Saturday, March 13, 2010

The Humbling of Toyota

International automaker Toyota has been in the headlines for weeks because of the controversy surrounding their acceleration problems, which have led to an estimated 51 deaths in the country. Earlier today, I came across this article on Business Week explaining how the companies once rewarding frugality turned in to its worst enemy causing millions of recalls. Checkout a section of the interesting piece below, or find the full text at Business

Toyota Motor has always been fanatical about frugality, and for many years that was good for both the company and its customers. This is a Japanese carmaker that routinely turned down the heat at its employee dormitories during working hours and labeled photocopy machines with the cost per copy to discourage overuse. Its engineers collaborated with suppliers to extract cost-savings without compromising quality. Yet by the middle of the last decade Toyota's virtue had become a vice.

So say current and former auto executives who are trying to grasp how Toyota, with its gold-plated reputation for engineering excellence, slipped up on such a scale, with 8 million cars recalled due to mechanical failures linked by U.S. regulators to 51 deaths. Before company officials knew that runaway acceleration was causing crashes, one of these executives says, a simple manufacturing process would sometimes ignite small fires in a component as a direct result of corner-cutting. It was just one early sign that the focus on cost reduction had gone too far.

Those production mishaps occurred in 2006, a year after company President Katsuaki Watanabe boasted about having squeezed more than $10 billion from global operating costs in the previous six years—this despite an impressive run of profit growth and global market share gains in the middle of the last decade. Then Toyota pushed even harder for more cuts. It asked suppliers to design parts for its Camry midsize sedan that were 10% cheaper and 10% lighter. The company's top U.S. executive, Jim Press, warned his bosses in Japan that vehicle quality was slipping, according to a slide presentation U.S. Senate investigators unearthed in their sudden-acceleration probe. But his warning had no apparent effect.

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