What Got Toyota Into This Mess?

Automotive News' James Treece Cites Three Flaws in the Automaker's Corporate Culture

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James Treece
James Treece
Toyota Motor Corp.'s current mess is not the safety-related recall of a defective product. The mess is how the auto maker has mishandled the investigation and publicized its defect and the related recalls.

Humans, and human creations such as companies, are fallible. The "relentless pursuit of perfection" (Lexus' tagline) is possible, but attaining perfection all of the time is not. Every car maker has had a safety-related recall. We/they all fall short of perfection.

But enough theology.

Toyota's push for growth increased the probability of a quality failure. Former Chairman Hiroshi Okuda's drive to reach increasingly ambitious goals, which he rolled out under the slogan "We can and we will," was packed with hubris.

But when Lexus suffered an embarrassing recall in its early months, it handled it masterfully and solidified a reputation for customer care. It turned a problem into an advantage. Toyota has bungled this recall.

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I believe three flaws in Toyota's corporate culture are behind its current predicament.

1. Toyota has a deep preference for secrecy rather than openness.
Toyota's culture embraces problem-solving. Whether in manufacturing or marketing, Toyota loves to solve problems, to anticipate them if it can, to ask the "Five Whys" and conduct root-cause analysis.

But they hate to do it in the public eye.

Toyota never publicly acknowledged it had a problem with an increasingly aging consumer base, even though the average Toyota buyer in the United States was roughly the same age as a gray-haired Buick buyer -- until the day it unveiled its Scion sub-brand, designed to attract younger shoppers.

To be sure, no company likes to solve problems in public. But when you have a safety issue or recall, you have no choice. You have to go public with the risk, alert the public and the authorities and provide as much information as possible to those tracking down the cause of the problem.

Toyota resisted that necessary openness. It also put out statements that were disingenuous at best, thereby squandering public trust.

By trying to keep its research into the causes of sudden acceleration to itself, by making fixes to vehicles on the line but not to vehicles that had rolled off the line the day before and by proclaiming too soon that all was well when in fact it had a solution to a problem but not the solution to the problem, Toyota dug its own hole.

The problem may have been exacerbated by the inadequacies of the Toyota PR department. It's a truism that the market-share leader in every business segment always has the worst PR. There are three reasons for that.

A. Arrogance. Whether you're Microsoft in software or Toyota in autos, the media need you more than you need the media. At least that's what those companies think.

B. Complacency. When you're the largest, particularly for a consumer good like cars, you have the biggest marketing budget. That inevitably means kid-glove treatment from the media, and companies get used to a docile media.

C. Understaffing. When you're the largest, you get lots, lots more media requests than the second-largest. Some requests are downright ridiculous. There's no way a company can staff its PR department sufficiently to handle all of them.

Those three reasons for weak PR are a corollary to the second flaw in Toyota's corporate culture.

2. Toyota is woefully unprepared to be No. 1 in the world.
After Toyota topped General Motors in sales for the first quarter ever, the Japanese auto maker's next press conference in Japan, to launch the Lexus LS 600, was a mob scene.

The following week, I met with Toyota's international PR people. They were still in shock. They were used to having maybe a half-dozen TV crews for a new-car launch, and they had two or three times that for the LS 600. TV outfits from European stations they had never dealt with had shown up. Why, they asked me?

Well, duh, I said. It had nothing to do with the car. Every TV network in the world had contacted their staffers or stringers in Tokyo, saying: "Get us stock footage of Toyota President Katsuaki Watanabe at a podium, in case we need it sometime in the next year. Toyota now is No. 1 in the world, and we need B-roll."

This was news to Toyota's PR department.

Being No. 1 means more attention. Heck, it means being under the microscope and getting blamed for industry woes that are not unique to your company. When some activist wants to slam Big Oil and Big Autos, now that attack will likely be directed at Exxon Mobil and Toyota, not GM. As Automotive News said in a recent editorial: "Great companies need thick skin."

The massive media coverage of Toyota's woes has nothing to do with a pro-U.S. stance by the U.S. media, as alleged by some Japanese media. The Los Angeles Times, effectively Toyota's hometown newspaper in America, did the first major, scathing report on Toyota's cover-up of its problems. I assure you, the LA Times is not in GM's or Chrysler's hip pocket.

Likewise, Toyota dealers' complaints that the media are piling on are misguided attempts to blame the messenger. The U.S. media were just as relentless when Ford Motor Co. suffered through its Explorer-Firestone tire debacle.

It's not about nationalism. It's not about supporting U.S. taxpayer-owned GM and Chrysler Group. It's not about schadenfreude. Well, yes, some of it is about schadenfreude. But mostly it is about Toyota's being No. 1.

If Mazda Motor Corp. had a recall that affected every car they had sold in the past eight years, they still wouldn't get the media coverage that Toyota has gotten. Mazda isn't No. 1.

Welcome to the pedestal you aspired to, Toyota. Now that you're elevated above the rest, that just makes it easier to see feet of clay.

By the way, although I don't have solid proof of this, my suspicion during this crisis has been that the PR folks thought their job was to protect President Akio Toyoda's reputation. If mud were to fly, don't let any land on the bearer of the founder's name. If my suspicion is right, that was a disastrous tactical blunder on the part of PR.

At a small, family-owned company, it might be understandable if loyal managers took foolish steps to protect the founder's reputation. At the world's largest auto maker, any such actions would be absurd and self-destructive.

3. Toyota is more insular than international.
Toyota was hurt by the timing of the crisis, coming as it did a few years after the auto maker lost its most effective conduit to explaining the American market to bosses in Toyota City: Jim Press.

But the communication breakdown goes beyond one person. No individual at a company Toyota's size should be irreplaceable.

This entire episode is a lesson in how the lack of diversity in the upper management of Japanese companies is a defect, not a plus. In today's global economy, ethnic purity in management is a corporate flaw.

Toyota waited far too long before naming Press as the first foreigner on its board of directors. It therefore had too few foreigners in place to explain the consumer, as opposed to the regulatory, implications of a recall in the United States.

On paper, one could make the same complaint against Honda.

Astoundingly, Honda still doesn't have an American on its board, and it is even more reliant on the United States than Toyota.

But the personnel policies of the two auto makers are quite different. Honda has a cadre of executives who have lived and worked in America for 15 years or more, and most of its senior management has experience abroad.

Toyota sends executives to the United States for four to six years at a stretch, brings them back to Japan (presumably to make sure they haven't gone native) and then maybe sends them out again.

Both companies have grown from Japan-based automakers into global giants. Both need to have senior management that reflects a broader point of view. Neither does.

Industry Editor James Treece lived in Japan for 22 years and was Automotive News' Asia Editor in Tokyo from 1995 to 2007.

This column first appeared in Automotive News.

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