Toyota’s troubles

The problems just won’t go away for Toyota. With around 8.5 million cars recalled so far, a March 4 story in the Detroit Free Press reported that the US National Highway Traffic Safety Administration (NHTSA) had received 731 complaints about uncontrolled acceleration in Toyota models not subject to the mass recall. Even more worrying for the car manufacturer was the report on the same date that more than 60 complaints about the same problem had been received concerning cars which had already been repaired under the recall.

Toyota did not help its case by its initial insistence that only wrong-sized floor mats were to blame for the potentially fatal defect, but subsequently conceding that sticky accelerator pedals might be a cause. It has also been adamant that the cars’ electronics are robust and have nothing to do with the problem, despite increasing suspicions that the ‘fly by wire’ systems (in which there is no physical link between accelerator pedal and engine, but only an electronic one) may have something to do with the circumstances under which cars can accelerate unexpectedly. The NHTSA backs the Toyota case, in so far as it has found no fault in the electronics, but the US Congressional hearings into the matter reported ‘the record before the committee is most notable for what is missing: the absence of documents showing that Toyota has systematically investigated the possibility of electronic defects that could cause sudden unintended acceleration’.

On March 31, the US administration announced that NASA scientists would be drafted in to look at (among other things) the potential risk posed by interference by cosmic rays in electronic systems (a known problem in aviation). Meanwhile, three separate probes into what Toyota knew about the problem and when, and whether sufficient disclosure was made to regulators, are underway, while lawsuits are building up throughout the US.

It is ironic that Toyota has long been a byword for effective risk management, especially of its project risk. It pioneered the ‘lean manufacture’ philosophy whose aim was to eliminate waste at every stage and ensure quality by detailed and intensive co-operation with its tier-one suppliers. At the same time it sought to ensure consistency by reducing the number of suppliers to a minimum, - in some cases using a sole source - and drove economies of scale by designing identical components into the widest model range possible.

A thoughtful article in the Economist of February 25 considers whether this manufacturing philosophy ultimately increased risk as Toyota rapidly expanded to become the world’s largest car manufacturer. As the article says: ‘A consequence of Toyota’s breakneck expansion was that it became increasingly dependent on suppliers outside Japan with whom it did not have decades of working experience. Nor did Toyota have enough of the senior engineers, known as sensei, to keep an eye on how new suppliers were shaping up. Yet Toyota not only continued to trust in its sole-sourcing approach, it went even further, gaining unprecedented economies of scale by using single suppliers for entire ranges of its cars across multiple markets.’

The risk – which is now becoming apparent – is that if something does go wrong within the supply chain despite all efforts to ensure quality, the damage is commensurately greater. And of course, it is all the worse if the cause of the problem remains controversial.

Andrew Leslie is analyst, StrategicRISK