What can we learn from Toyota’s Two

Years of Crisis?

Jeffrey K. Liker
Professor, Industrial and Operations Engineering
The University of Michigan
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What can we learn from Toyota’s Two
Years of Crisis?

Jeffrey K. Liker
Professor, Industrial and Operations Engineering
The University of Michigan
 Global Operating Income by Fiscal Year

Profitable, Quality & Safety

25 Leader, Innovative, Green,
Most Admired

19.1 19.9
20
16.6
14.8 15.4
15 Recall
10.6 Crisis
Billions of Dollars

10 8.2

5
2.5

0
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
-5
-4.5

-10 Recession
Crisis
 How did the Mighty Toyota Fall so Far so Fast?
Automotive News, March 2, 2009
“As Losses Mount, No Bold Plan at Toyota.”

Los Angeles Times, November 8, 2009

“Runaway Toyota cases ignored; Safety investigators dismissed numerous
reports of sudden acceleration, then said data were lacking.”

Los Angeles Times, November 29, 2009

“Experts point to throttles, not floor mats, in Toyota incidents.”

New York Times, February 22, 2010

“House Panel Says Toyota Misled Public on Safety”

Los Angeles Times, February 28, 2010

“'Like a car on a slingshot'; At least 56 people have died in Toyota accidents in
which sudden acceleration has been alleged.”
 Articles about Toyota: Six News Sources
300
Negative
February, Positive
2010 Neutral
250
Total Articles Printed

200

150

100

50

0
Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10
Separating Fiction from Fact
The Toyota Way Model
 Facts about Toyota USA in Fall, 2009

• J.D. Power’s Initial Quality Study: 1st place in 10 of 19 categories

• Lexus LX: fewest problems of all vehicles
• Higashi-Fuji assembly plant: Platinum Award (best in world)

• J.D. Power’s 3-Year Dependability Study: 1st place in 8 of 19 categories

• Consumer Reports 2009 survey of reliability: Toyota brands 3 of top 5

• Automotive Leasing Group residual value measures:

• Top mainstream brand every quarter – 2006 to fall 2009.
• Lexus was top luxury brand
Tragic San Diego Accident: Trigger Event

 August 28, 2009 Accident Killed Four Occupants

 Driver was a California Highway Patrol officer
 Car reached 100 mph
 Passenger called 911
 Set off Toyota recall crisis
 Led to speculation of sudden unintended acceleration due to
electronics, flawed carpet, pedal design
 Common Image in News
FACT: 55,000 Toyota All-Weather Mats recalled in 2007 in
Camry and Lexus ES350

Source: NHTSA, “Study of Electronic Vehicle Controls and Unintended Acceleration,” June 30, 2010
 Tragic San Diego Accident: Key Facts

Lexus ES350 Lexus RX400h

 Driving Loaner Lexus ES350

 Service technician in dealer put Lexus RX400h all weather floor mat in Lexus
ES350—TOO LARGE, UNSECURED
 Several days earlier same floor mat entrapped pedal of another customer
causing high speed acceleration
 Customer complained to receptionist who did not tell technician
 Same wrong floor mat in same vehicle entrapped pedal and caused tragic
accident several days later (heat from fire fused floor mat to pedal)

CAUSE OF ACCIDENT: Wrong floor mat, unattached

NHTSA, “Study of Electronic Vehicle Controls and Unintended Acceleration,” June 30, 20100

The NASA report estimates the rate of Toyota UA complaints at 1 in 1.4 billion miles driven.
Source: NHTSA, “Study of Electronic Vehicle Controls and Unintended Acceleration,” June 30, 2010
Source: NHTSA, “Study of Electronic Vehicle Controls and Unintended Acceleration,” June 30, 2010
 Technical Problems Underlying the Toyota Recall Crisis

Apparent High Proportion of Speed Control Complaints in NHTSA Database

Problem:
No Evidence
Over 10 Million Vehicles Recalled

Technical Pedal Sticky Prius

Entrapment Accelerator Brake
Issues: by Floor Mat Pedal Feeling Unintended
Acceleration by
Electronic Throttle

1 deadly accident in 2007, 1 in 2009, No Confirmed Accidents

both involving unsecured floor mats
Underlying
Small # of engineering errors in design stage Pulitzer Prize
Cause:

Root Rapid Expansion outpaced Engineering Resources?

Cause: (not clear if cause of these specific errors)
February 8 NHTSA-NASA Press Conference

“The verdict is in. There is no

electronic-based cause for
unintended high-speed
acceleration in Toyotas.
Period!”

Ray LaHood,
Secretary of Transportation
 Toyota’s Slow Public Relations Response

“There was a gap of 3 months between the time that our U.S. colleagues realized that
this was an urgent situation and the time that we realized it here in Japan. In
Japan, unfortunately, until the middle of January we did not think that this was
really a crisis.” --Akio Toyoda, Nov. 2010

Implication: Decision making centralized in Japan impeded those at the gemba who
lacked the information and authority to make rapid decisions.
 Socio-Political Problems Underlying Toyota’s Crisis in Public Image

Apparent Toyota is Slow and Perceived to be Hiding Serious Safety Issues

Problem:

American Political: Regulatory: Public Image: Legal:

Socio-Political Congress NHTSA Media Lawsuits
Issues:

Underlying Cumbersome responses to customer concerns enable socio-political attacks

Cause:

Root Central Bureaucratic Control with Weak Regional Organizations

Cause:
 Winter, 2010: Containing the Problem
• Toyota Motor Sales Call Center
– 3000 to 50,000 calls/day overnight when sticky pedal recall announced
– In-house center, highly trained customer service representatives, state-of-art IT
– Followed Toyota Way to bring back customer confidence

• Toyota Dealers
– Fewer, larger dealers compared to competitors
– More resources for getting through down times
– Operated 24/7 to fix sticky pedals – putting customers first
– 85% of sticky pedals repaired within six months
 Toyota’s External Response:
Take Responsibility and Do Not Blame Others
“I decided I would never point fingers at
somebody else. . . . We were committed to
safety and quality and would take
responsibility for fixing any problems.”

Akio Toyoda, Nov., 2010

 Longer-Term: Reflection and Kaizen

“Observe the production floor

without preconceptions and with a
blank mind. Repeat “why” five
times to every matter.”

Taiichi Ohno
 Toyota’s Root Cause Analysis
• “When we finally got the opportunity to do a thorough root-
cause analysis and ask ‘why’ five times, there were two main
items from the R&D standpoint. The first item was that from
the time that an issue happens in the market to the time when
the engineering department responds, it was taking too much
time. The second item is that we did not always understand the
customer’s view of the product as well as we should have.”

– Takeshi Uchiyamada, executive vice president of R&D

 Toyota Countermeasures
Overall Strategy & Guidance
Akio Toyoda's Special Committee for Global Quality
External Advisory Committee
Regional Autonomy
“Chief Quality Officer”+ “Regional Product Safety
Executive”
Additional American Chief Engineers in US
Engineering and Quality Processes
Swift Market Analysis Response Team (SMART)
100 engineers to new “Design Quality Innovation
Division”
Add 4 weeks full prototype quality & safety review
1000 engineers reassigned to quality
Regional Quality Field Offices in North America
Collaborative Safety Research Center (Michigan)
Manufacturing took responsibility for customer
quality
People Development
Assist. Manager Role for mentoring junior
engineers (1:5 ratio)
Customer First Regional Training Centers
Reduced Engineering Contractors
Communications
Executive positions to integrate Sales,
Engineering, and Manufacturing
Chief Quality Officers Global Quality Task
Force and Global Database
Chief Quality Officer North American Quality
Task Force (weekly conference call)
Customer Data from multiple sources
integrated and direct to engineers
Toyota Motor Sales, U.S.
2 year free scheduled maintenance
Increased use of internet (e.g., Facebook)
Better use of Customer Call Center Data
 Toyota’s Image Recovering Fast!
Forbes Best Quality Cars for the Cost
September, 2010
1. Toyota Yaris
2. Scion XD3
3. Honda Fit4
4. Chevy Aveo
5. Toyota Prius
6. Toyota RAV4
7. Nissan Rogue
8. Subaru Forester
9. Honda Element
10. Lincoln MKZ
11. Toyota 4Runner
12. Lexus RX

Toyota topped all automakers in 2010 end-of-year awards, including

those from Polk, Kiplinger’s, the Insurance Institute for Highway Safety, Consumer
Reports, Intellichoice, and Motorist Choice.
Toyota U.S. Retail Market Share through Recall
Crisis

February,
2010
 Return to Profitability
Toyota Net Quarterly Income ($ billion)
6

0
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010

-2

-4

-6

-8

-10
 Overall Lessons Learned

Lesson 1: Your Crisis Response Started Yesterday (It’s

Built Into Your Culture)

Lesson 2: A Culture of Responsibility Will Always Beat a

Culture of Finger-Pointing

Lesson 3: Even the Best Culture Develops Weaknesses

Lesson 4: Globalizing Culture Means a Constant

Balancing Act
 Are you Ready to Deal with a Crisis?
• Do you have a culture that rewards surfacing
problems?
• Is continuous improvement built into your
culture?
• Will you face a crisis with humbleness and
without pointing fingers?
• Will a crisis lead to deep reflection on the root
cause and the actions to come out stronger?