For decades, Toyota has balanced superb management, impeccable quality, exemplary financial discipline and flawless product planning. As other manufacturers chased market trends and neglected core models, Toyota made incremental improvements to existing models and introduced new models slowly and carefully. Their perseverance has paid off; they’ve elbowed Ford aside and are nipping at GM’s heels. But as Toyota prepares to replace The General as the world’s largest automaker, they’re finding out that getting to the top is one thing; staying there is something else altogether.
No doubt about it: Toyota’s on a roll. They posted a record $3.6b third quarter corporate earnings and hope to exceed $13b profits for this fiscal year. In spite of growing profits worldwide, the picture isn’t so rosy on this side of the globe. Although their revenues in North America were up 17.3 percent, their North American operating profits were down 22.4 percent in the third quarter.
Part of Toyota’s American problem relates to federal contract-sized cost overruns on their new truck plant in Texas. When ToMoCo started the project, they budgeted $850m to git ‘er done. To date, the company’s sunk almost $1.3b on the plant– and they’re still spending. The expenditure seems manageable enough, until you tote-up the cash they’re also shelling out to build another Canadian facility and modify the Subaru plant in Indiana to build Camrys.
Perhaps Toyota should be putting some more of their resources into making sure their products live up to their reputation for quality. As production numbers rise, their recall rate is keeping pace. The latest recall– involving faulty ball joints in the previous generation Tundra and Sequoia– could end up costing Toyota more than $600m.
And then there are the high hundreds of millions of dollars Toyota may need to settle the class-action suit for oil sludge (affecting about 3.5m Toyotas and Lexi). All in all, we’re talking about a serious chunk of change coming directly off the bottom line.
Meanwhile and in any case, sales of the Pious Prius are down. Whereas the automaker once measured the model’s supply in hours, there’s now a 30-day supply sitting on dealers’ lots. Though it’s nothing like the 80 day supply of GM product lingering on their dealers’ lots, the growing Prii glut is definitely trending in the wrong direction.
The extra inventory is attributable to a combination of factors which, uncharacteristically, Toyota didn’t read correctly. They increased production just as gas prices started going down, the hybrid tax credits started going away and those buying hybrids to make a social statement had bought them. So, for the first time in the model’s short lifetime, Toyota’s offering incentives. They’re nothing on the scale of The Big 2.5’s spiffs of course, but it’s cash on the hood nonetheless.
These issues pale in comparison to one problem that could make or break Toyota’s North American operations: their relationship with their hourly workers. In a confidential memo that accidentally ended up in workers’ hands, Seiichi Sudo, president of Engineering and Manufacturing in North America, discussed the cost of American labor and the steps they need to take to control those costs.
The memo, which was inadvertently stored on a shared computer drive, states the US auto industry pays some of the highest manufacturing wages in the world. It compares American wages to those in France and Japan (50 percent higher) and Mexico (500 percent higher). They project their American labor costs will increase by $900m over the next four years.
Toyota’s concerned that even though their profit margin is increasing, it’s not growing as fast as their labor costs. Their strategy: “base our Hourly Wages more closely with the State Manufacturing Wages where each plant is located, and not tie ourselves so closely to the US Auto Industry, or other competitors.” Their “challenge”: how they’ll tell the workers “so that they can understand and accept change.”
The bottom line: “Human Resources is developing strategies which will reduce Labor Cost (and increase Profits) by $300 Million by Fiscal 2011 by focusing on: Headcount and Rate (Wages and Benefits).” This isn’t exactly what you want the rank and file to hear.
This memo could do more to damage Toyota’s future than any other factor. Toyota got a lot of press when the (non-union) workers at their Kentucky plant made more than union workers on average last year. Now they want the same workers to take a pay and benefit cut. Is that the UAW I hear knocking at the back door?
Ironically enough, Toyota is in the roughly the same position (re: its labor relations) as GM during the ‘70’s. Of course, GM basically rolled over and played dead for the UAW, burdening itself with an unwieldy labor force and an unsustainable cost structure. Will Toyota make the same mistake? It’s not likely. But it is possible.
[Read the Toyota memo here ]
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Mr. Williams:
Interesting article, but 800 words is nowhere near enough to hash out the issues you bring up. I remember dudes in my undergrad classes bitching about the length of an assignment, “2,000 words? I can’t clear my throat in 2,000 words!”
Granted, undergrad essays aren’t read by the average ADHD internet user (redundant, I know), but I’m always hoping for most articles to cover a little more. While you good folks are looking to make some changes at TTAC, you might want to consider embiggening the word limit on some articles. Especially editorials. Most of your readers seem pretty literate so I don’t think a 1,000 word limit would put too many people off.
While I know jack-nothing about labour relations outside of my job, folkis interested in why Toyota will quickly grab #1 should be encouraged to read, The Toyota Way which clearly explains the difference between American and Japanese auto industry culture. I’m tryint o find an Amazon link, but my internet is run by a hamster in a wheel, and somebody seems to have lifted my copy off my shelf.
Oh yes, do any of you smart people have any theories on why Toyota bought half of GM’s portion of Subaru? Surely they are looking for more than just underutalized factories?
With the review orientation, we may be able to free-up some space for longer editorials.
Dream 50: do any of you smart people have any theories on why Toyota bought half of GM’s portion of Subaru? Surely they are looking for more than just underutalized factories?
There's a lot of conjecture about that. Apparently, Toyota has had their eye on Subaru's parent, Fuji Heavy Industries, for a while and buying into Subaru as GM eased out let them get their foot in the door. Japanese anti-trust laws prevented them from doing anything more — until now, that is. From Automotive News, Feb 5:
Law OK with Toyota-Fuji
James B. Treece | | Automotive News / February 5, 2007 – 1:00 am
TOKYO — A change in Japanese antitrust rules has opened the way for Toyota Motor Corp. to take over Subaru maker Fuji Heavy Industries Ltd.
In October 2005, Toyota bought 8.7 percent of Fuji Heavy. At the time, General Motors was selling its 20 percent stake in Fuji Heavy.
Analysts said Toyota would have preferred to buy a controlling stake in the Subaru carmaker, but doing so would have run afoul of antitrust rules. Toyota and Fuji Heavy combined held 45.6 percent of the 2006 Japanese car market.
Until now, that was a problem. Antitrust rules forbid any company to control 50 percent of Japan's market for any product.
Under the rule change, though, Japan's antitrust authorities will consider global market share, not Japanese market share, in reviewing mergers and acquisitions.
Companies now will be allowed to join regardless of their combined Japanese market share, so long as the new company's global market share is under 50 percent. The change, which takes effect April 1, is designed to strengthen Japanese companies' competitiveness on world markets.
Toyota’s priorities seem to have shifted from keeping their eye on the ball to… instead… being #1 in North America. Lately, Toyota seems to be trying to force their market share and boldly stating VERY optimistic production numbers for the future.
Future looks bleak for Toyota – is it time to start the Toyota Death Watch?
Every corporation has it’s ups and downs. I agree that Toyo’s focus seems to be more shotgun lately than concentrating on consistant quality and product. Striving to be #1 in volume has it’s costs.
Future looks bleak for Toyota – is it time to start the Toyota Death Watch?
Since ToMoCo made $3 billion last quarter, it’s probably premature. But – bad trends and momentum do start when the going is good, such as the Big 2.5 about 3-4 decades ago.
I guess there won’t be any more Toyota plants in the US, as they now have plenty of capacity; that we’ll see production skewed towards Canada (remember that flap over poor education in the US 1-2 years back?), Mexico, etc. Gotta keep those billions going!
As for quality & recalls – I mentioned this on another thread – Ford Explorer sales managed to recover despite the rollover/Firestone debacle killing over 100 people, so Toyotas will have to kill far more to make a long-term impact.
I agree with the last paragraph in the article. More and more Toyota starts looking like the big 3 in the 1970’s. Think about it, recalls, cheap interiors, quality issues. the next ten or so years will be interesting.
Mr. Williams:
Thanks for that. Now any bets on what Subaru will look like if Toyota buys 100% of Fuji Heavy? Will things continue pretty much the same, with Toyota continuing to focus on their image of quality while leaving the sports segment to Subaru? Or will we get a turbocharged Corolla with the ignition between the seats? And how much freaking yen would Fuji Heavy sell for?
The quality control problems for Toyota are disturbing. Two memebers of my family are Toyota loyalists–because the cars run great and do not generate any problems. If this changes, neither of them are sentimental enough to stay with Toyota. Many of the Toyota owners I know have this mentality. After all, who cares what brand of toaster is on the counter as long as it works?
Maybe TTAC should start the Toyota Apogee Watch?
And, wow!, a swing and a miss on what it would cost to build a new truck plant. It’s unusual to miss by that much on a car plant. Did their construction costs get jacked up by the demands on the construction industry from Katrina?
Waitaminute here…I thought the big advantage most of these foreign manufactuers had over the domiestic automakers was that they employed non-union workers and in most cases opened up shop in southern states which had a lower cost of living which allowed them to have a smaller payroll than Big Detroit. Does this mean that BMW, Mercedes-Benz, Nissan, Honda, and Hyundai will soon have the same issues, or did Toyota simply overextend themselves in their quest to be #1?
Frankly, I get a little tired of hearing how a recall somehow equals the demise of quality. Sure, the expense can be phenomenal, but for all intents and purposes it’s a one-time charge unless this becomes habit (ie, little to no effect on the value of the company).
Recalls are to be expected in the business. Usually the (realized) failure rates that precipitate them are far better than what is acceptable in most areas of our lives. In addition, it’s a chance for the dealer to build more goodwill with customers. There’s an old saying in customer service that sometimes correcting a mistake WELL can work out better for you than never having made the mistake in the first place. Of course, on the other end of the spectrum, there’s Ford/Bridgestone, but that seems to be water under the bridge these days (despite all the deaths!)
Those memos might as well have come from any company currently involved in manufacturing. It’s clear that operating a business will continuously present challenges, and the nature of those challenges will depend on your position in the market.
I think Toyota is acknowledging a known issue in the US market, which to me confirms they are still keeping an eye on *all* their costs. It doesn’t make sense to consider labour costs and then disregard increasing warranty, recall and litigation costs either. It’s inconceivable these would be ignored.
It’s useless to speculate how long Toyota could be at #1 right now. GM was at number 1 for decades, and the momentum gathered got them through a lot of bad times while still remaining on top. If bad decisions GM took in the 70’s and 80’s are causing its ultimate demise now (itself a debatable idea), then Toyota still has a pretty rosy 20 yrs plus…and that is assuming the status quo. As much as some people hate Toyota’s rise, this kind of memo confirms they aren’t satisfied with things as they are heading, rightly so.
Toyota is a big corporation, and big corporations will always make mistakes. Chalk it up to thousands of employees that all have a chance to fail in some way, and if enough fail in one area things can go badly.
The factory over-run is interesting though, since Hyundai just built a $1 billion factory a year or so ago and I heard nothing about them going over budget.
Interesting the parallels between Toyota and GM, although Toyota had the advantage of better production and management their cars are still pretty vanilla. If they want people to look past recalls and problems with vehicles they have to give them a reason, ie people like the car because it’s stylish, fast, comfortable, etc. If they keep having problems and then I think people are going to start getting their cars elsewhere, what is the reason to get a Toyota if not for quality and reliability?
Looking at getting a handle on excessive costs while you are doing well seems like good foresight to me. I would hope Toyota has taken a good hard look at the Big 2.5 and is determined not to follow their lead. Being the largest auto manufacturer in the world means nothing. If you make product people want, make it reliable and keep yourself profitable the number one spot will come in due time.
I am interested in what Toyota will do with Subaru. They seem intent on acquiring Fuji Heavy and I just hope they don’t mess up Subaru too much.
Captain Tungsten:
Did their construction costs get jacked up by the demands on the construction industry from Katrina?
That’s what they’re attributing a lot of the cost overrun to.
The cost overruns in SA were due to low cost projections of commodities such as steel and concrete. Toyota did not correctly forecast the commodities price boom. Toyota also added extra capacity to the plant.
Toyota and Fuji is an interesting merger. Maybe Toyota wants to build Toyota Jet to compete with Honda Jet.
Anyone answer me this: Why are the auto industries costs so much higher than other manufacturing industries? Was this due to the UAW jacking GM into rising wages/benefits?
I don’t really have statics to compare, but I know many people that work for Ford in Kansas City, GM/Ford/Chrysler in Michigan and on the other side I know many people that work at various manufacturing plants not auto related. The pay seems to be pretty widely gapped, in Kansas City the auto factory jobs are talked about because they have high pay in comparison to other factory jobs. Every time ANY jobs are available there is a huge surge of applications (this was before they started closing plants).
a well-researched and written article. the conclusions however are hard to follow. is toyota really in a spot? i think most car makers would be happy to have the problems toyota has.
i would say it is more a matter of being in the spotlight. kinda like wall-mart is, where lotsa folks may be pointing their finger at them, but more are leaving their money there.
Frankly, I get a little tired of hearing how a recall somehow equals the demise of quality. Sure, the expense can be phenomenal, but for all intents and purposes it’s a one-time charge unless this becomes habit (ie, little to no effect on the value of the company).
The increased recalls seem to be getting attention from within Toyota. From this morning’s Detroit Free Press:
Toyota Motor Corp., which has gained customers largely because of a reputation for quality, is concerned that a rise in recalls and customer service campaigns could hold back growth, an internal report shows.
In the presentation about challenges facing Toyota in North America, Seiichi Sudo, president of its North American engineering and manufacturing unit, cites “the increasing recall trend” as a key risk.
A chart in the presentation shows that recalls and the less-formal customer service campaigns, or CSCs, rose dramatically for Toyota in fiscal 2005 and 2006. “Design issues” were the chief culprit, caused largely by “high project workload.”
Having sat in on more than a few corporate board meetings, I can assure you that every company worth its salt has a strategy for controlling labor expenses. Not having such a plan would be scandalous and would indicate that Toyota’s leadership was derelict in its duty to shareholders and employees alike (a company that isn’t controlling its expenses won’t be around to pay anyone wages for long).
Sadly, you are correct in stating that the UAW extortionists are undoubtedly salivating over the opportunity created by the indiscrete handling of this memo.
Frank your article says:
“Meanwhile and in any case, sales of the Pious Prius are way down.”
Unless a .5% drop in 06, in a market that was down MUCH more than 0.5% is “way down” you are wrong. And of course sales were UP for the Prius in January 4.1%, that is FAR from “way down”.
Other things wrong with your article? How about the fact that a big chunk of the cost overrun at the SA plant have to do with a capacity increase? There are also some omissions to your article such as not pointing out that Toyota/Lexus still consistenly ran in the top of most quality/reliability/dependability surveys.
And your article about Toyota’s concerns with recalls shows their STRENGHT and vision. Even though recalls for them dropped dramatically in 06 from 05 they are still concerned with “fixing” this issue. This is a sign of a company that tackles issues the right way rather than ignore them like the Big 2.394932 did for the last 3 decades. This is what separates the Toyotas of the world from the Big 2.394932’s of the world.
“Cash on the hood” on the Prius is at least a little misleading, too. In fact, when I read that, I started to think, “How much?” and “Can I afford one, now?” Alas, no. The incentive is not cash, it’s a financing incentive and it’s decidedly modest at 0.0% for 2 years, 3.9% for 4.
I had been curious to see how Prius sales would hold up with the fall in gas prices and the expiration of the hybrid tax incentives and it seems to me they’re doing surprisingly well. Considering that the expiration of the tax incentive amounts to a significant price increase, the big story is that the Prius sales seem hardly affected at all. To say Prius sales are “way down” really doesn’t seem justified.
Thanks Frank, that is incredible how much higher it is in Kentucky. Ford in Kansas City was paying a starting wage of around $20/hr, compared to $11 or so at most other manufacturing in the area.
A contrary view might hold that leaking the memo, whether intentional or not, could serve as a shot across the bow to labor. A translation: “we are concerned about labor costs and it is possible for us to build cars elsewhere to preserve our profits”.
Well written editorial. By the way, I like the 800 word scope.
I realize that this article raises some pretty contentious issues, which you are free to explore.
However, I have already taken action against several commentators for flaming their colleagues. I have warned several commentators and permanently banned one.
Again, TTAC has a zero tolerance policy towards flaming or trolling.
Debate the issues. Do NOT make it personal. Ever.
Frank, please explain to me how Toyota is like GM was in the 1970’s. It’s hard for me to see the same arrogant and ignorant attitude within Toyota right now as GM had in the 1970s. Toyota right now is worrying (and taking action) about their recalls, quality, and labour costs.
Specifically in terms of labour relations, a big part of the labour costs were bonuses. Simply put, Toyota won’t let UAW organization happen. If that means keeping up high wages, they will simply find ways to cut costs in other areas. Toyota has an uncanny ability to find improvements and cut costs in the most unlikely areas, like engine production for instance, where they made recent dramatic cost cuts.
Yes, some of Toyota’s accountants are worried that costs are going up as a percentage of profit margins. Fortunately Toyota is not run by accountants. Many of Toyota’s top managers are also engineers. What’s not being mentioned anywhere is the increase in Lexus sales worldwide, specifically of the new LS model, which will bring substantial profit margins. What’s also not mentioned is that the over-budget San Antonio plant is building the Tundra that will bring some big profit margins. Toyota plans to significantly increase Tundra sales, and the profit margins from that will more than offset the cost of building that Texas plant, or even other plants for that matter.
Take a moment to ponder these numbers: at an average of $5,000 profit per Tundra (conservative estimate), if Toyota increases annual unit sales by only 75,000 (another conservative estimate) then profits will go up by $375 million.
What also hasn’t been mentioned is that Toyota’s overall profit margins are going UP, not down. Toyota is just about to surpass Nissan in terms of having the best profit margins in the industry (as a percentage of revenue). Nevermind the fact that Toyota’s revenues are substantially larger than Nissan’s. Toyota for a long time now has had the best overall profits.
For the San Antonio plant, another factor that was not mentioned was that costs went up because Toyota made a decision to include some cutting edge manufacturing and production technology. During the plant’s opening, the welding and stamping areas were strictly off-limits to reporters and media personnel because of this.
And it’s not that Prius sales are way down … it’s that production is considerably up. Jim Press mentioned this recently at an interview in Chicago. If demand stays constant, and supply increases by a considerable percentage, then obviously inventory will increase. Economics 101, Frank.
Also, do you really believe that memo was “accidently” leaked? As for Toyota cutting wages or bonuses, that nothing more than speculation at this point.
In terms of the rise in recalls, Toyota has been aware of this issue for a long time now. This isn’t news, and it didn’t just happen yesterday that Toyota became aware of it’s recalls.
Better to keep the horses of the anti-Toyota bandwagon reigned in until some solid evidence appears on this matter.
Johnson, good points.
And Toyota’s margin already surpassed Nissan’s even though Toyota is investing heavily in several plants (SA, Canada RAV4 plant and Subaru’s Indiana plant, as well as others worldwide) according to this article:
http://wardsauto.com/ar/nissan_profit_warning/?CFID=13004553&CFTOKEN=46239958
“While Nissan’s anticipated profit margin still is higher than 7%, second only to Toyota’s 9% among volume auto makers, the profit warning marks the first time since Ghosn joined Nissan in 1999 that the auto maker has had to do an about-face on its targets.”
Frank, please explain to me how Toyota is like GM was in the 1970’s.
Making money hand over fist.
At the top of the world.
Seemingly unstoppable.
BUT
Faced with increasing numbers of recalls.
Needing to control personnel costs.
The difference is that Toyota can take steps to handle their issues before they become problems. GM didn’t.
Dream 50:
you might want to consider embiggening the word limit on some articles.
That seems cromulent, perhaps breaking them into multi-part articles?
2 interesting articles on Toyota, is this the beginning of a death watch series?
Funny that the class action over the engine sludge shows how much of a perception to do with quality Toyota holds at the moment, despite people arguing here previously that it doesn’t exist. Imagine the uproar if one of the 2.5 did that? AUTOENTHUSIAST it aint no strength or vision regarding the recalls, it sloppiness, consumer bullying from corporate negligence and a PR rescue exercise.
Maybe the wool is starting to be pulled from the American peoples eyes now?
z31: “That seems cromulent”
HAHAHAHAHA!!! Classic…
Toyota has a long way to go before a deathwatch is even remotely valid in my opinion. They are still very profitable even with some of the setbacks mentioned.
Their success depends on how they manage these things, but that is nothing new. They do have the advantage of knowing how not to do things with the colored past (and present) of other automakers.
If a Texas plant goes union, I’ll eat a 10-gallon hat… with George W. Bush’s head still in it!
(two birds, one stone)
–chuck
Bostonteaparty,
The class action lawsuit is nothing but another frivolous lawsuit that we unfortunately need to contend with in the US. In fact the suit says that there are NO design defects on the engines in question.
ANY engine that is improperly maintained have oil sludge issues. It’s amazing Toyota is paying for the repairs even though there’s no prroof of a design flaw, no other manufacturer would do this.
Obviously stating that there should be concern instead of complacency about Toyota’s recalls somehow equates to “flaming” and or “trolling”.
I wonder what Toyota has in mind for Subaru. As I recall, GM was unable to integrate Subaru into its global platforms because the boxer engine would not fit properly in a chassis designed for an I4 or V6.
It would be interesting if Subaru decided to abandon the Boxer and become essentially an in-house tuner of Toyota. So the Legacy would be an AWD station wagon with unique Subaru styling and traits, but built off the Camry. And the Impreza/WRX similarly built off the Toyota Corolla platform.
This would take a lot of engineering cost for Subaru, and give them access to Toyota’s supplier base. But it would mean losing the Boxer, and I’m not sure the Subie fan base would go there.
Would Johnny buy a WRX that was essentially a turbo Matrix?
Dad had a great line, “you can judge the character of a man by how he treats his inferiors.” I think the corporate corollary is “you can judge a company by how it handles its rich times.”
If the DW series teach us anything, it is that things change and you need to keep an eye on your product development and your bottom line. I’m actually impressed that the memo got out. Better to stay sharp and stay focused, rather than sign any proffered labor contract. It’s the only way to ensure that you can keep playing the game.
Autoenthusiast,
Toyota cranked up the cylinder head temperature beginning in 97 (for the then new low emissions rating). That cooked the oil in the cylinder head and made it sludge up.
1984:
Do you have a reference where you got that information?
I’m not calling you on it, just curious to read more about them changing the cylinder head design.
The class action lawsuit is nothing but another frivolous lawsuit that we unfortunately need to contend with in the US. In fact the suit says that there are NO design defects on the engines in question.
That lawsuit was sparked by Toyota’s refusal to fix a Lexus owner’s vehicle under warranty, even after he showed them the reciepts that proved that he had done all of the proper maintenance on his part to avoid sludge, and after a BBB arbitration board ruled that the oil sludged up despite the owner’s careful maintenance.
http://www.nytimes.com/2007/02/04/automobiles/04SLUDGE.html?_r=1&ref=automobiles&oref=slogin
you have to be naive to believe toyota is manufacturing lesss cars than gm. count out from gm all those opels, and derivatives. will you also count saturn astra as an gm product? opel has nothing to do with usa. it is a german company, with german engineering and designing, and quality surveilance. even now, when gm is desperately agonizing , it still wants to buy some other manufacturers, like proton. why? it gives access to mitsubishi platforms, because protons are built on mitsus. so gm once again would be ready even to buy old mitsu platforms, than take off gloves and do soma handjob themselves. sure, you have new caddy cts ( that uses old opel omega platform, that was revamped by aussies holden, and then sucked back into detroit, plus opel engine, plus japanese aisin 6-speed gearbox. pure american,…this is our country…and this is ourr…welll.)
toyota has minor problems, because they spend money wisely- they pour it into r&d. looks like americans are so jealous of toyotas success, that they try to pick any zit they can find. why don`t you instead of arguing what toyota has or not, you go and rename your five hundred into taurus, and start sticking those emblems. when the hell will you realize that you sell cars because they are good , not because they have nice names , but they are good runners themselves. and toyota can name her car even asswalker, people will still buy it. so detroit , instead of sitting on those leather benches and ordering another minoxidil, better go to workshop and start sweating in creating something tangible- and you will kill two rabbits with one shot. Gee, was i rude?
lunatics@inbox.lv
Frank,
I hope this isn’t taken as flaming, but you’re stretching it with your comparison to GM in the 70s. For one thing, GM was already number one and had been for years, it wasn’t still working it’s way up to that.
Second, from 2005 to 2006, Toyota’s recalls dropped significantly in NA.
Third, Toyota’s NA management team recognizes the need to improve the quality of production — having set a warranty reduction target of 50% of what they saw in 2002. Beyond that, talk to the suppliers about the discussions they are having over production process and quality measure improvements.
Fourth, Prius sales are hardly “way down” as you state. They are up in January.
Fifth, and the biggest differentiator from GM of the 70s, 80s or 90s is that Toyota’s management team seems to recognize the issues and is discussing them. It was a silly slip up to have this memo get out there, but at least it exists.
The test now we be whether or not they’re willing to follow their LEAN principles in the board room as well as on the manufacturing floor.
This is not one of your typically well researched pieces. There are a lot of leaps of logic that don’t have facts supporting them. Yet. I’m willing to give you that — yet. Maybe you’ll be right in the long run, but the writing isn’t on the wall as you imply.
I hardly think Mr. Williams’ editorial is suggesting that “the writing’s on the wall” for Toyota. Far from it.
All this editorial does is red flag some of the challenges Toyota faces, and the possibility that Toyota may face some of GM’s previous labor “issues.”
As GMers can tell you, it’s hard being number one.
There is no way to accurately measure this, but it is my impression that the General’s ascendency in the 1930s to 1960s was based on large part by favorable word-of-mouth from the motoring public. But by the 1970s, GM’s “excellence” was a thing of the past. Still, the residual good will from generations of GM drivers lasted well into the 1990s.
Word of mouth has been a huge part of Toyota’s (and to a lesser extent, Honda’s) success in the US. Particularly in the beginning, when their products were dynamically and esthetically challenged (and rust buckets to boot.) But if you kept oil and water in them, they ran forever and over time, the word got out. Once the designs became mainstream, and the rust issue was solved, Toyota’s market share in the US began it’s unstoppable rise.
The danger for them is that if the perceived quality comes to be seen as slipping by the car-owning public, Toyota could follow GM to irrelevancy. And the next market leaders could be from other parts of Asia…
Autoenthusiast,
I’m more or less has been a theory kicked around on the Toyota forums that there is a correlation between the introduction of the lower emissions standard and the sludge. I do not believe the cylinder head design changed, it was probably an adjustment to the fuel mixture to the “lean” side that increased the combustion temperature because the engines are really mechanically the same to older models.
A lot of it very well probably is customer abuse. I can’t imagine all of these people would take the time to lie either:
http://www.consumeraffairs.com/automotive/toyota_engine.html
Your math needs work. A recall of 550,000 Tundras for ball-joint replacement will not cost $600 million. The repair costs a couple hundred bucks at warranty-reimbursement rate, parts costs will be charged at factory (not customer) rate, so another couple hundred bucks. So it’s more like $450 a piece, making it a $250 million price tag. Not chump change, but a lot less than $600 million.
The sludge case, on the flip side, could be a much bigger hit. A vehicle universe of 3 million units, with a 5 percent failure rate, is 150,000 cars. Replacing a sludged engine costs no less than $5000, even at factory costs for parts and labor. That comes to $750 million.
Making money hand over fist.
At the top of the world.
Seemingly unstoppable.
BUT
Faced with increasing numbers of recalls.
Needing to control personnel costs.
The difference is that Toyota can take steps to handle their issues before they become problems. GM didn’t.
Key emphasis is GM’s ignorant attitude of the 70s, which Toyota does not possess right now. GM actually bashed foreign cars in the 70s.
To be fair, Toyota’s recalls are going down. GM a few years ago had a record amount of recalls, and now they are improving. Toyota had an increase in recalls in the past two years, but it already seems to be improving. Yet, many are already assuming Toyota is going downhill.
Everyone will be faced with rising personnel costs in the future. The key will be how they handle it. As of now, Toyota is in a much better position to handle it than any other automaker, especially GM.
1984,
The only way to increase engine temperatures is to put a higher temperature thermostat on the car. Toyota didn’t do that.
Not sure where you got your information but it is incorrect.