The Dings and Dents of Toyota
DETROIT, Nov. 2 — It might seem odd to suggest that a 70-year-old company is going through growing pains, especially one with $183 billion in annual sales.
But 2007 has been a difficult year for Toyota.
Its reputation for building high-quality vehicles has been tarnished, most recently by the decision by Consumer Reports to stop automatically giving a “recommended” label to all its cars and trucks.
Toyota’s sales growth, which has been in the double-digit range in recent years, has slowed more in the United States than the company expected, causing it to lose its grip on the biggest-automaker title it took from General Motors last spring.
And it has seen some of its most talented American executives return to Detroit, notably James Press, who left the company’s highest-ranking job in North America to join Chrysler.
That run of bad news may provide some breathing room for competitors from whom Toyota has been steadily stealing market share.
Yet Toyota has a long track record of learning from such challenges and mistakes. And with Detroit companies still curtailing their operations, including the 11,000 job cuts that Chrysler announced Thursday, Toyota has some breathing room to fix itself.
Indeed, some longtime industry observers say that the negative news about Toyota is unlikely to affect its prospects drastically.
“Toyota’s short-term problems are exaggerated,” said James P. Womack, a manufacturing expert and co-author of “The Machine That Changed the World,” the 1990 book that examined Japanese plants in the United States.
But Mr. Womack said he was concerned that Toyota might be losing its laserlike focus, just as it marked two important anniversaries this year: its 70th birthday as an automobile company, and its 50th year selling cars in the United States.
“Toyota has to rethink its purpose in life,” Mr. Womack said. The company remains on track to achieve its 2010 goal of owning 15 percent of the global car market (its market share in the United States was 16.2 percent through October). But biggest is not necessarily the same as being the world’s best car company, which was long Toyota’s main objective, he said. A focus on volume, for example, can easily lead to missteps with product introductions or slips in quality.
“The dog has caught the car,” he said. “But what was the point?”
Passing G.M. in the spring as the biggest automaker seemed a major accomplishment for Toyota at the time. It appeared to have shaken off quality problems that dogged it in 2006, when it reported double the number of recalls it had 2005.
Through October, its recalls in the United States and Japan have fallen by about half from 2006, when it recalled 2.1 million vehicles. But Toyota shares fell last month when it recalled about 470,000 vehicles in Japan, its fifth recall there this year. None of those vehicles was shipped to the United States, however.
Last year’s run of quality glitches prompted Toyota’s chief executive, Katsuaki Watanabe, to appoint an executive in charge of quality and to dispatch engineers throughout the company to work on improving its cars.
Inside Toyota, “everyone, and I mean everyone,” is focused on improving quality, said Jeffrey Liker, professor of engineering at the University of Michigan and author of “The Toyota Way,” a study of the company’s management philosophy. “Quality is how they have built their competitive advantage.”
But the effort could not head off the decision by Consumer Reports magazine last month to no longer automatically give new or restyled Toyota vehicles a recommended rating. That leaves only Subaru and Honda with those bragging rights.
In particular, Consumer Reports cited problems on three models, including versions of the Camry sedan, the Tundra pickup and the Lexus GS luxury car
Consumer Reports will require a year’s worth of reliability data, as it does for other carmakers, before deciding whether it can recommend a Toyota car.
Despite Toyota’s track record, Consumer Reports did not hesitate to pull the automatic ranking, said David Champion, the magazine’s senior director of automotive testing. “It takes a long time to earn that reputation, but it doesn’t take long to lose it,” Mr. Champion said.
“We have no issue with that,” said Mike Michels, a Toyota spokesman, of the magazine’s decision. “We don’t think anybody is entitled to an automatic recommendation.”
But the step was a clear setback for Toyota, which built its brand with help from the magazine’s high ratings for its small cars.
“It matters,” said James Lentz, executive vice president at Toyota Motor Sales U.S.A.. its American marketing arm.
The timing of the Consumer Reports announcement was hardly ideal — it coincided with the dinner at which Toyota’s honorary chairman, Shoichiro Toyoda, was inducted into the Automotive Hall of Fame in Dearborn, Mich.
Mr. Champion, of Consumer Reports, said Toyota will likely regain its footing, although it will take several years of average to above-average quality ratings to regain the magazine’s automatic recommendation.
“They should put it right relatively quickly,” he said. “They’re still an extremely reliable company.”
Toyota’s reliability is being tested in other areas as well. For the last 10 years, Toyota’s market share has been on a steady march upward in the United States, more than doubling from 7 percent in 1997. It has passed both Chrysler and Ford Motor in the last 12 months to rank as the country’s second-biggest auto company, behind G.M.
Mr. Press warned at the start of the year that Toyota’s growth would slow to about 5 percent this year. He cited uncertain economic conditions and few new vehicles.
Even Mr. Press was too optimistic: Through October, Toyota’s sales were up just 3.5 percent. While none of the Detroit companies’ sales have risen this year, Toyota has experienced a few months in which its sales dropped from the year before.
Mr. Press, meanwhile, is no longer at the North American helm. His departure for Chrysler, where he is co-president, startled the company. It got another jolt when James D. Farley, who ran its Lexus division, jumped to Ford to become its group vice president of marketing. Another Lexus executive, Deborah Wahl Meyer, preceded Mr. Press’ arrival at Chrysler.
Along with holding the top job in North America, Mr. Press had become the first American to join the Toyota board. But the company’s uppermost ranks remain solidly Japanese, even though its collective sales in the United States, Europe, and elsewhere are bigger than those in Japan.
Toyota officials expressed disappointment at the loss of Mr. Press and the other executives, but stressed the company has plenty of talent, both in the United States and in Japan.
Mr. Womack, however, said he fears that the company has not produced “the number of quality managers they need to support their growth rate,” Mr. Womack said. “This is the big, big problem.”
Still, Chrysler’s hiring of Mr. Press “could be a gift,” he said, if it makes Toyota aware of the problem it has in retaining top talent.
History suggests Toyota does learn from its problems. After all, Toyota’s rise in the United States market began after one of its biggest mishaps: the Crown Toyopet.
Introduced in 1957, the small Toyopet was essentially laughed out of American showrooms, forcing the company to virtually shut down its sales operation the following year before coming back in 1959.
It took Toyota another 10 years before it was selling 100,000 cars a year in the United States. This year, it is on track to top 2.5 million.