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Slow response made perfect storm worse

U.S. political mood, mass recalls, bad PR all came together

by Hiroko Nakata

While the intense speculation that Toyota Motor Corp. may have covered up electronic defects appears to have ebbed, Japanese experts say the world’s top automaker deserves a failing grade for its risk management, and the resulting damage to its reputation was worse than it should have been.

They noted that the furor over the unintended acceleration issue may have been affected by multiple factors — overreaction by the U.S. media, a shift in the business environment, and the American political mood at the time.

But among them all, the company’s delay in zeroing in on the problem from the very beginning led to harsher criticism against a company renowned for high quality, they said.

“At the very least, Toyota made a mistake in risk and crisis management,” said Masayasu Miyabayashi, vice president and a professor for the study of risk and crisis management at Chiba Institute of Science.

The basic rule of risk management is to identify a risk and eliminate it while it is still minor, he said.

But the beleaguered automaker appeared to have entered risk management mode only this year, Miyabayashi said, when President Akio Toyoda first appeared in a news conference to clarify quality issues at Toyota’s headquarters in Aichi Prefecture on Feb. 5 and testified before a U.S. House of Representative committee Feb. 25.

He was initially criticized for avoiding making any statements about the series of massive U.S. recalls that started in October until he was spotted and asked for a comment by a Japanese TV crew in Davos, Switzerland, in January.

That was months after a tragic crash in August on a highway near San Diego that killed an off-duty highway patrol officer and his family members in a runaway loaner Lexus. In the aftermath of that accident, Toyota recalled millions of cars because an incompatible floor mat might have caused pedal entrapment, and millions more due to sticking accelerator pedals, fueling speculation by U.S. media and consumers.

“If there were any problems in communication, we will sincerely reflect on them and try to regain trust,” said Toyota spokesman Hideaki Honma.

Miyabayashi said Toyota should have acted much earlier, at least in 2007, when there were complaints about the accelerator in Tundra pickup trucks in the U.S., or ideally in 2004, when the National Highway Traffic Safety Administration began investigating unintended acceleration problems in the Camry and Lexus ES.

Takaki Nakanishi, an auto analyst at Alliance Bernstein Japan Ltd., agreed, saying Toyota’s slow response was a result of its failure to scrutinize driver complaints and realize the seriousness of the issue.

Akio Toyoda, the grandson of Toyota’s founder, has also acknowledged he may not have been fast enough in responding to the claims against its vehicles.

It was only in March that Toyota held its first meeting of a panel of regional and local quality-control executives at its headquarters.

At the meeting, the company announced it was increasing the number of technology offices in North America to seven from one and setting up a string of training centers in Japan, North America, Europe, Southeast Asia and China.

“At least on the surface, Toyota looked as if it wasn’t taking any quick actions,” Miyabayashi said.

Toyota found room to breathe last month when U.S. media reported that NHTSA presented data to U.S. lawmakers that a majority of Toyota’s sudden acceleration cases, based on a preliminary report on the accidents it investigated, were caused by driver misapplication of brakes.

The media also reported that NHTSA said no electronic defects had been found so far.

Driver error when it comes to brake and accelerator pedals isn’t rare, either in the United States or Japan.

In Japan, about 7,000 accidents involving drivers who intend to apply the brakes but hit the accelerator instead have been reported every year at least for the last decade, resulting in around 30 deaths annually, according to the Institute for Traffic Accident Research and Data Analysis in Tokyo.

The major causes of such accidents are that the drivers panic, or they are elderly or are driving an unfamiliar car, said Shinichi Yoshida, a senior research engineer for the institute.

Some experts argue that a perfect storm of complex factors escalated the crisis that hit Toyota.

Yasuo Tsuchiya, vice president of the nonprofit organization Japan Think Tank Academy and a lecturer at Meiji University, pointed out that the mechanical concerns were exacerbated by a combination of other elements, including a political mood in the U.S. unfavorable for Toyota.

There was even speculation that the U.S. government was looking to aid General Motors Co., which had filed for bankruptcy in June 2009. The U.S. government is a stockholder of GM as well as Chrysler.

Tsuchiya said the woes of Toyota’s U.S. rivals may have created unfriendly feelings toward the Japanese automaker. “Recalls are actually everyday events,” he said. “But these Toyota cases drew much attention due to a combination of other factors.”

Meanwhile, Miyabayashi said Toyota’s slow reaction looks particularly odd when comparing it with how well the automaker coped with trade friction with U.S. makers in the 1990s.

As a result of the friction, Toyota decided to build more production plants in the U.S. and formed a joint venture with GM, the New United Motor Manufacturing Inc., known as NUMMI, in Fremont, Calif.

“This time, Toyota didn’t demonstrate the flexibility it used to have back in those days,” Miyabayashi said.

The U.S. media frenzy appears to have subsided for now, but the impact of the poor quality control on Toyota’s image and U.S. sales is still evident.

Despite a large amount of incentives for new car sales, Toyota’s share of the U.S. market for January to July was 15.2 percent, down from 16.1 percent for the same period last year, according to Nakanishi of Alliance Bernstein.

According to the most recent data from Ward’s, a U.S. automotive news provider, sales of Toyota cars and light trucks from January to August this year dipped 0.5 percent to 1,164,154 units, from 1,170,409 units a year earlier. In August alone, sales slipped 31.4 percent to 148,388 vehicles from 225,088 in the same month last year, when the U.S. government’s Cash for Clunkers incentive program was active.

“Consumer trust in Toyota’s quality took a nose dive, and it will take time before it comes back,” Nakanishi said.

Even if there is no electronic throttle defect, as the NHTSA study of unintended acceleration cases indicated, the automaker still had floor mat problems and sticking pedals, Nakanishi continued.

“It is expected to take about two years or so for Toyota to completely get over the crisis,” he said.