Will GM benefit from Toyota's stumble?

Dennis Morrison, Contributor

Toyota, until recently regarded as the gold standard for quality, reliability and efficiency in car manufacturing, has seen its reputation up-ended by sticking accelerator pedals that have led to major accidents and ballooning numbers of vehicle recalls since late 2009.

The company, rated as the most consistently successful global enterprise of the past 50 years, is estimated to have recalled over nine million vehicles world-wide at a direct cost of over US$2-billion, surpassing the previous largest recall which it set in 2006.

The fallout from this is already affecting Toyota's sales in the United States, which fell by 16 per cent in February when their top rivals, General Motors and Ford, made big gains.

While this is a stinging reversal of fortunes for Toyota which, up until 1990 was only half the size of General Motors, the company's crisis raises questions about the lean production system which it invented, and which has been at the root of Japanese industrial success. This system documented in The Machine that Changed the World (James P. Womack, Daniel T. Jones and Daniel Roos), was pioneered by Toyota after World War II and, with its 'just in time' organisation eventually emerged as the pacesetter in car manufacturing.

Higher levels of efficiency

Using less inputs, including labour, to produce greater and an ever-growing variety of products with fewer defects and requiring far less inventory than the traditional mass-production system, Toyota achieved higher levels of efficiency and superior quality control. Combined with the resulting lower cost of production, these advantages were soon to erode the dominance of the mass-production system of General Motors and Ford on which the automobile industry had been built.

Toyota's problem has been most acute in the US market where, after a humble and shaky start in 1957, it broke the control of General Motors and Ford by the 2000s, but it has also affected their home market in Japan. In the financial markets, the company has been punished, losing one-fifth of its market value since January. Toyota's crisis of "cars speeding out of control" may have been foretold in 2006 when it recorded the largest recall of any car-maker in the US.

In Jamaica, where Toyota was the first Japanese brand to enter the market in late 1972, we have been assured that the models on our roads are not affected by this problem, and sales are steady. I can remember the scepticism of Jamaican motorists as they examined the first shipment of Toyota cars at Uni-Motors' showroom on Half-Way Tree Road. Back then, the Japanese had not yet mastered the steel technology and engineering for automobile bodywork. The vehicles were efficient but notorious for early corrosion and struggled on our more hilly terrain.

British models like Morris Oxford, Austin Cambridge, Hillman, Rover, Ford Cortina, Escort and Capri were dominant in the Jamaican market, and the American models most popular locally included Chevrolet, Buick, Oldsmobile, Pontiac, Plymouth and Dodge. By the late 1970s, the Japanese assault was under way, and by the 1990s when motor vehicle imports were liberalised, they had swamped the traditional players. With the coming of the 'deportees', Toyota reinforced its head start and standing as the most popular brand.

Toyota's ascendancy in the US came after a flop with its first car, the Crown, which was introduced to that market in 1957. Set back by quality standards, it returned in the early 1960s after undertaking significant re-engineering, but American consumers were sceptical, including some of my US-based relatives who dismissed Japanese brands as "paper cars". Progressing from what would now be viewed as an unbelievably low base of 13,000 cars sold in 1965, Toyota moved steadily to 320,000 units in 1975, but raced to one million by 1985, as its improving quality and price competitiveness enhanced its appeal.

Phenomenal growth

In response to the trade disputes and Japan-bashing rhetoric of the 1980s, Toyota expanded its presence in the US by building parts and assembly plants. Buoyed by the advantage of speed to market with new designs, rising design standards and cost efficiency, and the higher costs and increasing unreliability of its American competitors, the company grew phenomenally in the 1990s and 2000s. But this would ultimately contribute to its current troubles.

As its global-production capacity approached nine million vehicles in 2006 amid increasing quality problems, Toyota executives became more obsessed with overtaking General Motors. This it achieved in 2008 while reporting record profits. Still, it was aiming higher, even as the global recession deepened, setting a target of 10 million units for 2009. Instead, it recorded its first net loss in 60 years and is now confronting huge damage to its brand.

It is still too soon to assess whether General Motors and Ford will be able to capitalise on Toyota's stumble and how quickly the accelerator problem will be fixed. Indeed, there is even some doubt as to whether the problem has been fully diagnosed.

The sense, however, is that the company's legendary manufacturing system and groundbreaking technology are considerable assets in the uphill battle it must wage to regain its gold standard for quality and reliability. No one is as yet betting against this giant that rose from the textile-machinery producing Toyoda group founded by Sakidu Toyoda in 1897.

Dennis Morrison is an economist. Feedback may be sent to columns@gleanerjm.com.