The ongoing product recall and quality perception crisis regarding Toyota Motor Corp. took on some positive movement in the past few days.  Last week Toyota announced chief quality officer executive appointments within each major geography. 

Steve St. Angelo, executive vice president of Toyota’s U.S. manufacturing operations in Erlanger, Ky., was named the company’s chief quality officer in North America. St. Angelo will represent North America on the corporate quality review committee that will meet regularly with Toyota President Akio Toyoda.  St. Angelo’s new team will bring together top U.S. executives at Toyota and come up with plans to boost quality assurance and customer research. Other geography teams will similarly focus on specific quality needs in the respective region.

The special corporate-wide committee on quality consisting of 70 members held its first meeting on Tuesday of this week.  Several different press reports indicate that the initial output of that meeting was to authorize the forming of dedicated technology offices within each major region.  Technology offices will be increased from current one to seven within North America.  New technology offices will also be established in Europe, China and other regions. Toyota noted that the quality committee will issue its first report in June and will meet regularly to exchange insight and tackle safety issues.

According to a New York Times Featured Business article, under this new quality management structure, each region’s chief quality officer will co-participate with Toyota headquarters in Japan on consensus-driven action plans to address quality issues, including the need for recalls. Toyota also plans to have third party experts evaluate measures to improve quality and review steps adopted by the special committee.  The next special committee meeting is planned for September.

Meanwhile, U.S. Transportation Secretary Ray LaHood announced two major investigations designed to answer questions surrounding the issue of unintended vehicle acceleration. The U.S. government is calling on scientists from NASA and the National Academy of Sciences to further investigate potential causes of SUA in Toyota vehicles.

Time and events will tell if these new geographic regional quality teams will really have the corporate power to take proactive action on any future quality issues involving Toyota vehicles, but for now, these organizational and other product actions are a step in the right direction.

Bob Ferrari

A late breaking Wall Street Journal article published in the U.S. indicates that Toyota Motor Company will suspend dealer sales of eight different Toyota models that are involved in the ongoing product recall involving sudden acceleration of vehicles. Because of this suspension, Toyota is expected to suspend production of vehicles next week.

The models involved in the current recall include the Avalon, Camry, Corolla, Highlander, Matrix, RAV4, Sequoia and Tundra. Toyota had previously issued a recall of 2.3 million vehicles last week, along with other recalls in past weeks.

Needless to say, this development is unprecedented, and has potential far reaching impacts related to automotive supply chain disruption, if the suspension continues for a lengthy period.  While details remain sketchy, Toyota has either reached a point of serious concern related to the safety of its vehicles, or is taking extreme measures to insure that the problem is root-cause identified and corrected.  I suspect that the problem is far more than a sticky accelerator as noted in the Journal article, and probably more to do with engine control electronics. In either case, this is a significant development.

Supply Chain Matters will strive to provide more commentary as more information becomes available.

Bob Ferrari

Regular Supply Chain Matters readers will recall that lately I have penned a number of rants regarding my frustration with the strategic direction of the current U.S. automotive industry. My latest came in a posting in early January which noted the ongoing precarious financial state of many suppliers within the industry, but more importantly, survival of the industry is not assured from a purely top-down approach.  The long-term competitiveness of the industry, in my view, stems from a more holistic investment in the overall innovation, health and global competitiveness of the entire U.S. automotive value-chain, from the lowest tier to the OEM.

Last week, the Wall Street Journal and others in the blogsphere noted an announcement that, for me, provided yet more disheartening evidence for the lack of value-chain sensitivity and strategy being applied on a timely basis within the U.S..  Toyota Tsusho Corp., a key supplier and 21.8% owned by Toyota Motor Corp., moved to secure a long-term source of lithium in Argentina, billed as one of the first global natural-resource plays of the electric-car age. The investment, valued at $100-$120 million, is being inexpensively financed through a government of Japan state-owned public agency, Japan Oils, Gas and Metals National Corporation.

For those who may not be aware, high quality lithium is a core raw material in the production of rechargeable batteries.  Quality supplies of this very light metal are limited to certain global areas of the world, specifically Bolivia, which is noted as having over one-half of the world reserves, followed by Chile, Argentina, China and Australia. Global automotive manufacturers must all tap into a finite number or raw material suppliers of high quality lithium originating from these regions.

This latest investment by Toyota, through its supplier, is characterized as providing a more reliable supply of lithium, rather than being reliant on a few producers who could tighten the overall flow of supplies over the coming years.  The investment time horizon is characterized as a window of ten years, a window where the demand for hybrid and electric autos and other vehicles could substantially grow. It assures that Toyota and the remainder of Japanese car makers and battery producers have a long-term reliable and consistent supply of high quality lithium.

This was for me the best demonstration of strategically positioning a value-chain for long term competitiveness, and it’s not the first or last time a Japan or Asian-based industry will initiate such strategic or tactical moves. In the WSJ article, the chairmen of Toyota’s supplier Orocobre notes that his company has considered investment proposals from other Chinese companies, as well as other companies in the lithium supply chain.

The open question however is when will we read of such proactive strategic actions emanating from the U.S. automotive industry?  Perhaps I’ve overlooked something in all of those press releases from the big-three U.S. OEM’s?

Bob Ferrari

A Wall Street Journal article last week (subscription may be required) noted that Toyota has accelerated its cost-cutting efforts.  The world’s leading auto producer by volume has requested the help of its key suppliers to meet a goal of reducing the cost of component parts by 30% in the next three years.

Toyota has been garnering considerable negative perceptions in the U.S. market of late.  First, a multitude of major product recall incidents has tarnished the company’s previous stellar reputation as a producer of reliable vehicles.  Second, the effects of near two years of global recession coupled with some business missteps has had a severe impact on Toyota’s sales growth and lack of profitability.  The company expects to suffer its second straight year of loses, and has lost some market share in the critical U.S. market.

This latest initiative, despite the need for the company to repair its balance sheet, is rather untimely and fraught with more risk. Toyota owners already have building concerns about the company’s building lapses in vehicle quality and reliability 

I like others have been a loyal Toyota owner, having purchased multiple vehicles over the last ten years.  I must admit that I too have noticed a noticeable deterioration in reliability.  Our 2004 Avalon has experienced three major part failures this year, which is very worrisome, and I suspect that our experience may not be an isolated one.  We, along with other Toyota owners, wonder aloud whether the so-called “sticking accelerator” problem reported among a group of sedans is limited to just a certain few vehicles or is more widespread.

It seems that ever since the bulk of vehicle production was shifted outside of Japan, quality seems to have slipped over time.  My evidence point is that our 1999 Toyota SUV, which was built and exported from Japan, continues to perform in the traditional Toyota manner. 

Pushing suppliers even harder to achieve significant further component part cost reductions without a context to the root-causes of eroding quality and reliability is risking even more damage to the Toyota brand.  A look back in history when major U.S. OEM’s such as Chrysler and GM embarked on similar initiatives with their suppliers would indicate a disastrous impact on the reliability of vehicles. 

Toyota should know better than to embark on an accelerated road toward destroying its brand and owner loyalty.  Let’s hope that they do due diligence to both business and reliability needs.

What’s your view?  Does Toyota have other options besides extracting more cost reductions in parts?

 Bob Ferrari

Unprecedented declines in our current global economy have provided endless stories as to how manufacturers have had to initiate drastic cutbacks in people and resources, and if you are like me, you tend to just want to stop reading much of this endless negative news.  However, when a world class provider such as Toyota is affected, we all have to take notice.

The latest news regarding Toyota reflects that the drastic downturn being experienced in the automotive industry is deteriorating at a rapid clip.  Toyota is on-track to post an operating loss of nearly $5 billion for the year ending March 31.  Sales have dropped 24 percent overall, including 31 percent in North America, 14 percent in Europe, and 8 percent in Asia.  The latest estimates of operating losses reflect a magnitude to be three times as much than the company forecasted just three months ago.  Since its founding in 1937, Toyota had never reported a full-year operational loss, that is until the downturn of 2008-2009.

More challenges lie ahead for Toyota, particularly in the areas involving supply chain management.  As the Herald Tribune story points out, Toyota had implemented aggressive global capacity expansion in the midst of insatiable demand for its products, but now finds itself with a glut in overall production capacity. Inventory remains a problem since Toyota was not immune to the steep drop in consumer confidence and financing options.

Toyota continues to press forward, guided by an Emergency Profit Improvement Committee, which is, no doubt, a super Kaizen team.  What’s important to note is that Toyota will attack the problem from multiple perspectives: cost reduction, supplier and dealer collaboration, and as a revenue enhancing opportunity.  The global product line-up is under review to tag products that will be beneficial, as well as attractive, to consumers within the current economy.  Investments in hybrid technology will reportedly continue, perhaps at a declined rate. A recent article in Automotive News  (sign-up required) provides readers the perspective from Toyota’s U.S. automotive dealers, who feel very confident of Toyota’s ability to listen and foster teamwork. Another news report penned by Jim Forsyth in Reuters outlines measures that the company will apply to U.S. assembly plants and parts operations, including cutting salaried employee bonuses, slashing executive pay as much as 30 percent, and cutting back on factory hours.

It may be painful, and there may be more bumps along the road, but I remain convinced that Toyota will prevail and be a predominant global player when recovery finally comes.  Just like every other problem or opportunity in the past, Toyota has the where-with-all to analyze root cause, attack with speed, and seize opportunity. Perhaps along the way we will all learn some new lessons in supplier collaboration, lean methods and adaptive supply chain management, and I look forward to purchasing another new Toyota product sometime in the next few years.

What’s your view? How much will Toyota be impacted by the current worldwide economic downturn?

Bob Ferrari