Toyota Apologizes in Testimony to Congress

Toyoda, LaHood and Lentz and the 10 Things You Need to Know

Put aside, for a moment, the very complex details of the Toyota recall, which was the subject of about 14 hours of hearings on Capitol Hill on February 23 and 24. The key exchanges didn't take place between House lions like John Dingell of Michigan or Henry Waxman of California, but rather between back-benchers and Toyota executives.
The hearings unleashed a series of mea culpas by American and Japanese executives of Toyota, and admissions that the company had come to place sales growth and profits above attention to safety, quality and customer needs. Toyota's CEO, Akio Toyoda, went so far as to personally apologize for the deaths of four people who were killed when their Lexus ES350 ran out of control last year.

"Especially, I would like to extend my condolences to the members of the Saylor family, for the accident in San Diego," said Toyoda in his testimony. "I would like to send my prayers again, and I will do everything in my power to ensure that such a tragedy never happens again.

"Since last June, when I first took office, I have personally placed the highest priority on improving quality over quantity, and I have shared that direction with our stakeholders. As you well know, I am the grandson of the founder, and all the Toyota vehicles bear my name. For me, when the cars are damaged, it is as though I am as well."

But the two days of hearings also showed a company that stubbornly maintains that its electronic throttle control system is not a cause of customer complaints about unintended sudden acceleration, and several fatal crashes, while at the same time admitting that it is not sure what the problem is even as it recalls and tries to fix 8.5 million of its vehicles to fix the problem.

Following hours of often tedious, ill-informed and purposefully combative questioning by several members of the House Committee on Oversight and Government Reform, and testimony by Toyota executives, accident victims and safety "experts," it was Dr. Donna Christensen (D-U.S. Virgin Islands) who seemed to ask the most relevant question of the first day of hearings without delving into the minutiae of thousands of safety tests and their attending documents concerning Toyota's engineering and response to consumer complaints and accidents.

Christensen had clearly read or been briefed on the catalog of news stories written on Toyota and Lexus going back to the 1980s. Toyota was infamous, almost legendary, for sending teams of engineers into dealerships and to customers' houses after even non-safety problems were reported. Christensen asked Toyota Motor Sales President James Lentz: "What happened to the Toyota of the 80s?"

Lentz, who has often been knocked back on his heels when trying to deal with media and regulators straight-forwardly, summed up how Toyota arrived at an 8.5 million vehicle recall that has put the company and its global brand in a vise. "We lost sight of the customer...we outgrew our engineering resource...we are suffering from that today." Lentz said that Toyota had in the last five years come to value "speed of growth," (the speed at which the company grew its market share) as a virtue.

Some members of the committee, instead of using the hearing to delve into the recall issue at hand, tediously used the forum to simply play to local constituents. Take Rep. Jerry McNerny (R-CA), who questioned Lentz about how the closing of NUMMI plant in California is hurting the automaker's image on the west coast. The Congressman all but indicated that he would go easier on Toyota if they reversed their decision to close it. Marcy Kaptur (D-OH) used some of her time to call attention to the trade deficit between the U.S. and Japan, and chastised Japan for limiting access to its market for U.S. auto and parts companies.

The second day of hearings were focused on two key figures: Transportation Secretary Ray LaHood, who has responsibility for the National Highway Traffic Safety Administration and Toyota chairman and CEO Akio Toyoda, the grandson of the company's founder -- the Bill Ford, Jr. of Japan if you will.

Toyoda is dealing with two big problems. He only took control of the company last year. The vast majority of decisions that are connected with the recall were made by a previous regime. On Feb. 23, Automotive News published part of an e-mail from former Toyota Motor Sales President James Press, who also became the first American to serve on Toyota's management board in Japan before he left in 2007. Press called the management that preceded Toyoda "pirates."

"The root cause of their problems is that the company was hijacked, some years ago, by anti-family, financially oriented pirates," Press said, referring to the company's move away from Toyoda family leadership over the past decade. "They didn't have the character necessary to maintain a customer-first focus. Akio [Toyoda] does," Press told Automotive News. Press left Toyota to be vice chairman of Chrysler, a post he left last November.

The recent history of Toyota's management is that Toyoda succeeded Katsuaki Watanabe as president in 2009. Watanabe, a purchasing expert, replaced former U.S. manufacturing chief Fujio Cho as president in 2005. Cho followed Hiroshi Okuda, who became president in 1995 after Tatsuro Toyoda, Akio's uncle, suffered a stroke.

Seated next to Toyota was Yoshimi Inaba, who has been head of both Toyota Motor Sales, as well as Toyota Motor Corp., which is a holding company in the U.S. that oversees the sales company, the company's U.S. factories, its U.S. research & development, and regulatory affairs functions. Inaba declared he is "100% sure" that the sudden acceleration issue is not because of problems with the electronic throttle control system. Still, Toyota has hired U.S. testing firm Exponent to test its conclusions, and it will be forming a new panel of outside safety and engineering experts to monitor Toyota's quality and safety processes and systems, and test the company's conclusions about the causes for defects.

Called to attention several times in the hearings was the culture at Toyota that, despite its historical reputation for quality in rankings by Consumer Reports and J.D. Power and Associates, it has become "safety deaf," as it was described by Transportation Secretary LaHood.

LaHood, under fire for running an agency, NHTSA, that is being called more of a lapdog to the auto industry than a watchdog, said Toyota's U.S. executives based in Washington had not been responsive to NHTSA inquiries about customer complaints, forcing the agency to send executives to Japan to confront Toyoda and other executives last November. NHTSA is also under scrutiny by Congress because of a revolving door of officials that have left the agency and gone to work for auto companies. Two former NHTSA officials now working for Toyota, for example, have been found to have successfully negotiated more limited recalls and regulatory action against Toyota for vehicles now part of the wider recall.

The company that two years ago passed General Motors in global auto sales is being depicted as arrogant and opaque at a time when greater transparency at corporations is much more in fashion. Toyota has been so secretive about making its accident data available to regulators, for example, that its "blackbox" monitors in its cars cannot be read by regulators, as is the case by Detroit automakers, because it is encrypted. According to Toyota, only one Toyota executive in North America can read the box data.

In the second day of testimony by Toyota officials, Toyoda and Inaba especially angered members of Congress when they had no explanation why Toyota officials in Europe had acted on complaints about sudden acceleration claims in Europe in 2008, but hadn't shared the data and fixes with their North American counter-parts. Inaba could only acknowledge that the companies different operating units were not wired to share such information and that there are communication gaps in the company owing to the language and culture gap between Japanese and Western executives.

Toyoda said after his day of testimony that the automaker plans to look at having Americans part of top management in Japan to help bridge the gaps.

Toyota is dealing with the first significant attack on its reputation in the U.S. in its fifty years of selling vehicles in the U.S. In the last two months, as headlines on the recall have piled up, shares in Toyota's American Depository Receipts (ADRs) have fallen 20%, while the Dow Jones Industrial Average has dropped just 4%. Investors are taking out their uncertainty about how Toyota will cope with the attention on its shares.

There are a thousand details that come out in two days of Congressional hearings. I have tried to boil them down to ten key take-aways for consumers who are trying to follow what is going on:

Toyota has admitted that it lost sight of the quality and oversight it became known for during its climb to success in the 1970s and 80s. Executives specifically said that the company's engineering resources got stretched too thin as it focused on growing sales and market share. Such an admission would seem to fuel momentum behind marketing efforts by companies like Hyundai, Ford and Chevrolet that consumers should look at their products with fresh eyes. This is especially true given quality rankings by J.D. Power and others that show those brands at virtual parity with Toyota.

Auto companies like Toyota have moved to a similar system where commonality exists between design and engineering across many vehicles globally. GM, Ford and Hyundai also follow a similar syste. There is no reason, for example, why Toyota Corolla steering wheels and accelerator pedals should be different in cars made in the U.S. than they are in the versions made in Japan or Europe. But when a problem occurs, it means the scale of the problem can be huge, as it is now for Toyota.

Toyota, as well as other car companies, routinely tries to make a recall as limited as possible to save money. Internal documents at Toyota show the company saved $100 million by negotiating a smaller scale recall of floor-mats last year than what now seems wise. It is the job of NHTSA to see that car companies are recalling cars in sufficient numbers. But NHTSA has just 18 investigators in its defects department and 57 employees in total to cope with the myriad of models sold every year.

Car companies have global operations. It is common, if surprising, for Toyota's Japan unit, for example, to not share information about engineering problems or reported defects between its U.S. Asian and European operations. While Toyota says that this will now change, Toyota's operations have been decentralized enough that this dysfunction has been tolerated in such a big organization.

There are unwritten incentives in a global car company among rank-and-file executives and engineers to "play down" potential safety issues as long as the data is within "accepted industry norms." No one in a company gets rewarded for suggesting that the company go above and beyond the response and cost that is required by regulators to deal with a problem. Every company has a cover-your-ass culture, but it flourishes at some companies more than others.

Toyota, and other foreign companies operating in the U.S., have a problem that is not found as much in U.S. automakers. The company responsible for Toyota's U.S. operations, Toyota Motor Sales , is really only responsible for sales and marketing. Administration of safety, engineering, recalls, and the like are functions administered by a Toyota company that reports to Toyota's operation in Japan. That disconnect creates a cultural, communication and operational gap between the U.S. and Japan. Make no mistake: it is the Japanese executives who run Toyota, even in the U.S., though U.S. media and consumers seldom see or meet with them.

The culture at Toyota in Japan is vastly different than that of companies in Germany and the U.S. News reports out of Japan color this recall debacle as a stain on all of Japan manufacturing, not just on the Toyota brand. When a company like Ford, for example, experienced a massive recall of Ford Explorers clad with Firestone tires back in 2000-2001, little to no thought was given to the event condemning all of U.S. manufacturing in the eyes of the world. Culturally, Toyota seems to have a built-in pressure on its executives to try and keep safety or serious quality problems from showing up in reported data.

Unintended sudden acceleration, the crux of Toyota's recall, is one of the most difficult complaints to investigate because, despite claims by some engineers and safety advocates, it is incredibly difficult, and some say impossible, to duplicate in a testing facility or dealership service dept. Tests and investigations on sudden acceleration claims have been conducted at least since the 1970s. The fact that no regulatory bodies have ever found a defect in cars such as Audis in the 1980s and Mercedes-Benzes in the 1990s, has created a body of evidence that engineers and auto companies generally cling to; that sudden acceleration is most often caused by "driver error" when it can't be traced to a mechanical or interference problem such as a floor mat being caught up behind an accelerator pedal. The Center for Auto Safety and firms funded by trial lawyers say there is abundant evidence that electronic throttle controls have led to sudden acceleration. But none of these outfits have regulatory authority.

Toyota has only addressed 30% of the sudden acceleration complaints around its vehicles that have been recalled by replacing floormats and acclerator pedals. The remaining 70% can't be attributed to either cause. The company can't say for sure that faulty electronics are not responsible for the other 70%. Toyota Motor Sales announced that it will install a brake override system on an expanded range of customers' vehicles. This braking system enhancement will automatically reduce engine power when the brake pedal and the accelerator pedal are applied simultaneously under certain driving conditions. But it is unknown if that measure will off-set a possible electronic problem that would leave the throttle wide open and make the brake ineffective.

Only a certain amount of quality and safety engineering can be dialed into the design of a car or truck. Engineers and product designers are human. Defects happen in pretty much every car and truck. There were 23 million vehicles recalled by NHTSA in the last three years. Some are worse than others. Some are more serious than others. The other half of the safety equation is how fast and how properly a company responds when defects are found or reported through dealers and accident data. A culture that, as Transportation Secretary Ray LaHood stated, makes a company "safety deaf," pretty much negates all the otherwise fine engineering and testing that goes into a vehicle before it is sold to the public.

Every consumer with a Toyota wants to know whether they can feel safe driving their car, even after the company installs a brake over-ride. At the moment, neither government nor Toyota officials can say for sure that the recalled vehicles will be safe to drive even after being "fixed." NHTSA says that the recalled Toyotas are "not safe to drive" until the currently prescribed fixes are made.

The stories shared by victims of sudden acceleration in Toyotas, and those by survivors of those killed in accidents allegedly caused by sudden acceleration in Toyotas, are compelling and frightening.

The only recommendation I can make is to make sure all recall measures are done on your Toyota vehicles and to take advantage of everything Toyota offers in terms of making it easy to have the fixes performed: in most cases you can ask to be picked up at home and given a rental car. Drive safely and buckle up before and after the repairs are made.

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