Viewpoint February 10, 2010, 6:15PM EST

Toyota: How One Failure Begets Another

The automaker's refusal to pay attention to consumers was a management failure that ultimately led to its massive vehicle recalls, says Peter Firestein

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Amid the slow recovery of the global economy, we have in recent weeks witnessed the unlikely descent of one of the world's most admired companies: Toyota. A pattern of deadly accidents has caused the the slow-motion crash of its reputation.

It has been a long time coming. Toyota (TM) did virtually everything it could over the past decade to deny an acceleration problem in many of its models. When it could no longer treat each crash as an isolated incident, it blamed its troubles on floor mats (or driver incompetence). Later it conceded that the gas pedals should be replaced. At the same time, it continued to reject suggestions that onboard computer electronics had anything to do with the accidents, claiming that multiple backup systems made computer involvement impossible.

The entire scenario indicates that there is a systemic problem at Toyota. But it's not with the engineers who design and make the cars. Granted, no engineering enterprise is perfect. And anything with a hundredth the complexity of a modern automobile requires constant adjustment, retooling, and rethinking. Engineers experience failure every day. But when something doesn't work, they fix it. They make new designs. They fabricate workarounds. And to do that, they have to be perfectly attuned to feedback from their systems.

Trying To Keep Stress Low

Toyota's corporate leaders managed the company in the public arena of consumers and regulators. But, unlike their engineers, the managers were blind to critical information that came their way. Evidence that showed dangerous malfunctions was inexplicably lost on them—time after time. The Los Angeles Times reported that Toyota has issued eight recalls for unintended acceleration going back to 2000, more than any other automaker. It seems Toyota's approach is to dispose of each problem with a minimum of stress to the company.

During a recall last fall, Toyota claimed there was no defect at all. In a 55,000-vehicle recall two years ago, for interference of a floor mat with the accelerator pedal, the fix was to enlarge a warning label on the underside of the mat and on its packaging. It's unclear what this was supposed to accomplish. In April 2003, Toyota engineers discovered that a panel could come loose and lock the gas pedal of a minivan. The company made the fix in future vehicles but never notified current owners.

Toyota is not the first company to undermine itself by seeking refuge in denial. Early this decade, BP (BP) set new corporate responsibility standards in its enormous pipeline development that now runs 1,000 miles from the Caspian to the Mediterranean. The company interviewed 10,000 land tenants along the route, determining the pipe's least disruptive path. It made tens of millions in social investment along the way. Yet two months before the first oil passed through the line in May 2005, a BP refinery in Texas City, Texas, exploded, killing 15 people and injuring more than 170. A federal investigation found that the company had ignored repeated safety warnings. A year later a quarter million gallons of oil spilled from a BP pipe in Alaska because of the company's failure to carry out routine maintenance. BP had made great investments in social responsibility, but apparently not enough in its basic business.

Toyota wrote the book on excellence in manufacturing and in the delivery of a sense of quality to the world. Its methods are taught in universities. "The Toyota Way," a series of books and seminars, is a small industry.

Corporate Deafness

Any corporation is a creator of value—which it can more or less control—as well as a player in a broad social context, over which it has virtually no control. Excellence in one area does not exempt the company from responsibility in the other. Toyota experienced a remarkable ascendance over its competitors in the auto market.