WhatHappenedtoToyota?

RobertE.Cole
ProfessorEmeritus
HaasSchoolofBusiness
UniversityofCalifornia,Berkeley
VisitingResearcher,ITEC
DoshishaUniversity
EOQJune2011

HowManyQualityProblemsDo
TheyHave?
Operationally:3problems(asof2/08/10)
Fromacustomerfirst perspective,they
had7millionproblems
Fromafuturecustomerperspective,the
universeofpotentialcarpurchasers

EOQJune2011

TheUnfoldingBigPicture
Subsequenttotherecallsassociatedwithfloor
matsandstickypedalscausingunintended
acceleration,Toyotahad14safetyrelated
recallsthroughSept.2010.
Thesehighlypublicizedrecallsmaywellhave
solidifiedintheU.S.publicsmindthatToyota
hasseriousqualityproblems.

EOQJune2011

TestResultsfromConsumerReports(CR)
Ifweexaminethepercentageofabrands
vehiclesrecommendedbyCR,thetrajectory
showssignificantdeclineforToyotamodels
from85%recommendedin2008,to73%in
2009,to47%in2010thesharpdropin2010
partiallyreflectsrecentrecalls.By
comparison,CRrecommended70%ofNissans
in2008,77%in2009and95%in2010.

EOQJune2011

Figure1:HowToyotasReliabilityComparestoSelectedCompetitors
(Toyotashowninbluedottedline;Competitorsshowninredsolidline)

Chevrolet

Ford

Honda

Hyundai

INITIALQUALITYSTUDY,problemsper100carsmeasuredat90days ofownership.J.D.Power&Associates

VEHICLEDEPENDABILITYSTUDY,problemsper100carsexperiencedbyoriginalownersofthreeyearoldvehicles.

Source:AuthorsestimateondatashowninInsideToyota,ExecutiveTradeBlameOverDebacle,WallStreetJournal,(April14,2010):
EOQJune2011
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A18.DifferentscalesforthetwodifferentfiguresreflectWSJsmodeofpresentation.

U.S.MediaAttentionRegarding
ToyotaRecalls
Extraordinarymediaattention
AmediaplottogetToyota?
No,justtheU.S.mediadoingwhatitdoes
withallitsassociatedstrengthsand
weaknesses
Toyotarecallsgettingfarmoreattentionthan
thoseofotherautomakers
EOQJune2011

Ourmostimportantobjectiveisto
deliversuperiorproductstosatisfied
customerswhosetrustwemustwin.If
wedeliveraproducttothecustomer
whosequalitycreatestroublefor
them,thiswillaffecttheirtrustinus.If
webetraytheirtrust,theywillnotbuy
ourproductsforalongtime!
*Source:IsaoNakatsuka,DirectoroftheTQCPromotionOfficeat
ToyotaIndustriesCorp.,1990.
EOQJune2011

Table1:LightTruckSalesfor
FordandGeneralMotors:19992005*
1999

2000

2001

2002

2003

2004

2005

FORD 2,447,285 2,483,140 2,383,697 2,194,534 2,214,580 2,210,086 2,018,000

GM

2,395,480

2,390,785

2,561,258

2,729,831

2,673,038

2,713,114

2,610,000

Federalregulationsdefinealightdutytrucktobeanymotorvehiclehavingagrossvehicleweight rating(curbweight
pluspayload)ofnomorethan8,500pounds(3,855.5kg)whichis (1)Designedprimarilyforpurposesof
transportationofpropertyorisaderivationofsuchavehicle, or(2)Designedprimarilyfortransportationofpersons
andhasacapacityofmorethan12persons,or(3)Availablewithspecialfeaturesenablingoffstreetoroffhighway
operationanduse. Practicallyspeaking,lighttrucksincludelightdutyvans,pickupsandsportutilityvehicles.
IamindebtedtoMichaelFlynn,formerheadoftheOfficefortheStudyofAutomotiveTransportationattheUniv.of
EOQJune2011 ofotherusefulsuggestionsforthispresentation. 8
Michigan,forsuggestingthislineofanalysis.Hemadeanumber

EarlyWarnings
BasicPrincipleofRiskManagement:Identify
risksearlyandeliminatethemwhiletheystill
areminor
Earlyinternalwarnings
Nolargescalecountermeasures.

EOQJune2011

RootCausesofToyotasQualityProblems(1)
HyperGrowth
In1995,HiroshiOkuda,ToyotaPresident,setin
motionanewglobalgrowthstrategy.Itincludeda
setofchallenginginterimgoalstomoveToyotas
globalmarketshareto10%.Thisgoalmorphed
intoanewtargetof15%by2010.
Theyweremovingtowardthatgoal,reaching13%
in2008,beforetheglobalfinancialmeltdown
recallsderailedtheirefforts.

EOQJune2011

10

RootCausesofToyotasQualityProblems(2)
GrowingTechnicalComplexity
Vehiclesindevelopedcountriesbecomingmorecomplex
Governmentsofdevelopedcountriesimposingstricter
regulationsgoverningsafety,emissions&fuelconsumption
Customerexpectationsrisingasseenindemandforgreen
cars,advancedfeaturesandperformanceinluxurycars
Highendfeaturesinluxurycarsspreadingfasterintolower
costvehicles
Automakersadvancingtechnologicalcapabilities.

EOQJune2011

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ImpactofHyperGrowth&GrowingTechnical
ComplexityonSupplierManagement
Toyotapersonnelwereincreasinglystretchedthin
Toyotahadtodelegatemoredesignworkto
outsidecontractengineersandnewoverseas
suppliers
Toyotafounditincreasinglydifficulttohave
experiencedpersonnelcloselysuperviseand
evaluatetheirnewinexperiencedsuppliers
detailedcomponentdesignandproduction
processes.
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LessonsforOtherFirms
Whenadoptingnewstrategictargets,firmsmust
integratethemwithexistingcommitmentstoquality
Majorqualityfailuresleadconsumerstoreassessafirms
brandvalue,throughexaminingitsresponsestothecrisis
Multinationalexecutivesinoverseasmarketsneedlocal
andglobalinformationandastrongvoiceinrecall
decisions
OEMsneedtostronglymonitordesignandmanufacturing
processesofsupplierstoinsurequality
Usererrorcanbeincreasedthroughpoordesign
ContinuetolearnfromtheToyotaproductionsystem.
EOQJune2011

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LessonsforOtherFirms

Whenadoptingnewstrategictargets,firmsmust
integratethemwithexistingcommitmentstoquality
Majorqualityfailuresleadconsumerstoreassessafirms
brandvalue,throughexaminingitsresponsestothecrisis
Multinationalexecutivesinoverseasmarketsneedlocal
andglobalinformationandastrongvoiceinrecalldecisions
OEMsneedtostronglymonitordesignandproduction
processesofsupplierstoinsurequality
Usererrorcanbeincreasedthroughpoordesign
ContinuetolearnfromtheToyotaproductionsystem.
EOQJune2011

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ExpandedAnalysis
PostedonlineinTheAtlantic:WhoWasReally
atFaultfortheToyotaRecalls?
http://www.theatlantic.com/business/archive
/2011/05/whowasreallyatfaultforthe
toyotarecalls/238076/
ArticletoappearshortlyinMITjournal,Sloan
ManagementReview

EOQJune2011

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