Just as domestic auto manufacturers, most notably Ford, are desperately trying to accelerate turnaround plans, Toyota (TM) may be ready to slow down a bit. The company's president said on Aug. 25 that the delay of some future models could be on the table to provide additional time to iron out reputation-dampening quality issues.
The Japanese giant—which nabbed second place in July behind General Motors (GM) by outselling Ford Motor (F) in the U.S.—said potential delays would be decided on a model-by-model basis and would not affect products across the board. But the public admission of fault is emblematic of a long-coming shift in company posture toward quality issues.
An ongoing series of high-profile recalls has focused industry attention on the potentially troubling underside of Toyota's trailblazing growth. In the U.S., the market many see harboring the most potential for future growth, Toyota recalled 2.38 million vehicles last year and 628,000 so far this year, according to the National Highway Traffic Safety Administration.
In Japan, meanwhile, the number of recalled vehicles has jumped 56% since 2002, to more than 1 million in 2006. Published reports have suggested that another six-figure recall could be waiting in the wings in the U.S.
SALES STILL STRONG. The recalls and quality reports have yet to affect Toyota's bottom line. The company's financial position is stronger than ever.
In the first half of this year, global sales rose 10.4%, to 4.26 million, while GM's fell 2.3%, to 4.60 million. Toyota's operating profits account for one-third of the combined global profits of all the world's auto makers. What's more, executives are sitting on nearly $20 billion in cash reserves.
Industry observers and analysts say that while some accounts of the effects on the company's sterling reputation for quality have been exaggerated, Toyota is seriously auditing its design and production processes to curb future quality issues. Joe Langley, a market analyst with the Northville (Mich.) market research firm CSM Worldwide, says: "There's no doubt that they've been publicly shamed by it. There is a fire, but they're putting it out."
Toyota's mea culpa, consisting of public apologies in Japan and today's announcement of potential corrective strategies, indicates increasing frankness vis-à-vis quality issues. Wes Brown at Iceology, a Los Angeles consumer research firm, says: "This is Toyota trying to be proactive, cognizant of public sentiment. If they want to maintain good sentiment, they realize they can't be so secretive anymore."
GROWING PAINS. Analysts familiar with Toyota's production procedures say the problems may indicate strains on human resources within the company, a result of unyielding growth. Langley notes: "They've been so taxed, they haven't been able to send as many people to work with suppliers before launches."
Speculation about delays that could stretch Toyota's famously short production cycles by three, six, or even 12 months revolve around the coming versions of the Avalon sedan, Sienna minivan, and Solara sports coupe. But analysts point out that those cars are due in the three- to four-year time frame and that sales of current versions are still healthy.
Toyota has confirmed the delay of some highly anticipated models due much sooner, though. A new version of the hot-selling Corolla small sedan has been set back twice, partly on the unexpected strength of Honda's competing redesigned Civic.
Toyota's Tundra pickup truck, finally poised to take on Ford's bread-and-butter F-Series, was delayed into next year. Brown says: "They're looking at the process, asking if it's design, engineering, a combination, or quality checks of cars coming off the line."
GOOD NEWS. Likely most important to company officials, analysts, and consumers alike is that recalls have yet to affect significantly Toyota's standings in quality surveys. Neal Oddes, director of product research and analysis at Westlake Village (Calif.)-based J.D. Power and Associates, says that his research shows Toyota improving initial vehicle quality by about 15% since 2003.
Although Toyota still trails Porsche, Lexus, and Hyundai in the rankings, two of the best five brands at the top of the list are built by the company. "I'm sorry, but as far as Toyota's concerned, I've only got good news for you," jokes Oddes.
Toyota's reserve of goodwill with the American auto-buying public may indeed still run deep. It appears that, to maintain those reserves, the company is beginning to acknowledge publicly nagging recalls and quality problems. After all, admission is the first step on the path toward recovery.
Vella is a reporter for BusinessWeek.com in New York
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