Accelerating Into Trouble:

1. Accelerating Into Trouble: An Analysis of Toyota Motor Company and its Recent Recalls

2. The multiple recalls of 2009 and 2010 concerning Sudden Unintended Acceleration involved over 10 million vehicles and resulted in tremendous financial losses for Toyota. • Toyota’s reputation of quality and dependability was eventually questioned as the company was found to have prior knowledge of the issue, consistently communicated conflicting messages and was slow to act in finding a solution to the problem. Overview

3. Over the past 25 years, Toyota has had a steady increase in both sales and market share within the automotive industry. • By the beginning of the 1990s, Toyota commanded an overwhelming 43% of the Japanese car market, and in the United States it sold more than one million cars and trucks for the first time in its history. • In 2000, Toyota introduced its first hybrid model, the Prius, continuing the company’s success into the new millennium and accounting for 75% of hybrids sold in the U.S. A Tradition of Success

4. A Tradition of Success • In 2009, Toyota was the first company in 75 years to pass General Motors and become the world’s largest car manufacturer. • As of 2009, Toyota held over 16% of the U.S. market share, its largest and most profitable market.

5. Defined as “the unintended, unexpected, uncontrolled acceleration of a vehicle from a stationary position, low initial speed or at cruising speed, often accompanied by an apparent loss of braking effectiveness” by the National Highway Traffic Safety Administration (NHTSA) in 1989 • Was the cause of similar recalls by Audi in the 1980’s • Despite the research invested in this topic over time, it still remains unclear whether problems are caused by driver error, mechanical or electrical problems with automobiles, or some combination of these factors Sudden Unintended Acceleration (SUA)

6. Off-duty California Highway Patrol officer Mark Saylor was driving with three family members in a Lexus ES350 when it suddenly accelerated out of control, hits another car, tumbled down an embankment and caught fire. While the car was careening down the highway at speeds estimated to exceed 100 mph, one of the occupants called 911 and reported that the car had "no brakes." All four people were killed in the ensuing crash. The Tipping Point Source: Channel 10 News, San Diego, California

7. August 28, 2009: Lexus crashed in San Diego, CA and kills all four occupants. The 911 call recorded the passengers claiming to have “no brakes.” • September 14, 2009: Preliminary reports indicated the Lexus may have had the wrong floor mats installed. • September 29, 2009: Toyota announced recall on 4.1 million vehicles for floor mats and advised owners to put mats in the trunk. • October 30, 2009: Toyota began sending letters to U.S. owners notifying them of an unspecified upcoming recall to fix the unintended acceleration issue. In the letters Toyota said "no defect exists." Chronology of the Toyota SUA Case: August 2009-August 2010

8. November 2, 2009: NHTSA took the highly unusual step of publicly rebuking Toyota, calling statements made in the October 30th letter to owners "inaccurate" and "misleading.“ • November 8, 2009:The Los Angeles Times claims reports in an article that Toyota had ignored over 1,200 complaints of unintended acceleration over the past eight years. • December 5, 2009:Following an op-ed piece in the Los Angeles Times, Toyota wrote a letter to the paper reiterating its stance that the floor mats were the root cause of most unintended acceleration claims that would be published December 9th. • December 26, 2009: A Toyota Avalon crashed into a lake in Southlake, Texas after accelerating out of control. All four occupants died. Floor mats were ruled out as a cause because they were found in the trunk of the car. Chronology of the Toyota SUA Case: August 2009-August 2010

9. January 11, 2010:Toyota announced its brake override software fix, where the brake overtakes the accelerator if both are pressed, will be made global by 2011. • January 21, 2010:Toyota recalled another 2.3 million Toyota-brand vehicles because of a problem with the gas pedal. • January 26, 2010: Toyota announced it is immediately halting the sale of all models affected by the January 21 pedal recall, and that it will shut down assembly lines for those models at five North American plants for one week beginning February 1st "to assess and coordinate activities." • January 27, 2010:The Wall Street Journal estimated that Toyota dealers could lose as much as $1.5 million in profit every week of the sales freeze.60 Toyota shares dropped more than 10% over the day and a half after the freeze was announced Chronology of the Toyota SUA Case: August 2009-August 2010

10. February 1, 2010:Toyota announced it had developed a plan to fix the accelerator pedals and that parts were being shipped to dealers so they can carry out the repairs. This occurs five months after the crash in San Diego. • February 5, 2010: Toyota President and CEO Akio Toyoda apologized for the car recalls and promised to beef up quality control. “I apologize from the bottom of my heart for all the concern that we have given to so many customers,” said Toyoda. • February 23, 2010:Jim Lentz, the top U.S. executive for Toyota, testified before a House committee on Energy and Commerce stating the company is still investigating whether electronics of the gas pedal system may be at fault. Chronology of the Toyota SUA Case: August 2009-August 2010

11. February 24, 2010:Toyota President Akio Toyoda apologized during a congressional hearing for the Committee on Oversight and Government Reform. He pledged Toyota’s full cooperation with U.S. government officials investigating safety problems. He claims electronics are not to blame. • April 5, 2010: The U.S. government accused Toyota of hiding “dangerous defects” and sought a record $16.4 million fine. • April 8, 2010:Toyota announced it will not contest the pending fine presented by the U.S. government and agreed to pay. • August 4, 2010: Toyota announced it had returned to a profit of $2.2 billion in the April-to-June quarter because of strong sales in emerging markets and aggressive cost-cutting. Chronology of the Toyota SUA Case: August 2009-August 2010

12. Media Response • When reporting of the August car crash in California showed a potential link with Toyota, the media became heavily involved. One study found that 106 of 108 observed media mentions of Toyota during the August 2009-February 2010 period were negative in attitude toward the company. • The coverage focused on: • Toyota was withholding information concerning accelerator glitches • There still was no definite cause for the events. • Toyotas stance was consistently changing. Repercussions

13. Consumer Response • Buyers who purchased models that would be recalled later on the same day wanted money back. • During the month of February, over 1,500 complaints of unintended acceleration were reported to the NHTSA. Repercussions • Economic Impact • Toyota dealers were projected to lose as much as $2.47 billion in combined monthly revenue from the halt in sales. • Toyota's U.S. market share fell by 16% to its lowest level since January 2006, and its monthly sales dropped below 100,000 vehicles for the first time in more than a decade.

14. Government Criticism and Hearings • U.S. Transportation Secretary Ray LaHood announced two major investigations to “resolve the issue of sudden acceleration.” • On February 23 and 24, President and CEO of Toyota Motor Sales, U.S.A., Inc., Jim Lentz and President and CEO Akio Toyoda testified at Congressional hearings aimed at solving the problem of unintended acceleration. • This resulted in a crucial blow to Toyota’s recovery efforts, and according to Rep. Bart Gordon of Tennessee, “raised more questions than answers.” • A survey taken after the hearings revealed that 47% of respondents felt worse about Toyota’s image after the hearings. Repercussions

15. Soon after the recalls, an e-mail written by Irv Miller, then Toyota’s Vice-President for Public Affairs, surfaced on April 8th, 2010 that revealed Toyota had communication and transparency problems both externally and internally. • The e-mail revealed a tussle within Toyota’s corporate leadership over whether or not to inform the public over more fundamental flaws in the pedal mechanism – problems that had not at the time been fully understood by Toyota’s engineers and to which there was no clear “fix” available. • Before January, Toyota had only acknowledged publicly that accelerator pedals could become stuck by becoming entangled in loose floor-mats. Internal Discord

16. Denial and Deception • Toyota’s claims that floor mats were the sole cause of the unintended acceleration were disproven after the Texas crash and Mr. Miller’s e-mail surfaced. • Media reports uncovered information that Toyota was not releasing, displaying a major void in transparency. Responses of Toyota • Action Promised but Not Delivered • Toyota continually apologized for the effects of the recall, but never took action. • A comprehensive plan to fix the pedals was announced on February 1, five months after the crash in California.

17. A Clearer Picture • A plan was developed to ensure the public that Toyota was committed to safety after the February 1 announcement of the comprehensive pedal fix. • President Toyoda wrote an editorial for The Washington Post that explained the “top-to-bottom review of global operations.” Responses of Toyota • Marketing Actions • Toyoda launched a set of television ads to air in the U.S. concerning the recall. • The “blueprint for fixes” was announced through print ads and personalized letters to Toyota owners • A web page was created on Toyota.com dedicated to recall information.

18. 1. Tell the truth Initially, Toyota withheld information and misled consumers concerning information about the recalls. The true extent of how much was left unsaid my never have surfaced if it wasn’t discovered by mass media, which led many stakeholders to question the integrity of the company. 2. Prove it with action Toyota expressed strong remorse for the trouble caused by their recalls through numerous apologies, but they never offered a solution. Toyota would have greatly benefitted by seeking a solution amidst the apologies. 3. Listen to the customer It’s vital for Toyota to listen to their customers for obvious reasons. Their success as a company on that mutual relationship, and their expectations must be identified and fulfilled. Application of the Page Principles

19. 4. Manage for tomorrow Toyota did both a commendable and condemnable job in regards to managing for tomorrow. While they rebounded well with public relations efforts, the short-term gain may be overshadowed by long-term problems ahead caused by clumsy communications at the inception of the crisis. 5. Conduct public relations as if the whole company depends on it Public relations is not to be used strictly in times of emergency, and Toyota, like many other automotive companies, realize this now more than ever. A solid public relations presence will be crucial in ensuring Toyota doesn’t take steps backward in the wake of its recalls. Application of the Page Principles

20. 6. A company’s true character is expressed by its people For nearly six months after the California accident, Toyota’s top management was nowhere to be found. In this study, character and integrity determined what course of action was taken and what would become of those actions. 7. Remain calm, patient and good-humored Toyota did an excellent job at remaining calm during the beginning stages of the crisis. However, this patience eventually turned into inaction and launched the situation into a crisis. Application of the Page Principles

21. 1. Can simply seeking to embody the principles of The Toyota Way navigate the company back on the path of success? • 2. Why is it to the company’s advantage to take a proactive approach to issues impacting the company? Discussion Questions

22. 3. What proactive measures could Toyota have taken leading up to 2009 that would have allowed them to prepare for the events that took place? • 4. What would be some necessary steps on strategic management plan for Toyota in the wake of the recalls? • 5. How did the Japanese corporate culture come into play in the delayed action? Discussion Questions

23. 6. Will Toyota be able to improve its response in the future despite the cultural barriers? • 7. How could it have helped Toyota in taking decisive and timely action in accepting the company’s responsibility in the issue and finding a proven solution for SUA? Discussion Questions

24. Toyota has, for the past few years, has been expanding its business rapidly. Quite frankly, I fear the pace at which we have grown may have been too quick. I would like to point out here that Toyota's priority has traditionally been the following: First; Safety, Second; Quality, and Third; Volume. These priorities became confused, and we were not able to stop, think, and make improvements as much as we were able to before…We pursued growth over the speed at which we were able to develop our people and our organization, and we should sincerely be mindful of that…I will do everything in my power to ensure that such a tragedy never happens again.- Akio Toyoda, statement during Congressional hearing on Feb. 24, 2010