Toyota's recall strategy was to accept billions in costs and come out the other end a better company as quickly as possible. GM is following this same playbook, though with a bit more resistance, based on more cover-ups over the past decade.
Try to remember the last week you did not read in the U.S. press about an automotive recall, or even the last day. In 2013 there were more vehicles recalled then vehicles sold. By the end of May 2014, more then 20 million vehicles were recalled in the United States, with General Motors accounting for 13.8 million of these. This was on pace to easily break the all-time record of 30.8 million recalled in 2004.
GM itself had 30 recalls by May 2014 covering almost 14 million vehicles, with at least 13 deaths and over 40 injuries from the famous ignition switch recalls, and some argue there were far more deaths. The defect was known for 10 years before GM pulled the trigger on recalls under pressure from NHTSA. An interesting analysis suggested that if GM recalled vehicles with higher then average safety related complaints it would generate an additional 275 unique recall issues across 50 GM models, which would cost the company $4.2 billion just in direct recall costs, or $1.60 per share.
Ford got into the act in May 2014 with 1.4 million vehicles recalled under pressure from NHTSA. Interestingly, one of the recalls involved floor mats entrapping gas pedals, the main cause of “sudden unexpected acceleration” in Toyota vehicles. We had encountered this when Tim Ogden and I chronicled the Toyota recall crisis in our book Toyota Under Fire. Engineers at Edmunds.com found the defect in a Ford Focus floor mat and demonstrated it could entrap the pedal, reporting it to NHTSA. It went under investigation for four years… and finally came out as a recall of different Ford vehicles in 2014.
What does this say in general about recalls, and specifically about the Toyota crisis which culminated in a $1.2 billion settlement and a dressing down by the U.S. department of Justice?
Why is this almost exclusively a U.S. phenomenon?
While Canada and some other countries have gotten into the recall action, and recalls of automobiles with common parts often become global recalls, it is clear that the bulk of the pressure has come from the U.S. government, media and legal system. Whether one believes that has something to do with the proportion of the U.S. population in the legal profession, the tendencies of journalists to sensationalize stories, or a more aggressive administration in Washington that thrives on taking the moral high ground with big business, the fact is that automotive companies are under unique pressure in the U.S. to recall anything and everything that may possibly influence customer safety.
Are these recalls necessary and are drivers safer as a result of this recall frenzy?
In the aftermath of Toyota’s recall crisis it became policy for Toyota to recall first and investigate second, the reverse of the normal operating procedure in the automotive industry. No accidents were discovered in any of these cases. Some of the recalls were questionable. For example, one involved the potential for braking issues if the customer used brake fluid other then what was recommended for the Toyota vehicle. This could cause seals to degrade which would ultimately lead to a warning light signaling the need to have the brakes checked, which if it was ignored by the customer long enough might possibly lead to braking problems.
In another famous case a Lexus vehicle failed a test unique to Consumer Reports that involved taking a sharp turn onto an off-ramp at 60 mph without applying the brake. The vehicle stability software failed to compensate sufficiently and the car could potentially roll over. Here is how this was explained by one source:
“Here's what you don't want to do—for now, anyways—while driving a 2010 Lexus GX 460: Accelerate to 60 miles per hour, yank into a fast right turn and then abruptly lift off the accelerator.”
Within 24 hours Toyota decided to issue a recall and stop selling the vehicle until a software fix was found. At least one source, Car and Driver Magazine, felt this may have been an overreaction.
Does the dramatic increase in recalls reflect an underlying drop in vehicle quality and safety?
Quality in general in automotive over the decades has gotten dramatically higher by every measure other than recalls—it is now the price of being in the game. Safety is also at or near an all time high. USA Today did an excellent review and there certainly are opportunities to criticize the system of recalls.
For example, typically about 25% of recalled cars are never brought in for the fix and at the time of the article over 3.5 million vehicles with open recall notices were for sale from dealers, i.e., not yet repaired. GM seemed to be especially slow in getting the parts needed to fix the ignition system that could cause the car to shift into neutral and airbags to be disabled. And NHTSA depends almost exclusively on self-reporting of problems by automakers.
On the other hand, in the year of the Toyota crisis there were fewer deaths on U.S. highways than in any year since automobiles started significantly populating our roads. And the USA Today article reports that in the U.S., “traffic fatalities have declined from 44,525 in 1975 to 33,516 in 2012 even as the U.S. population has increased by almost 50%.” It seems a major reason for the reduced deaths are the technologies that have been developed and installed in our vehicles, such as ABS and airbags.
Today automakers are expected not only to make safe cars, but to protect drivers from human error. For example, new braking systems can sense when a potential accident will take place and take over the braking process. In fact, the Insurance Institute for Highway Safety is evaluating optional front-crash avoidance systems, and a system that does not pass their evaluation can lead to a lower safety rating. So auto companies are being judged by their ability to protect drivers from their own limited driving skills.
NHTSA has limited resources for policing auto companies and has put a good deal of effort into campaigns to prevent the much larger causes of accidents, such as falling asleep at the wheel, drunk driving and distracted driving. Perhaps that is a better use of limited resources?
What have we learned about how to respond to aggressive attacks for safety issues by the government, media and lawyers?
For several months Toyota was on the front line of every media source in the U.S., every day. The storyline was that the great company had fallen in quality and safety and had unique problems, while suddenly the bankrupt or almost-bankrupt American auto companies were improving quality and safety and looked like angels in comparison. We now see that the angels have also fallen.
I was very disappointed that Toyota settled a criminal lawsuit claiming they deceived the public about the safety of their vehicles, agreeing to pay $1.2 billion to the Department of Justice and “admitting their guilt.” The implication is that they had known of serious safety risks related to unintended acceleration and intentionally hid this from the U.S. government to save costs.
In reality, Toyota did not admit to anything but said it “cooperated with the U.S. Attorney's office in this matter for more than four years” and has “made fundamental changes to become a more responsive and customer-focused organization, and we are committed to continued improvements.”
The charges of the DOJ certainly make it sound like Toyota was being punished for serious crimes against the public. In fact, within the many accurate statements by the DOJ were buried some highly questionable assumptions about the floor mat and sticky pedal recalls. Consider the floor mats that entrap accelerator pedals. DOJ states:
TOYOTA issued its misleading statements, and undertook its acts of concealment, against the backdrop of intense public concern and scrutiny over the safety of its vehicles following a widely publicized Aug. 28, 2009, accident in San Diego, Calif., that killed a family of four. A Lexus dealer had improperly installed an incompatible all-weather floor mat into the Lexus ES350 in which the family was traveling, and that mat entrapped the accelerator at full throttle…. The San Diego accident was not the first time that TOYOTA had faced a problem with floor-mat entrapment… an internal investigation in 2007… revealed that certain Toyota and Lexus models, including most of the ones that NHTSA had identified as potentially problematic, had design features rendering entrapment of the gas pedal by an all-weather floor mat more likely.… In the end, the company negotiated a limited recall of 55,000 mats (no vehicles).
They correctly state that the San Diego accident was caused by a much-too-large all-weather mat from a large SUV that was installed by the dealer in a loaner passenger car. It was also not fastened down to the two clips as Toyota protocol demanded. Predictably it entrapped the gas pedal. Was this a Toyota defect, or an unforgiveable blunder by an independent dealer who installed the wrong equipment incorrectly and, as it turned out, tried to cover it up?
It is also true that in the fall of 2007, Toyota recalled a specially designed all-weather mat that had been put into a single model of a Camry and its sister Lexus vehicle after a person died in a pedal entrapment accident. In this case, Toyota worked with NHTSA and discovered that the floor mat was a bad design. When Toyota realized it was dangerous, they recalled all 55,000 of these poorly designed floor mats and replaced them with redesigned safe mats—a seemingly appropriate response to both Toyota and NHTSA. There is no obvious relationship between the 2007 limited recall for a specific floor mat design and the 2009 accident caused by a dealer improperly installing the wrong floor mat. NHTSA does not know of any other accidents caused by floor mats.
The strategy Toyota chose in this very hostile American environment was:
- Apologize for any inconvenience to customers.
- Do not point fingers at anyone else.
- Fix the problems quickly and as conveniently as possible for customers.
- Become hypersensitive and recall anything that might possibly be a safety issue.
- Soul search internally and make major improvements in internal communications and streamline procedures to become even more customer-focused.
- Reorganize the entire company to give local regions more autonomy, including influence on recall decisions.
In other words Toyota decided to accept billions of dollars in costs and come out the other end a better company as quickly as possible. General Motors to a large degree has followed this same playbook, though with a bit more resistance, and arguably based on more egregious cover-ups over ten years.
Perhaps fighting is not always best for the long term, even if you believe you have been unfairly treated. In the long term I believe that militant government actions against private companies will in fact increase sensitivity about potential negative impacts on customers and society, but at what cost?
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