way. Apple doesn’t respond well to customers criticizing its products. Toyota, likewise, doesn’t have much experience being attacked. It just wasn’t ready to handle doubt, dismay or the obliteration of trust.
Contrast this with the eight-decade reign of G.M. as the world’s largest carmaker. Now there was a company that could handle hatred. There were times, in fact, when it seemed that G.M. didn’t care what its customers thought. Consumers loved Saturn — so naturally G.M. starved it, then killed it.
Obviously, this attitude contributed to the company’s bankruptcy last year. But even that crippling blow, along with the vindictive accusations that it’s now “Government Motors,” hasn’t really changed G.M. If anything, G.M. is more swaggering now that the dead weight of failed brands has been shed along with an onerous debt burden. It’s a good thing, however, that No. 2 is still acting like No. 1, because No. 1 may suffer far more than anyone could predict for the worst example of crisis management in the history of the auto industry.
Worldwide, Toyota has already recalled more than nine million vehicles. That’s almost as many cars as were sold in the United States last year. The Chrysler bailout of the late 1970s was bad, the G.M. and Chrysler bankruptcies of 2009 far worse. But neither event radically altered those companies’ core identities, because their brands weren’t built on perfection. Toyota, by contrast, will never be the same again.
Matthew DeBord, who writes the Shifting Gears blog for the Web site The Big Money.