For decades, Toyota has balanced superb management, impeccable quality, exemplary financial discipline and flawless product planning. As other manufacturers chased market trends and neglected core models, Toyota made incremental improvements to existing models and introduced new models slowly and carefully. Their perseverance has paid off; they’ve elbowed Ford aside and are nipping at GM’s heels. But as Toyota prepares to replace The General as the world’s largest automaker, they’re finding out that getting to the top is one thing; staying there is something else altogether.
No doubt about it: Toyota’s on a roll. They posted a record $3.6b third quarter corporate earnings and hope to exceed $13b profits for this fiscal year. In spite of growing profits worldwide, the picture isn’t so rosy on this side of the globe. Although their revenues in North America were up 17.3 percent, their North American operating profits were down 22.4 percent in the third quarter.
Part of Toyota’s American problem relates to federal contract-sized cost overruns on their new truck plant in Texas. When ToMoCo started the project, they budgeted $850m to git ‘er done. To date, the company’s sunk almost $1.3b on the plant– and they’re still spending. The expenditure seems manageable enough, until you tote-up the cash they’re also shelling out to build another Canadian facility and modify the Subaru plant in Indiana to build Camrys.
Perhaps Toyota should be putting some more of their resources into making sure their products live up to their reputation for quality. As production numbers rise, their recall rate is keeping pace. The latest recall– involving faulty ball joints in the previous generation Tundra and Sequoia– could end up costing Toyota more than $600m.
And then there are the high hundreds of millions of dollars Toyota may need to settle the class-action suit for oil sludge (affecting about 3.5m Toyotas and Lexi). All in all, we’re talking about a serious chunk of change coming directly off the bottom line.
Meanwhile and in any case, sales of the Pious Prius are down. Whereas the automaker once measured the model’s supply in hours, there’s now a 30-day supply sitting on dealers’ lots. Though it’s nothing like the 80 day supply of GM product lingering on their dealers’ lots, the growing Prii glut is definitely trending in the wrong direction.
The extra inventory is attributable to a combination of factors which, uncharacteristically, Toyota didn’t read correctly. They increased production just as gas prices started going down, the hybrid tax credits started going away and those buying hybrids to make a social statement had bought them. So, for the first time in the model’s short lifetime, Toyota’s offering incentives. They’re nothing on the scale of The Big 2.5’s spiffs of course, but it’s cash on the hood nonetheless.
These issues pale in comparison to one problem that could make or break Toyota’s North American operations: their relationship with their hourly workers. In a confidential memo that accidentally ended up in workers’ hands, Seiichi Sudo, president of Engineering and Manufacturing in North America, discussed the cost of American labor and the steps they need to take to control those costs.
The memo, which was inadvertently stored on a shared computer drive, states the US auto industry pays some of the highest manufacturing wages in the world. It compares American wages to those in France and Japan (50 percent higher) and Mexico (500 percent higher). They project their American labor costs will increase by $900m over the next four years.
Toyota’s concerned that even though their profit margin is increasing, it’s not growing as fast as their labor costs. Their strategy: “base our Hourly Wages more closely with the State Manufacturing Wages where each plant is located, and not tie ourselves so closely to the US Auto Industry, or other competitors.” Their “challenge”: how they’ll tell the workers “so that they can understand and accept change.”
The bottom line: “Human Resources is developing strategies which will reduce Labor Cost (and increase Profits) by $300 Million by Fiscal 2011 by focusing on: Headcount and Rate (Wages and Benefits).” This isn’t exactly what you want the rank and file to hear.
This memo could do more to damage Toyota’s future than any other factor. Toyota got a lot of press when the (non-union) workers at their Kentucky plant made more than union workers on average last year. Now they want the same workers to take a pay and benefit cut. Is that the UAW I hear knocking at the back door?
Ironically enough, Toyota is in the roughly the same position (re: its labor relations) as GM during the ‘70’s. Of course, GM basically rolled over and played dead for the UAW, burdening itself with an unwieldy labor force and an unsustainable cost structure. Will Toyota make the same mistake? It’s not likely. But it is possible.
[Read the Toyota memo here ]
Mr. Williams:
Interesting article, but 800 words is nowhere near enough to hash out the issues you bring up. I remember dudes in my undergrad classes bitching about the length of an assignment, “2,000 words? I can’t clear my throat in 2,000 words!”
Granted, undergrad essays aren’t read by the average ADHD internet user (redundant, I know), but I’m always hoping for most articles to cover a little more. While you good folks are looking to make some changes at TTAC, you might want to consider embiggening the word limit on some articles. Especially editorials. Most of your readers seem pretty literate so I don’t think a 1,000 word limit would put too many people off.
While I know jack-nothing about labour relations outside of my job, folkis interested in why Toyota will quickly grab #1 should be encouraged to read, The Toyota Way which clearly explains the difference between American and Japanese auto industry culture. I’m tryint o find an Amazon link, but my internet is run by a hamster in a wheel, and somebody seems to have lifted my copy off my shelf.
Oh yes, do any of you smart people have any theories on why Toyota bought half of GM’s portion of Subaru? Surely they are looking for more than just underutalized factories?
With the review orientation, we may be able to free-up some space for longer editorials.
Dream 50: do any of you smart people have any theories on why Toyota bought half of GM’s portion of Subaru? Surely they are looking for more than just underutalized factories? There's a lot of conjecture about that. Apparently, Toyota has had their eye on Subaru's parent, Fuji Heavy Industries, for a while and buying into Subaru as GM eased out let them get their foot in the door. Japanese anti-trust laws prevented them from doing anything more — until now, that is. From Automotive News, Feb 5: Law OK with Toyota-Fuji James B. Treece | | Automotive News / February 5, 2007 – 1:00 am TOKYO — A change in Japanese antitrust rules has opened the way for Toyota Motor Corp. to take over Subaru maker Fuji Heavy Industries Ltd. In October 2005, Toyota bought 8.7 percent of Fuji Heavy. At the time, General Motors was selling its 20 percent stake in Fuji Heavy. Analysts said Toyota would have preferred to buy a controlling stake in the Subaru carmaker, but doing so would have run afoul of antitrust rules. Toyota and Fuji Heavy combined held 45.6 percent of the 2006 Japanese car market. Until now, that was a problem. Antitrust rules forbid any company to control 50 percent of Japan's market for any product. Under the rule change, though, Japan's antitrust authorities will consider global market share, not Japanese market share, in reviewing mergers and acquisitions. Companies now will be allowed to join regardless of their combined Japanese market share, so long as the new company's global market share is under 50 percent. The change, which takes effect April 1, is designed to strengthen Japanese companies' competitiveness on world markets.
Toyota’s priorities seem to have shifted from keeping their eye on the ball to… instead… being #1 in North America. Lately, Toyota seems to be trying to force their market share and boldly stating VERY optimistic production numbers for the future.
Future looks bleak for Toyota – is it time to start the Toyota Death Watch?
Every corporation has it’s ups and downs. I agree that Toyo’s focus seems to be more shotgun lately than concentrating on consistant quality and product. Striving to be #1 in volume has it’s costs.
Future looks bleak for Toyota – is it time to start the Toyota Death Watch?
Since ToMoCo made $3 billion last quarter, it’s probably premature. But – bad trends and momentum do start when the going is good, such as the Big 2.5 about 3-4 decades ago.
I guess there won’t be any more Toyota plants in the US, as they now have plenty of capacity; that we’ll see production skewed towards Canada (remember that flap over poor education in the US 1-2 years back?), Mexico, etc. Gotta keep those billions going!
As for quality & recalls – I mentioned this on another thread – Ford Explorer sales managed to recover despite the rollover/Firestone debacle killing over 100 people, so Toyotas will have to kill far more to make a long-term impact.
I agree with the last paragraph in the article. More and more Toyota starts looking like the big 3 in the 1970’s. Think about it, recalls, cheap interiors, quality issues. the next ten or so years will be interesting.
Mr. Williams:
Thanks for that. Now any bets on what Subaru will look like if Toyota buys 100% of Fuji Heavy? Will things continue pretty much the same, with Toyota continuing to focus on their image of quality while leaving the sports segment to Subaru? Or will we get a turbocharged Corolla with the ignition between the seats? And how much freaking yen would Fuji Heavy sell for?
The quality control problems for Toyota are disturbing. Two memebers of my family are Toyota loyalists–because the cars run great and do not generate any problems. If this changes, neither of them are sentimental enough to stay with Toyota. Many of the Toyota owners I know have this mentality. After all, who cares what brand of toaster is on the counter as long as it works?
Maybe TTAC should start the Toyota Apogee Watch?
And, wow!, a swing and a miss on what it would cost to build a new truck plant. It’s unusual to miss by that much on a car plant. Did their construction costs get jacked up by the demands on the construction industry from Katrina?
Waitaminute here…I thought the big advantage most of these foreign manufactuers had over the domiestic automakers was that they employed non-union workers and in most cases opened up shop in southern states which had a lower cost of living which allowed them to have a smaller payroll than Big Detroit. Does this mean that BMW, Mercedes-Benz, Nissan, Honda, and Hyundai will soon have the same issues, or did Toyota simply overextend themselves in their quest to be #1?
Frankly, I get a little tired of hearing how a recall somehow equals the demise of quality. Sure, the expense can be phenomenal, but for all intents and purposes it’s a one-time charge unless this becomes habit (ie, little to no effect on the value of the company).
Recalls are to be expected in the business. Usually the (realized) failure rates that precipitate them are far better than what is acceptable in most areas of our lives. In addition, it’s a chance for the dealer to build more goodwill with customers. There’s an old saying in customer service that sometimes correcting a mistake WELL can work out better for you than never having made the mistake in the first place. Of course, on the other end of the spectrum, there’s Ford/Bridgestone, but that seems to be water under the bridge these days (despite all the deaths!)
Those memos might as well have come from any company currently involved in manufacturing. It’s clear that operating a business will continuously present challenges, and the nature of those challenges will depend on your position in the market.
I think Toyota is acknowledging a known issue in the US market, which to me confirms they are still keeping an eye on *all* their costs. It doesn’t make sense to consider labour costs and then disregard increasing warranty, recall and litigation costs either. It’s inconceivable these would be ignored.
It’s useless to speculate how long Toyota could be at #1 right now. GM was at number 1 for decades, and the momentum gathered got them through a lot of bad times while still remaining on top. If bad decisions GM took in the 70’s and 80’s are causing its ultimate demise now (itself a debatable idea), then Toyota still has a pretty rosy 20 yrs plus…and that is assuming the status quo. As much as some people hate Toyota’s rise, this kind of memo confirms they aren’t satisfied with things as they are heading, rightly so.
Toyota is a big corporation, and big corporations will always make mistakes. Chalk it up to thousands of employees that all have a chance to fail in some way, and if enough fail in one area things can go badly.
The factory over-run is interesting though, since Hyundai just built a $1 billion factory a year or so ago and I heard nothing about them going over budget.
Interesting the parallels between Toyota and GM, although Toyota had the advantage of better production and management their cars are still pretty vanilla. If they want people to look past recalls and problems with vehicles they have to give them a reason, ie people like the car because it’s stylish, fast, comfortable, etc. If they keep having problems and then I think people are going to start getting their cars elsewhere, what is the reason to get a Toyota if not for quality and reliability?
Looking at getting a handle on excessive costs while you are doing well seems like good foresight to me. I would hope Toyota has taken a good hard look at the Big 2.5 and is determined not to follow their lead. Being the largest auto manufacturer in the world means nothing. If you make product people want, make it reliable and keep yourself profitable the number one spot will come in due time.
I am interested in what Toyota will do with Subaru. They seem intent on acquiring Fuji Heavy and I just hope they don’t mess up Subaru too much.
Captain Tungsten:
Did their construction costs get jacked up by the demands on the construction industry from Katrina?
That’s what they’re attributing a lot of the cost overrun to.
The cost overruns in SA were due to low cost projections of commodities such as steel and concrete. Toyota did not correctly forecast the commodities price boom. Toyota also added extra capacity to the plant.
Toyota and Fuji is an interesting merger. Maybe Toyota wants to build Toyota Jet to compete with Honda Jet.
Anyone answer me this: Why are the auto industries costs so much higher than other manufacturing industries? Was this due to the UAW jacking GM into rising wages/benefits?
I don’t really have statics to compare, but I know many people that work for Ford in Kansas City, GM/Ford/Chrysler in Michigan and on the other side I know many people that work at various manufacturing plants not auto related. The pay seems to be pretty widely gapped, in Kansas City the auto factory jobs are talked about because they have high pay in comparison to other factory jobs. Every time ANY jobs are available there is a huge surge of applications (this was before they started closing plants).
a well-researched and written article. the conclusions however are hard to follow. is toyota really in a spot? i think most car makers would be happy to have the problems toyota has.
i would say it is more a matter of being in the spotlight. kinda like wall-mart is, where lotsa folks may be pointing their finger at them, but more are leaving their money there.
Frankly, I get a little tired of hearing how a recall somehow equals the demise of quality. Sure, the expense can be phenomenal, but for all intents and purposes it’s a one-time charge unless this becomes habit (ie, little to no effect on the value of the company).
The increased recalls seem to be getting attention from within Toyota. From this morning’s Detroit Free Press:
Toyota Motor Corp., which has gained customers largely because of a reputation for quality, is concerned that a rise in recalls and customer service campaigns could hold back growth, an internal report shows.
In the presentation about challenges facing Toyota in North America, Seiichi Sudo, president of its North American engineering and manufacturing unit, cites “the increasing recall trend” as a key risk.
A chart in the presentation shows that recalls and the less-formal customer service campaigns, or CSCs, rose dramatically for Toyota in fiscal 2005 and 2006. “Design issues” were the chief culprit, caused largely by “high project workload.”
Having sat in on more than a few corporate board meetings, I can assure you that every company worth its salt has a strategy for controlling labor expenses. Not having such a plan would be scandalous and would indicate that Toyota’s leadership was derelict in its duty to shareholders and employees alike (a company that isn’t controlling its expenses won’t be around to pay anyone wages for long).
Sadly, you are correct in stating that the UAW extortionists are undoubtedly salivating over the opportunity created by the indiscrete handling of this memo.
Frank your article says:
“Meanwhile and in any case, sales of the Pious Prius are way down.”
Unless a .5% drop in 06, in a market that was down MUCH more than 0.5% is “way down” you are wrong. And of course sales were UP for the Prius in January 4.1%, that is FAR from “way down”.
Other things wrong with your article? How about the fact that a big chunk of the cost overrun at the SA plant have to do with a capacity increase? There are also some omissions to your article such as not pointing out that Toyota/Lexus still consistenly ran in the top of most quality/reliability/dependability surveys.
And your article about Toyota’s concerns with recalls shows their STRENGHT and vision. Even though recalls for them dropped dramatically in 06 from 05 they are still concerned with “fixing” this issue. This is a sign of a company that tackles issues the right way rather than ignore them like the Big 2.394932 did for the last 3 decades. This is what separates the Toyotas of the world from the Big 2.394932’s of the world.
“Cash on the hood” on the Prius is at least a little misleading, too. In fact, when I read that, I started to think, “How much?” and “Can I afford one, now?” Alas, no. The incentive is not cash, it’s a financing incentive and it’s decidedly modest at 0.0% for 2 years, 3.9% for 4.
I had been curious to see how Prius sales would hold up with the fall in gas prices and the expiration of the hybrid tax incentives and it seems to me they’re doing surprisingly well. Considering that the expiration of the tax incentive amounts to a significant price increase, the big story is that the Prius sales seem hardly affected at all. To say Prius sales are “way down” really doesn’t seem justified.
Thanks Frank, that is incredible how much higher it is in Kentucky. Ford in Kansas City was paying a starting wage of around $20/hr, compared to $11 or so at most other manufacturing in the area.
A contrary view might hold that leaking the memo, whether intentional or not, could serve as a shot across the bow to labor. A translation: “we are concerned about labor costs and it is possible for us to build cars elsewhere to preserve our profits”.
Well written editorial. By the way, I like the 800 word scope.
I realize that this article raises some pretty contentious issues, which you are free to explore. However, I have already taken action against several commentators for flaming their colleagues. I have warned several commentators and permanently banned one. Again, TTAC has a zero tolerance policy towards flaming or trolling. Debate the issues. Do NOT make it personal. Ever.
Frank, please explain to me how Toyota is like GM was in the 1970’s. It’s hard for me to see the same arrogant and ignorant attitude within Toyota right now as GM had in the 1970s. Toyota right now is worrying (and taking action) about their recalls, quality, and labour costs.
Specifically in terms of labour relations, a big part of the labour costs were bonuses. Simply put, Toyota won’t let UAW organization happen. If that means keeping up high wages, they will simply find ways to cut costs in other areas. Toyota has an uncanny ability to find improvements and cut costs in the most unlikely areas, like engine production for instance, where they made recent dramatic cost cuts.
Yes, some of Toyota’s accountants are worried that costs are going up as a percentage of profit margins. Fortunately Toyota is not run by accountants. Many of Toyota’s top managers are also engineers. What’s not being mentioned anywhere is the increase in Lexus sales worldwide, specifically of the new LS model, which will bring substantial profit margins. What’s also not mentioned is that the over-budget San Antonio plant is building the Tundra that will bring some big profit margins. Toyota plans to significantly increase Tundra sales, and the profit margins from that will more than offset the cost of building that Texas plant, or even other plants for that matter.
Take a moment to ponder these numbers: at an average of $5,000 profit per Tundra (conservative estimate), if Toyota increases annual unit sales by only 75,000 (another conservative estimate) then profits will go up by $375 million.
What also hasn’t been mentioned is that Toyota’s overall profit margins are going UP, not down. Toyota is just about to surpass Nissan in terms of having the best profit margins in the industry (as a percentage of revenue). Nevermind the fact that Toyota’s revenues are substantially larger than Nissan’s. Toyota for a long time now has had the best overall profits.
For the San Antonio plant, another factor that was not mentioned was that costs went up because Toyota made a decision to include some cutting edge manufacturing and production technology. During the plant’s opening, the welding and stamping areas were strictly off-limits to reporters and media personnel because of this.
And it’s not that Prius sales are way down … it’s that production is considerably up. Jim Press mentioned this recently at an interview in Chicago. If demand stays constant, and supply increases by a considerable percentage, then obviously inventory will increase. Economics 101, Frank.
Also, do you really believe that memo was “accidently” leaked? As for Toyota cutting wages or bonuses, that nothing more than speculation at this point.
In terms of the rise in recalls, Toyota has been aware of this issue for a long time now. This isn’t news, and it didn’t just happen yesterday that Toyota became aware of it’s recalls.
Better to keep the horses of the anti-Toyota bandwagon reigned in until some solid evidence appears on this matter.
Johnson, good points.
And Toyota’s margin already surpassed Nissan’s even though Toyota is investing heavily in several plants (SA, Canada RAV4 plant and Subaru’s Indiana plant, as well as others worldwide) according to this article:
http://wardsauto.com/ar/nissan_profit_warning/?CFID=13004553&CFTOKEN=46239958
“While Nissan’s anticipated profit margin still is higher than 7%, second only to Toyota’s 9% among volume auto makers, the profit warning marks the first time since Ghosn joined Nissan in 1999 that the auto maker has had to do an about-face on its targets.”
Frank, please explain to me how Toyota is like GM was in the 1970’s.
Making money hand over fist.
At the top of the world.
Seemingly unstoppable.
BUT
Faced with increasing numbers of recalls.
Needing to control personnel costs.
The difference is that Toyota can take steps to handle their issues before they become problems. GM didn’t.
Dream 50:
you might want to consider embiggening the word limit on some articles.
That seems cromulent, perhaps breaking them into multi-part articles?
2 interesting articles on Toyota, is this the beginning of a death watch series?
Funny that the class action over the engine sludge shows how much of a perception to do with quality Toyota holds at the moment, despite people arguing here previously that it doesn’t exist. Imagine the uproar if one of the 2.5 did that? AUTOENTHUSIAST it aint no strength or vision regarding the recalls, it sloppiness, consumer bullying from corporate negligence and a PR rescue exercise.
Maybe the wool is starting to be pulled from the American peoples eyes now?
z31: “That seems cromulent”
HAHAHAHAHA!!! Classic…
Toyota has a long way to go before a deathwatch is even remotely valid in my opinion. They are still very profitable even with some of the setbacks mentioned.
Their success depends on how they manage these things, but that is nothing new. They do have the advantage of knowing how not to do things with the colored past (and present) of other automakers.
If a Texas plant goes union, I’ll eat a 10-gallon hat… with George W. Bush’s head still in it!
(two birds, one stone)
–chuck
Bostonteaparty,
The class action lawsuit is nothing but another frivolous lawsuit that we unfortunately need to contend with in the US. In fact the suit says that there are NO design defects on the engines in question.
ANY engine that is improperly maintained have oil sludge issues. It’s amazing Toyota is paying for the repairs even though there’s no prroof of a design flaw, no other manufacturer would do this.
Obviously stating that there should be concern instead of complacency about Toyota’s recalls somehow equates to “flaming” and or “trolling”.
I wonder what Toyota has in mind for Subaru. As I recall, GM was unable to integrate Subaru into its global platforms because the boxer engine would not fit properly in a chassis designed for an I4 or V6.
It would be interesting if Subaru decided to abandon the Boxer and become essentially an in-house tuner of Toyota. So the Legacy would be an AWD station wagon with unique Subaru styling and traits, but built off the Camry. And the Impreza/WRX similarly built off the Toyota Corolla platform.
This would take a lot of engineering cost for Subaru, and give them access to Toyota’s supplier base. But it would mean losing the Boxer, and I’m not sure the Subie fan base would go there.
Would Johnny buy a WRX that was essentially a turbo Matrix?
Dad had a great line, “you can judge the character of a man by how he treats his inferiors.” I think the corporate corollary is “you can judge a company by how it handles its rich times.”
If the DW series teach us anything, it is that things change and you need to keep an eye on your product development and your bottom line. I’m actually impressed that the memo got out. Better to stay sharp and stay focused, rather than sign any proffered labor contract. It’s the only way to ensure that you can keep playing the game.
Autoenthusiast,
Toyota cranked up the cylinder head temperature beginning in 97 (for the then new low emissions rating). That cooked the oil in the cylinder head and made it sludge up.
1984:
Do you have a reference where you got that information?
I’m not calling you on it, just curious to read more about them changing the cylinder head design.
The class action lawsuit is nothing but another frivolous lawsuit that we unfortunately need to contend with in the US. In fact the suit says that there are NO design defects on the engines in question.
That lawsuit was sparked by Toyota’s refusal to fix a Lexus owner’s vehicle under warranty, even after he showed them the reciepts that proved that he had done all of the proper maintenance on his part to avoid sludge, and after a BBB arbitration board ruled that the oil sludged up despite the owner’s careful maintenance.
http://www.nytimes.com/2007/02/04/automobiles/04SLUDGE.html?_r=1&ref=automobiles&oref=slogin
you have to be naive to believe toyota is manufacturing lesss cars than gm. count out from gm all those opels, and derivatives. will you also count saturn astra as an gm product? opel has nothing to do with usa. it is a german company, with german engineering and designing, and quality surveilance. even now, when gm is desperately agonizing , it still wants to buy some other manufacturers, like proton. why? it gives access to mitsubishi platforms, because protons are built on mitsus. so gm once again would be ready even to buy old mitsu platforms, than take off gloves and do soma handjob themselves. sure, you have new caddy cts ( that uses old opel omega platform, that was revamped by aussies holden, and then sucked back into detroit, plus opel engine, plus japanese aisin 6-speed gearbox. pure american,…this is our country…and this is ourr…welll.)
toyota has minor problems, because they spend money wisely- they pour it into r&d. looks like americans are so jealous of toyotas success, that they try to pick any zit they can find. why don`t you instead of arguing what toyota has or not, you go and rename your five hundred into taurus, and start sticking those emblems. when the hell will you realize that you sell cars because they are good , not because they have nice names , but they are good runners themselves. and toyota can name her car even asswalker, people will still buy it. so detroit , instead of sitting on those leather benches and ordering another minoxidil, better go to workshop and start sweating in creating something tangible- and you will kill two rabbits with one shot. Gee, was i rude?
lunatics@inbox.lv
Frank,
I hope this isn’t taken as flaming, but you’re stretching it with your comparison to GM in the 70s. For one thing, GM was already number one and had been for years, it wasn’t still working it’s way up to that.
Second, from 2005 to 2006, Toyota’s recalls dropped significantly in NA.
Third, Toyota’s NA management team recognizes the need to improve the quality of production — having set a warranty reduction target of 50% of what they saw in 2002. Beyond that, talk to the suppliers about the discussions they are having over production process and quality measure improvements.
Fourth, Prius sales are hardly “way down” as you state. They are up in January.
Fifth, and the biggest differentiator from GM of the 70s, 80s or 90s is that Toyota’s management team seems to recognize the issues and is discussing them. It was a silly slip up to have this memo get out there, but at least it exists.
The test now we be whether or not they’re willing to follow their LEAN principles in the board room as well as on the manufacturing floor.
This is not one of your typically well researched pieces. There are a lot of leaps of logic that don’t have facts supporting them. Yet. I’m willing to give you that — yet. Maybe you’ll be right in the long run, but the writing isn’t on the wall as you imply.
I hardly think Mr. Williams’ editorial is suggesting that “the writing’s on the wall” for Toyota. Far from it.
All this editorial does is red flag some of the challenges Toyota faces, and the possibility that Toyota may face some of GM’s previous labor “issues.”
As GMers can tell you, it’s hard being number one.
There is no way to accurately measure this, but it is my impression that the General’s ascendency in the 1930s to 1960s was based on large part by favorable word-of-mouth from the motoring public. But by the 1970s, GM’s “excellence” was a thing of the past. Still, the residual good will from generations of GM drivers lasted well into the 1990s.
Word of mouth has been a huge part of Toyota’s (and to a lesser extent, Honda’s) success in the US. Particularly in the beginning, when their products were dynamically and esthetically challenged (and rust buckets to boot.) But if you kept oil and water in them, they ran forever and over time, the word got out. Once the designs became mainstream, and the rust issue was solved, Toyota’s market share in the US began it’s unstoppable rise.
The danger for them is that if the perceived quality comes to be seen as slipping by the car-owning public, Toyota could follow GM to irrelevancy. And the next market leaders could be from other parts of Asia…
Autoenthusiast,
I’m more or less has been a theory kicked around on the Toyota forums that there is a correlation between the introduction of the lower emissions standard and the sludge. I do not believe the cylinder head design changed, it was probably an adjustment to the fuel mixture to the “lean” side that increased the combustion temperature because the engines are really mechanically the same to older models.
A lot of it very well probably is customer abuse. I can’t imagine all of these people would take the time to lie either:
http://www.consumeraffairs.com/automotive/toyota_engine.html
Your math needs work. A recall of 550,000 Tundras for ball-joint replacement will not cost $600 million. The repair costs a couple hundred bucks at warranty-reimbursement rate, parts costs will be charged at factory (not customer) rate, so another couple hundred bucks. So it’s more like $450 a piece, making it a $250 million price tag. Not chump change, but a lot less than $600 million.
The sludge case, on the flip side, could be a much bigger hit. A vehicle universe of 3 million units, with a 5 percent failure rate, is 150,000 cars. Replacing a sludged engine costs no less than $5000, even at factory costs for parts and labor. That comes to $750 million.
Making money hand over fist.
At the top of the world.
Seemingly unstoppable.
BUT
Faced with increasing numbers of recalls.
Needing to control personnel costs.
The difference is that Toyota can take steps to handle their issues before they become problems. GM didn’t.
Key emphasis is GM’s ignorant attitude of the 70s, which Toyota does not possess right now. GM actually bashed foreign cars in the 70s.
To be fair, Toyota’s recalls are going down. GM a few years ago had a record amount of recalls, and now they are improving. Toyota had an increase in recalls in the past two years, but it already seems to be improving. Yet, many are already assuming Toyota is going downhill.
Everyone will be faced with rising personnel costs in the future. The key will be how they handle it. As of now, Toyota is in a much better position to handle it than any other automaker, especially GM.
1984,
The only way to increase engine temperatures is to put a higher temperature thermostat on the car. Toyota didn’t do that.
Not sure where you got your information but it is incorrect.
Since we’re bringing up labor and profit troubles…
There seems to be a hidden assumption here (and in much of the American collective psyche) that if costs are up or profits are down, it’s always Labor that is A) responsible and/or B) are the ones who have to take it in the neck.
Rarely is it Management that takes a pay cut or Capital taking a lower rate of return.
It’s especially troubling in this Toyota case. When Ford loses $12 billion, pain is inevitable.
But Toyota isn’t concerned about being unprofitable, they’re expressing concern that PROFITS are not GROWING fast enough.
If you owned a stock that grew 10% one year, then 11% the next, then 12%, then 12.5%, would you be bellyaching or would you be thrilled that its rate of return grew for 4 straight years?
Is there an economic principle I’m missing here or is this another symptom of the Investor class deciding that the concept of “risk” no longer applies to them?
bborrman, you are VERY well informed. Kudos!
Your math needs work. A recall of 550,000 Tundras for ball-joint replacement will not cost $600 million. The repair costs a couple hundred bucks at warranty-reimbursement rate, parts costs will be charged at factory (not customer) rate, so another couple hundred bucks. So it’s more like $450 a piece, making it a $250 million price tag. Not chump change, but a lot less than $600 million.
Several sources I checked estimated the total cost to Toyota at around $1200 for the replacement. When computing the total cost, you can’t just use the cost of parts or look at the factory warranty reimbursement rate.
There are “unseen” costs to account for. While they may not pay the hourly rate for the work like a customer will, the lost productivity (pulling mechanics away from “paying” jobs where they are charging that hourly rate), transportation (shipping those extra parts will cost someone something), storage, administrative costs, etc. will add up in a hurry.
Frank Williams,
The cost of pulling a mechanic from a paying job is carried by the dealer, not Toyota. Transporting parts costs very little.
Can you please quote your sources for this $1200 figure? It sounds extremely high (factor of 3 to 5)
Thanks.
but it is my impression that the General’s ascendency in the 1930s to 1960s was based on large part by favorable word-of-mouth from the motoring public. But by the 1970s, GM’s “excellence” was a thing of the past.
I think GM’s ascendancy was more related to the fact that they didn’t have much competition, quality-wise. Their only real competition in the US marketplace was other US manufacturers, Ford, Chrysler, AMC, Studebaker, and a few others, and GM was on-par with them (or superior) quality-wise.
IMO one of the most pernicious myths in the US car industry was that cars of the 50’s or 60’s were qualitatively superior to today’s cars, and to the imported cars of their day. This line of thinking seems to have been completely absorbed by the US manufacturer decision makers to the point where for many years now they have tried to re-create the old designs (Mustang, Thunderbird, SSR, HHR, etc), thinking that it will somehow bring back that “magic” era when the US automakers stood on top of the world. Ain’t gonna happen.
The reality is that all cars – US and imported – were of much poorer quality in the 50’s and 60’s than they are today. Just look at things like maintenance intervals or major engine work. There’s a reason why cars used to only have 5-digit odometers, because a car with over 100k usually needed major work.
The reason US automakers were #1 in the 50’s and 60’s wasn’t because their products were better, it was because there was non viable competition. Niche market vehicles like VWs, Land Rovers and the nascent Toyotas were not major players in the car market back then, so the US companies had it all to themselves.
While it’s true that the US makers had QC problems in the early 70’s, the real reason that their reputations tanked wasn’t because quality diminished – it’s because their quality stayed the same, while the quality of their imported competitors steadily and significantly increased.
The big 2.5 are not going to win back their lost market share from the likes of Toyota by building nostalgia machines in the vain hope that these will take them back to the glory days of the past. And Toyota is smart enough to know that constant improvement, even if incremental, is the key to staying #1. If they ever forget that, they’ll find themselves in the same kind of financial hot water that GM and Ford are in, but I doubt it. That kind of deliberate self-delusion seems to be a uniquely American trait.
Eric_Stepans: Auto manufacturers, like other major businesses, are not profitable this year because of decisions executives made this year. These issues that Toyota is wrestling with this year will impact their bottom line in years and decades to come. Ford lost $12+ billion last year because of decisions and trends that began years ago while the company was making record profits from SUV & pickup truck sales.
Labor often takes the blame because it is usually the largest single expense. Management frequently takes pay cuts (usually in the form of lower performance bonuses, which are often the largest component of their compensation packages) and Capital rates of return are continually in flux.
Autoenthusiast:
The only way to increase engine temperatures is to put a higher temperature thermostat on the car. Toyota didn’t do that.
combustion temp != engine temp.
z31,
Not sure what “!=” means but the temperature of an engine is controlled by the cooling system.
Martin Albright and William C Montgomery,
VERY good posts, you two are very well informed. Kudos!
AE:
First, I also say you can’t just count Mechanic hours and part costs to come up with how much a recall costs Toyota. The $1200 figure is not be a literal check that Toyota writes for every car that gets recalled, it is just an estimate of the total imaginary value the corporation loses due to the overall recall, divided by the maximum number of affected vehicles.
!= means “not equal”, I think you would define the terms like so:
the combustion temp is the instantaneous temperature of the burning gases in the cylinder
engine temp is the average temp of the main engine block over time, this temp can be controlled by the cooling system – but extra coolant can not cool down the temp of the burning occurring at the combustion point. I can’t say if either temp has anything to do with sludge buildup though.
Martin: There is no way that the new trend of retro cars is trying to recapture the “quality” of old cars. The retro thing is an attempt to make consumers feel good, just like how they feel about how they used to feel about their cars in the 50s – 60s. That is just 2 layers of “feeling” and has little to do with the good or bad quality of the cars.
The only way to increase engine temperatures is to put a higher temperature thermostat on the car. Toyota didn’t do that.
Toyota didn’t need to. The thermostat does not regulate engine temperature. It only blocks flow to the radiator to help decrease warmup time on a cold engine. If you want to make an engine run hotter, you either use a smaller radiator, or increase combustion temperatures by retarding the ignition timing or running a leaner air/fuel mixture.
Maxo,
Thanks for the “!=” explanation.
The temperature of the block, and especially the head (since combustion happens in the block) is controlled entirely by the cooling system. The head temperature cannot go up unless a higher temperature thermostat is used.
As far as the recall costs, I have worked in the industry for years. $1200 is 3 to 5 fold the true cost of repairs for these types of components.
Quasimodo,
That is impossible to do, a smaller radiator would only cause a runaway condition if it couldn’t keep the engine temperature at or near the thermostat “setting”. This is because the water/coolant mix would not have enough time to stay in the radiator if the thermostat is open all the time due to the decreased capacity of the radiator.
Jeez….I read some of the posts at the site below, that has to be pretty bad for publicity. That many people getting screwed over by Toyota.
On a side note, one guy on that site claims Toyota limited water flow to the heads on some of their engines to improve emissions and fuel mileage. The higher heat caused the oil to thicken and get caught on the screen on the oils return to the oil pump.
Link
Autoenthusiast:
“The temperature of the block, and especially the head (since combustion happens in the block) is controlled entirely by the cooling system.”
It’s not controlled entirely by the cooling system, just mostly :)
Having nothing to add to the radiator discussion, I’ll comment on the editorial.
From the way I read this piece, Frank is very cleverly connecting the current issues and direction of Toyota with one of the themes constantly brought up on this site; the identity and focus of an auto maker.
I think most people would agree that the focus and identity of Toyota as always been reliability, quality, and reliability; in that order :). And they’ve done marvelously focusing on that.
What this editorial brought to my attention was not that Toyota is crumbling (i.e. needs a death watch), but rather that Toyota is, and has been, altering it’s identity. It seems Toyota is now focusing on growth, reliability, and quality (in that order.) Thus the question is raised, will ( and has) this change in focus affect Toyota’s products?
Toyota’s leaked memo made my spine shiver.
About ten years ago, working in a non-automotive industry (which I’ve since left), the office I managed of a national company was the first of the company’s 70+ offices which stated its intention to petition the NLRB to use union representation to negotiate labor agreements with management.
Soon thereafter, the company CEO (who’d never visited us before out on the Left Coast) was rushed onto a flight from New York to deliver a “rally the troops” speech. Over a group lunch, with my entire staff assembled, he delivered a rosy “state of the company” address, complete with *specific* record profit numbers (and it was a large number). To everyone’s surprise (mostly mine), he then proceeded to apologize for the 2% wage increase limit the company was imposing for the forthcoming fiscal year.
As you might expect, this greased the rails for an overwhelmingly positive union vote. At least ten other regional offices followed.
With an announcement of $13B in record profits on the way, Seiichi Sudo’s gaffe is sounding waaaaay too familiar.
Martin Albright: IMO one of the most pernicious myths in the US car industry was that cars of the 50’s or 60’s were qualitatively superior to today’s cars, and to the imported cars of their day.
Point taken when comparing today’s domestic cars to the cars of the 1950s and 1960s. There is no contest.
I have to disagree, however, with the part regarding imported cars of the past – in regards to durability, the American cars of that time were ahead of virtually all of the imports.
The Americans did lag behind the Germans and Swedes in build quality, which is not the same thing as reliability.
When it comes to reliability, however, the American vehicles were superior, especially in the areas of automatic transmissions and air conditioning. VWs, for example, usually needed an engine rebuild by 60,000 miles, while Mercedes were notorious for blowing head gaskets. Japanese cars were rust buckets and virtually impossible to start in freezing weather. Let’s not even get into English, French and Italian cars…
GM cars were quite reliable for their day (especially the big cars).
Martin Albright: The reason US automakers were #1 in the 50’s and 60’s wasn’t because their products were better, it was because there was non viable competition. Niche market vehicles like VWs, Land Rovers and the nascent Toyotas were not major players in the car market back then, so the US companies had it all to themselves.
The reason they were niche players was because their products were inferior for American driving conditions when compared to domestic offerings. Throughout the early 1970s, the Japanese and the high-end German marques addressed these deficiencies, and prospered.
VW stumbled badly when the Beetle disappeared, while the mass-market French, Italian and British cars never did adapt, and subsequently disappeared with a whimper.
Martin Albright: While it’s true that the US makers had QC problems in the early 70’s, the real reason that their reputations tanked wasn’t because quality diminished – it’s because their quality stayed the same, while the quality of their imported competitors steadily and significantly increased.
Again, have to disagree.
Compare a 1973 GM car to a 1968 GM car. The decline in build quality is readily apparent just on the OUTSIDE of the car. Trust me, I’ve examined original, clean examples of many domestic cars from the 1950s, 1960s and 1970s at the Carlisle shows and Antique Automobile Club of America (AACA) events. Panel fit, paint jobs and trim fits declined noticeably in the 1970s on GM cars, compared to their 1960s counterparts. With each body change (1971 for GM’s full-size and big personal-luxury cars; 1973 for the intermediates; 1975 for the compacts), build quality declined compared to the previous generation.
Fords, ironically enough, were actually pretty good during the 1970s (in build quality, NOT necessarily reliability). Mopars were bad in the 1960s, and continued to be bad in the 1970s. And AMCs? After 1964, forget it…
Reliability tanked for three reasons.
One was the requirements of the Clean Air Act, which resulted in the adoption of half-baked band-aid technology that initially made engines run worse.
The second was the CAFE requirements. Detroit responded with engines rushed into production, along with downsized bodies and chassis, that were not adequately tested prior to introduction.
The third was a decline in discipline in the plants. The UAW members were bored and disillusioned with their jobs. Management thought that offering higher wages would solve the problem, instead of really involving the workers in the process, and tapping their expertise (as Toyota did, and still does).
Geeber, most of your points are well taken, but CAFE wasn’t enacted by Congress until 1975, well after the decline in quality you claim.
Measured temp vs. CHT vs. EGT — Temp of water around the head, (metal) Cylinder head temp and Exhaust gas temp. EGT is not considered a critical temperature in normal operations and so is not measured. If running a turbo or excessively lean mixture, it is critical and it is possible to score or slag your plugs, valves, rods, etc without ever overheating (the coolant), and detonation isn’t always needed. Ever run an engine with a manual wastegate on a hot day? EGT’s of 1000+f degrees if you’re not paying attention, and any oil in the viscinity is flash-fried.
SherbornSean, the decline in quality he claimed was in the 70’s in response to Martin Albright’s claim that quality was the same in the 70’s as in the 60’s.
Besides, congress started discussing alternatives after the 1973 oil embargo so the big auto makers probably had some notice of CAFE before it’s enactment in 1975.
I think Toyota is also positioning by expanding capacity maybe too much right now in North America.. because if one of the big 3 implodes it will be a race to see who can fill the gap of however much that companies production falls.
I must say their talk of wage cuts in the US is a dumb idea. Thats the western corporate thinking of the last couple decades is always to reduce wages.
If Toyota cut wages while making more money under pressure from the share holders, they will gradually see a disillusioned workforce, and skilled workers leaving. Meanwhile a rival like Honda which profit shares could see itself having a better workforce.
As good as Toyota is as the spotlight of number one starts moving towards it.. we are seeing some cracks in its armour, many of them newly formed from the pressure of its newfound position.
The third was a decline in discipline in the plants. The UAW members were bored and disillusioned with their jobs. Management thought that offering higher wages would solve the problem, instead of really involving the workers in the process, and tapping their expertise (as Toyota did, and still does).
G.M. has in place a similar approach & contrary to many on this board it’s beginining to work.Team concept @ G.M. is gaining steam—I wish i had stats,not just typed words because I’ll agree,they are hollow, but I see it daily.I’m no doubt an insider,but the quality parameters are drastically different from even 5 years ago that refelecting on this paticular change is a giant leap forward
Great article Frank.Many points well made.
Can Toyota recover?absoulety.Can G.M. gain momentum from Toyotas stumble in regards to their re-call increase?Yes.
Its a long way to the top if you wanna rock-&-roll.
Autoenthusiast,
For background purposes I have a degree in automotive science so I’m far from unqualified to speculate. The thermostat is not a factor in the sludge issue, if the thermostat opens at all before 180 degrees F (like they all do) everything should be cool. I suspect Toyota attempted to run the vehicle fuel ratio leaner to meet ULEV. I know it sounds backwards, but I assure you it’s not. Lean fuel ratios increase combustion temperatures and inherently the engine cylinder head temperatures.
I’m not saying for one second that the “engine sludge” excuse did not increase unjust warranty claims. However, multiple customers with the proper maintenance documentation have experienced engine failure attributed to cooked oil.
This is SO true. Bad news travels so much faster and further than good news it seems. If people are disastified with their vehicle they are probably going to tell the world and that news will be repeated (in my experience) more than another good word about their Honda. I drive a VW Cabrio and my wife drives a CR-V. We have had good service from both cars but both cars have recieved better than average upkeep courtesy of me. Now I have people around me buying Hondas and VWs. None maintain their cars very well and all rely on mechanics and all seem tolerate unknown noises for several weeks befoe they’ll investigate said noises…
I’m hoping for the best service for them from their cars but then again, some people could break an anvil (and how many of those people drive domestics? Maybe THAT’s the problem with GM and Ford – their non-car savvy customers breaking their cars and blaming it on Ford and GM).
Anyhow, I don’t think many of the people I know have spent much time following the advertisements for the cars they have bought. It has been the experience of their friends and family that built their impression of one brand or another.
It’s been entertaining watch part of this group chase each other from brand to brand. Once upon a time they all drove Saturns. Then at one point it was all GMs. Now it is about half Ford and half Kia with a Jetta in the mix. In every case their cars are well used up when they trade them in around 115K miles.
We just keep on going with the same 10 yr old cars. Money in the bank…
Chris
Hmmm, if I were a corporate problem solved sent in to fix problems I would much rather be fixing Toyota’s problems than those the 2.5 face.
Ooooh, an internal memo in which Toyota says they have to reduce labor costs in the US in order to be able to compete with the Koreans and Chinese! How shocking!
The author says: “Ironically enough, Toyota is in the roughly the same position (re: its labor relations) as GM during the ‘70’s. ”
Wishful thinking Mr. Williams. I remember when GM was shutdown by the UAW in 1970. There is zero chance of a unionized Toyota USA happening. Toyota would simply close factories which were near to unionizing and move the work elsewhere. Most of Toyota’s US factories are in the south, where the independent minded local culture rarely mixes with unionized groupthink.
Toyota today also faces much more stringent competition, at least in the US market, than the “big 3” on the 1970s ever dreamed of in their worst nightmare. Talented competition serves to keep a company on it’s toes in a way which never happens when one company has over 45% market share as GM once did. Toyota is on it’s way to being the world’s largest automaker, but it is highly doubtful they will ever exceed 30% global share. Even in it’s home turf of Japan Toyota is only around 35-40% market share, well below GM’s 1950s peak of nearly 50%.
Which company would you rather be a worker or manager in here in 2007?
Purchasers in the 60s, 70s, and 80s accepted the domestic automakers’ poor quality wares and abominable customer care because there was little practical recourse. Japanese automakers provided a viable alternative, and consumers flocked to them.
Pride comes before the fall. There is worrisome evidence the leading Japanese automakers are developing the same smug attitudes that struck down the domestics. Horror stories of Toyota and Honda mistreating customers are becoming common.
Consumers will not pay Japanese automakers premium dollars only to be dumped on when they have a problem. Any GM, Ford or Chrysler dealer will do it for much less money, and the Chinese are coming.
What this editorial brought to my attention was not that Toyota is crumbling (i.e. needs a death watch), but rather that Toyota is, and has been, altering it’s identity. It seems Toyota is now focusing on growth, reliability, and quality (in that order.) Thus the question is raised, will ( and has) this change in focus affect Toyota’s products?
I must disagree with this. Toyota has altered it’s identity to growth, reliability, and quality in that order? That may have been correct for the past few years, but recently Toyota changed that priority.
In light of recalls and growing quality problems due to engineering resources being stretched very thin, Toyota has now put quality as the #1 priority. This has been publicly mentioned several times by Toyota. In fact, they are slowing down their growth to increase quality and reliability. They have delayed several future models (including the new USDM Corolla) in order to double and triple check quality at every step, from concept and design all the way to production and assembly. They have also dramatically increased the amount of new engineers they are hiring.
Horror stories of Toyota and Honda mistreating customers are becoming common.
Not entirely. Maybe you’re referring to Toyota and Honda dealers. Dealers do as they please, and Toyota and Honda do not have total control over them. To be fair, Toyota and Honda do have better relationships and organization with their dealers than any of the American Big 3.
For Toyota and Honda themselves to be treating customers horribly is certainly not a common occurence. Some dealers of course are taking advantage of the success of Toyota and Honda and providing horrible service because of that. Toyota and Honda are both trying to improve their dealers. Toyota also has strict standards on who can or cannot be a Lexus dealer.
jazbo123:
February 8th, 2007 at 11:14 am
Toyota is where GM was in the early 70s. Their inevitable fall will be an enjoyable spectacle.
Peep the date on this message.
Sound familiar?
I suspect Toyota attempted to run the vehicle fuel ratio leaner to meet ULEV. I know it sounds backwards, but I assure you it’s not. Lean fuel ratios increase combustion temperatures and inherently the engine cylinder head temperatures.
If that’s the case (and I’m not saying that it isn’t), wouldn’t a change in the type of oil take care of the problem? If Toyota would’ve specified a synthetic oil, would that have cured the sludge problem?
I’m not saying for one second that the “engine sludge” excuse did not increase unjust warranty claims. However, multiple customers with the proper maintenance documentation have experienced engine failure attributed to cooked oil.
I’ve already told the story of my cousin and her Camry, new engine, no fuss, no drama. However, I do understand Toyota questioning some of those claims. I read the consumer affairs link and when you see people trying to make claims on 1994 cars and say they bought a “brand new car with 40,000 miles on it”, well….I would question them too.
As a company, Toyota isn’t above being arrogant SOBs. Toyota has been caught cheating in the World Rally Championship and was banned for a year, they stretched the rules of international GT racing at LeMans and when warned, they went off in a huff. Recently, they sacked almost all the Europeans from their Formula 1 team and replaced them all with Japanese personel in effect, blaming the Europeans for their lack of race wins. I can’t say that I’m surprised by their attitude in regards to the sludge issue.
But what makes Toyota different than the domestics for the most part, is that Toyota will do the right thing.
Toyota has a fierce pride in their products. They won’t tolerate a bad situation for too long. Are they taking advantage of the present situation? No doubt, but only for the short term.
In my opinion, if the Big 2.5 are really serious about regaining customer confidence and good will, they should exploit this situation by offering 10 year 100,000 mile bumper-to-bumper warantees and force the dealers to BACK THEM UP. With Toyota taking a bit of a quality hit here, they should counterpunch.
How can anyone compare Toyota to GM of the 70’s ?
Show me one current Toyota product that even comes close to the legendary quality of the Vega or the Citation.
Why not make it 20 yr/ 1,000,000,000 miles?
Why not indeed.
But by your sarcasm I’m assuming that you feel a 10 year waranty is unreasonable.
In my opinion, the domestic automakers need to do something, to prove that they are serious about competing with the likes of Honda and Toyota. They can’t be as good, they need to be better. I feel that an unprecedented waranty would go a long way to making customers take notice. With Toyota taking a quality hit at this time, the timing couldn’t be better.
Show me one current Toyota product that even comes close to the legendary quality of the Vega or the Citation.
I know you won’t believe this, but the Chevy Vega was the best GM product based on quality at the time. While it had some problems, GM eventually got it so good to the point that the Vega was the first to offer a 6 year/100,000 mile rust through waranty and a 5 year/60,000 mile powertrain warranty.
I don’t understand why Toyota builds cars in the 48 states. Why don’t they only build them in Mexico? They can hire/transfer anyone they want to work there. Would anyone living in Japan like to transfer to Mexico to work at the plant there? What if said plant was just ~50 feet south of the US border?
Or find the state with the lowest minimum wage and only pay that? Doing one thing all day everyday is not a $20/hr job.
At that OKC GM plant that is “closed*” right now, the cleaning crew got $20/hr! You want one person cleaning for $20, or three people cleaning at $7/hr? A design engineer there got like $120,000/yr or $150,000/yr. That’s insane money around here. The average wage in this state is $8/hr!
*So they say that plant is “closed”.. I drive by there everyday and there is always a good sized amount of cars in the parking lot. Why? They have to show up to “work” in order to get paid. Last I heard, they sit in the cafeteria for 8/hr a day. That is just nuts to have to show up and sit like that in order to get paid. What a waste of resources. They could be building camaros in there instead!
At that OKC GM plant that is “closed*” right now, the cleaning crew got $20/hr! You want one person cleaning for $20, or three people cleaning at $7/hr? A design engineer there got like $120,000/yr or $150,000/yr. That’s insane money around here. The average wage in this state is $8/hr!
*So they say that plant is “closed”.. I drive by there everyday and there is always a good sized amount of cars in the parking lot. Why? They have to show up to “work” in order to get paid. Last I heard, they sit in the cafeteria for 8/hr a day. That is just nuts to have to show up and sit like that in order to get paid. What a waste of resources. They could be building camaros in there instead!
But if you’re only making $8 an hour, who would be buying all those Camaros?
Realistically, what might you guess the cost to guarantee a car bumper to bumper for 10 years! Let’s get real here.
Is it more than the $12.7 billion dollars lost by Ford or the $10.6 billion dollars lost by GM last year?
Whatever the cost may be, I feel that this is an area that the domestics should look into.
If the costs are too high for 10/100,000, then maybe they could go 6/72,000 bumper-to-bumper. I’ve seen these extended warrantees sold by the manufactures themselves for around $1,000.
Vega was around 1970.
1971 to 1977. Vega sold in 1978 as a Monza “S”.
“I know you won’t believe this, but the Chevy Vega was the best GM product based on quality at the time.”
You have got to be kidding. The Vega engine was an oil burner at shocking low mileages. GM finally extended the engine warranty to 50k miles and installed iron sleeves in the cylinders as a retrofit to try and clean up the mess. I recall it well as my mom got one of the free engine sleeve jobs. GM tried to build an aluminum block without iron sleeves, instead counting on a special plating on the pistons and a high silicon alloy bore. It was a horrid failure. I suppose that if you define quality by the ridiculous JD Powers standard of counting the number of problems in the first weeks of ownership it is possible that the Vega might have scored well, but if you count quality as including the reliability of the product over the normal expected lifetime then the Vega failed horribly. Of course this was in the same era as the Cadillac V4-6-8 disaster and the wretched Oldsmobile Diesel. Dark days indeed, and the start of many people joining the Never Again Club.
IF the Vega was the best quality GM product of its day then no wonder GM has fallen to such lows.
However I think the problem is that quality is not just fit and finish issues but to most people quality also relates to the design and durability of the product. The Vega with its fragile aluminum engine was horrible.
# SherbornSean:
“It would be interesting if Subaru decided to abandon the Boxer and become essentially an in-house tuner of Toyota. So the Legacy would be an AWD station wagon with unique Subaru styling and traits, but built off the Camry. And the Impreza/WRX similarly built off the Toyota Corolla platform.”
That’s the most horrible thought i’ve endured all day. The best thing about Subaru is the Boxer and 50/50 torque split with a manual tranny. The second best thing is the lack of badge engineering. They do a good job of platform engineering–few would suspect the Forester shares anything with the Impreza. Also, make one 2.5L boxer and put it in *every* car. Turbocharge the same 2.5L and make it the optional engine. Cover your butt with a dumb 3.0 “H6” for those who judge all engines by cylinder count. All I hope Toyota brings to the table is invisible cost savings like using the same horn on all cars or having nearly identical firewall stampings for all platforms. The only things missing from Subaru in present state is styling and to a lesser extent interior niceness (and doors with window frames). The ’09 Legacy GT looks to be a hottie, though. I fear that Toyota will “improve” the styling and interior quality of Subaru like they did with their other cars. I dread the day that Toyota realizes that AWD makes Subaru the ultimate transportation appliance.
And I don’t know how JL would feel about a tarted up Matrix as WRX, but I would go buy an Impala just to spite Toyota if that came to pass.
I want Toyota to restyle the WRX like a 66 Cobra and for them to build a real Camino. The Baja’s bed was just too short. Two buckets up front, six feet in the back.
rtz:
“I don’t understand why Toyota builds cars in the 48 states. Why don’t they only build them in Mexico?”
Maybe you don’t live in a redneck state, rtz. Around here, if it’s not built in the USA, you don’t buy it. Once I spread the word at work that Fusions are Mexican and Camries and Accords are built in the US, it became OK to drive a Toyota. Personally, I’ll buy the best product for the best price. I see no reason to fund jobs banks.
Maybe being built in the US has more marketing value than we realize. I dunno.
Who knows what Toyota’s future holds, but not the least of their achievements is a willingess to blend standard family sedan fare with taking some design risks and offering some fun vehicles. Take look at the 2008 xB and xD.
1) Recall is not the same as low-quality. CR is still the most trusted source on quality study (you may not like it, but there is not other source that is as widely accepted) and CR is still giving Toyota top scores every year. In fact, their lead is ever increasing now.
2) Even considering recalls, Toyota is still substantially better than competition. Look at the below link. Given that Toyota sells as many as Ford in the US, its recall per car is about half of Ford.
http://www.detnews.com/apps/pbcs.dll/article?AID=/20070106/AUTO01/701060374/1148/rss25
3) A person can choose not to like Toyota. But it’s not so convincing to use some junk data and imply something from your heart instead of your brain.
Another insightful piece from Mr. Williams.
A bit of banter emerged about what Toyota should do with Subaru. While some see it becoming Toyota’s tuner division, a lot of people buy Subes because they’re practical and safe. I’d hate to see them become platform-engineered Toyotas, but what should happen is a greater synergy between Scion and Subaru. Both brands a quirky enough that they can retain their unique characteristics even if they come from the same parts bin. Subarus would be bit more upscale, Scion’s for a younger budget-minded buyer. In the meantime, staus quo for Lexus and Toyota, keeping an eye on those pesky recalls and labour costs.
As a company, Toyota isn’t above being arrogant SOBs. Toyota has been caught cheating in the World Rally Championship and was banned for a year, they stretched the rules of international GT racing at LeMans and when warned, they went off in a huff. Recently, they sacked almost all the Europeans from their Formula 1 team and replaced them all with Japanese personel in effect, blaming the Europeans for their lack of race wins. I can’t say that I’m surprised by their attitude in regards to the sludge issue.
Some interesting points you bring up. A fine line exists between breaking rules/cheating and stretching the rules. Many championship-winning teams often stretch and push the rules in order to win.
I don’t see much arrogance in Toyota extending out the warranty up to 8 years on sludge-related issues.
Toyota didn’t get along with Mike Gascoyne mainly, so he left Toyota. Similarly, a few years back Renault had problems with Mike Gascoyne.
Truth be told, two senior technical directors (for engine and chassis) for Toyota’s F1 team are both European and remain at the team.
SherbornSean: Geeber, most of your points are well taken, but CAFE wasn’t enacted by Congress until 1975, well after the decline in quality you claim.
Each of the factors that I mentioned occurred at different times, and had a different effect.
Quality was declining before 1975 because of the Clean Air Act regulations and Detroit’s botched attempts to meet them, along with increasing blue-collar alienation in the plants.
CAFE just made things worse.
Geeber,
I didn’t mean to pick nits, and I reiterate that most of your points are well taken. I am no position to opine on whether the quality of domestic autos declined from the 60’s to the 70’s.
But I would say that tighter emissions or fuel economy requirements should not decrease quality of body panels, chassis, interiors or other non-drivetrain components. That can only come from taking your eye off the ball.
At the end of the day, blaming the government, OPEC, the unions, Yen/dollar valuations, health care regimes or anyone else won’t help GM. Quality, however defined, has been insufficient at the 2.5, and the source is — to misquote Michael Jackson — the man in the mirror.
I’m sorry, but a lot of what’s been posted is beyond being off the market.
First off, GM’s domination of the market during the 1970’s had to do with the fact that they made a lot of great cars vis-a-vis their competition. The buicks, cadillacs, and oldsmobiles of that time were by and large (very large) the leaders in their class. The Chevy Impala was as popular then as the Camry AND the Accord are today, and the Corvette was a true sports car in spite of the emission issues at that time. Heck, 70’s GM Convertibles, Trans-Am’s, corvettes, and 500 cu in. Cadillacs are more popular now than anything Japan made during that time with the sole option of the 240Z/280Z/280ZX.
The biggest issue for GM during the 1980’s was not quality… it was blandness. The badge engineering that turned Chevy Cavaliers into Cadillac Cimarrons is what pushed GM towards the road to lower market share. As for Toyota, if I recall correctly (which I always do), they had a lot of issues that stunted their growth in the market. Just a few biggies…
1) Selling subcompacts
The tercel went from being mildly competitive during the mid 1980’s to a downright joke for the next decade and a half. Anyone here remember Toyota trying to sell Tercels through infomercials? I do. Anyone here know the sales numbers for the Toyota Echo? Take the annual sales of the Cavalier alone and deduct 90% of that total. That equaled Toyota.
2) Lousy dealer and distribution networks
One force that’s really saved Toyota during the last several years has been the massive consolidation of new car dealers throughout the country. Before that Toyota dealers were renowned for being as practicable as Barney Fife on a power trip. Toyota consistently ranked near the bottom in dealer customer satisfaction throughout the 1990’s accroding to J.D. Power and it wasn’t just a few small issues that put them there.
If you wanted to buy a Camry LE with ABS in the Southeast during the mid-1990’s, well, you couldn’t get them there because the distributor and dealers refused to order em’. However, you could partake in a nice $600+ scotchguard package and a heaping load of bogus fees that effectively priced the Camry out of much of the midsized market.
Service issues for a lot of folks were a complete nightmare as well. This wasn’t just anecdotal evidence. It was more or less spelled out in the J.D. Power ratings. Even today much of the BS tactics remain an integral part of the Toyota buying experience.
3) Reliability / Durability / Cost of Repair
There was a time where Toyota was truly a world class standard in the first two measures. The 1992 – 1996 Camry was a defining moment for the company. Although it was expensive vis-a-vis it’s competitors, it also had virtually no substantial defect issues other than a propensity to build up carbon in the four cylinder models. In fact, although the 1997 – 2001 Camry eventually became the sales champion in the U.S. car market (due in great part to decontenting and increased price competitiveness), it was the overall performance of the prior generation that made it possible.
Everything about that vehicle, quality wise, was two clicks ahead of the competition. The ease of assembly, the quality of the powertrain components (virtually nothing was flimsy or trouble prone), and the overall quality control of the TPS were well ahead of the competition. Everything from the manufacturing tolernaces for parts, to the use of fewer parts in critical areas, to the overall quality and durability of the parts used (and their use in other models) helped Toyota become the ‘premium’ mid-sized car at that point. To the point where C&D remarked, “With a car like this, who needs a Jaguar?”
Unfortunately Honda, Hyundai, Nissan, Kia, Ford and Saturn can all make a good point about their offerings vis-a-vis the Toyota Camry except for one big disadvantage. None of them can effectively market hybrid technology. Even with the unimpressive quality and competitiveness of the current Camry, the hyrbid technology effectively makes it the market leader. When a customer buys a 2007 Camry today, they’re effectively buying into the perception of a company that can offer the ‘most PC’ technology (thanks to the success of the Prius and, paradoxically, the failure of the Insight), the oppportunity to get high MPG with the room of a Cadillac, and the ability of Toyota to still make the Camry the equivalent of a cheap luxury car (Impala = cheap luxury in the 70’s for the most part which is why it flourished). All of this makes Toyota the current North American standard when it comes to the mainstream market.
However there is one poison that all companies share… they all fail miserably at some point. If they don’t fade away, they at least have to deal with a monumental number of troubles. Out of all the variables that have been put out there… one has remained largely undiscussed.
The hate factor.
Stay tuned…
You have got to be kidding. The Vega engine was an oil burner at shocking low mileages. GM finally extended the engine warranty to 50k miles and installed iron sleeves in the cylinders as a retrofit to try and clean up the mess. I recall it well as my mom got one of the free engine sleeve jobs. GM tried to build an aluminum block without iron sleeves, instead counting on a special plating on the pistons and a high silicon alloy bore. It was a horrid failure. I suppose that
However I think the problem is that quality is not just fit and finish issues but to most people quality also relates to the design and durability of the product. The Vega with its fragile aluminum engine was horrible.
LOL!
I don’t want to turn this into a Vega thread, but the GM/Reynolds A-390 alloy aluminum engine block for the Vega wasn’t fragile, nor the source of the engine’s problems. The oil leaks that were wrongly attributed to the engine block, were actually the result of the pushrod seals that were extremely brittle and failed on a regular basis. The problem with warping engine blocks had more to do with GM using a cast iron head and locating the temperature sensor there. By the time you knew the temperature was up, it was too late for the block.
The Vega engine block was used in midget racing up until 1988 and was very competitive. Vega engine blocks have been built with up to 400HP without a block failure, which is pretty impressive for 1970’s tech. Porsche, BMW, and Mercedes have all used the Reynolds A-390 alloy in their engines under license. Every aluminum engine in existence today owes a debt of gratitude to GM/Reynolds and their pioneering work on the Vega.
Maybe I should submit a “In Defense of the Vega” article.
Some interesting points you bring up. A fine line exists between breaking rules/cheating and stretching the rules. Many championship-winning teams often stretch and push the rules in order to win.
I don’t see much arrogance in Toyota extending out the warranty up to 8 years on sludge-related issues.
Toyota didn’t get along with Mike Gascoyne mainly, so he left Toyota. Similarly, a few years back Renault had problems with Mike Gascoyne.
Truth be told, two senior technical directors (for engine and chassis) for Toyota’s F1 team are both European and remain at the team.
My point was to illustrate that Toyota is a company that is used to getting its own way and will do whatever to get it. This was more to explain why Toyota was questioning many of the sludge claims.
While you still have Pascal Vasselon and Luca Marmorini there, all of your top officials of the motorsport division are Japanese.
BTW, the hiring of Marmorini was under a cloud as Toyota was accused of illegally going after him. Ferrari even considered bringing Toyota up on charges in the Italian courts and accusing them of industrial espionage with regards to Marmorini bringing Ferrari engine secrets over to Toyota. So they aren’t this innocent little company full of shiny, happy people.
Some of you dont get my point. A comparison was made between Toyota of NOW and the GM of the 70’s. Regardless of the technical discussion concerning Aluminum engines and reasons for oil consumption, the Vega was poorly designed and horrible to own. Yes, Toyota made rustbuckets in the 70’s, but they sure as hell make a better product now.
Regardless of the US vs Japan debate, most people want a machine that won’t cost boatloads of money to maintain after the warranty expires.
Now it’s someone elses turn to re-post my post in italics and respond with “But Uncle Joe had a Buick that ran 200,000 miles….”
While you still have Pascal Vasselon and Luca Marmorini there, all of your top officials of the motorsport division are Japanese.
BTW, the hiring of Marmorini was under a cloud as Toyota was accused of illegally going after him. Ferrari even considered bringing Toyota up on charges in the Italian courts and accusing them of industrial espionage with regards to Marmorini bringing Ferrari engine secrets over to Toyota. So they aren’t this innocent little company full of shiny, happy people.
Well those Europeans were former WRC team members, and also part of TTE (Team Toyota Europe). These same people led Toyota to almost winning LeMans. The problem is they haven’t achieved a win after several years, and Toyota got fed up, and replaced many of them. Sounds like something any other sensible company would do in this situation.
NO company out there is “innocent, and full of shiny happy people”. I wonder, what possibly gave you that idea about Toyota? Is is the media? The anti-Toyota bandwagon? Don’t be so naive. I have never even heard anyone related to Toyota mention they were an “innocent” company. If you got this idea from some of Toyota’s marketing, then the Toyota marketing people have done their job.
But getting back on topic, let’s be real here:
A BIG reason why GM was dominant in the 70s was because of lack of competition. The competitition overall in the industry was a lot less in the 70s than it is now. Lack of competition existed before the 70s even more so. The problem also stems from GM getting arrogant and complacent as soon as they got into a dominating marketing position, and since no other company provided any serious competition, it further led to complacency, turning into a viscious cycle.
Good article.
With 105 comments already, there’s not much more that I can add. And after reading them all, I don’t have the energy left, anyhow!
Now it’s someone elses turn to re-post my post in italics and respond with “But Uncle Joe had a Buick that ran 200,000 miles….”
But uncle Joe had a Buick that ran 200,000 miles!
LOL!
NO company out there is “innocent, and full of shiny happy people”. I wonder, what possibly gave you that idea about Toyota? Is is the media? The anti-Toyota bandwagon? Don’t be so naive. I have never even heard anyone related to Toyota mention they were an “innocent” company. If you got this idea from some of Toyota’s marketing, then the Toyota marketing people have done their job.
I’m under no illusions, but some here feel that given the present climate, Toyota can do no wrong. I was only pointing out that Toyota is in many ways no different than any other company.
I do feel that it is inaccurate to compare Toyota today to GM of the 70s only because Toyota will do the right thing and re-focus on what it is that made them successful.
Regardless of the US vs Japan debate, most people want a machine that won’t cost boatloads of money to maintain after the warranty expires.
To some extent that’s a contradiction in terms.
Designing a car to be reliable and last, by necessity requires parts that are well engineered and expensive. When a part like this breaks, it would be expensive to replace.
Another thing not taken into consideration is that many dealerships make a ton of money from their service departments. If cars are designed so that they are reliable and don’t need any kind of service other than general maintenance, then it would be reasonable to assume that service departments would charge you more per visit to make up for the lost volume that they used to have.
On another note;
That Vega must’ve really bitten you in the rear.
I had two of them (’74 GT and a ’76 GT) and I had a ton of fun with them.
I mean I took my ’74 completely apart and put it back together again and modded it up a bit, but I did enjoy the experience.
A BIG reason why GM was dominant in the 70s was because of lack of competition. The competitition overall in the industry was a lot less in the 70s than it is now. Lack of competition existed before the 70s even more so. The problem also stems from GM getting arrogant and complacent as soon as they got into a dominating marketing position, and since no other company provided any serious competition, it further led to complacency, turning into a viscious cycle.
While that’s true, what is also true is that cars that were competing with GM at the time were a LOT worse than what GM was selling.
It wasn’t until Japan Inc. really stepped up to the plate that their products were truly competitive with what was coming out of Detroit.
All of a sudden, we all saw the difference.
Funny you mention that. One of the cars I got from my last auction was a 1994 Buick LeSabre with 220,000 miles.
It’s a damn good car with a very beautiful exterior design. In fact, it’s actually a nicer car than the 1994 Camry LE coupe I owned.
Fact of the matter is GM still makes a lot of nice cars. They did then… they’re doing it now. Unfortunately they also have too many brands and a few of the designs need to be shelved. But on the balance, I still believe they offer the public a lot of great vehicles.
I don’t see much arrogance in Toyota extending out the warranty up to 8 years on sludge-related issues.
True to the reprehensible traditions that felled the Big-3 Toyota stonewalled customers until unrelenting bad press and a class action suit forced it to extend sludge related warranty protection, leaving its reputation for quality and integrity in tatters.
Notwithstanding Lexus RX 300 owner Jeff Meckstroth’s receipts proving timely oil changes Toyota accused him of ill-maintenance and refused warranty repairs. Arguing if it were a matter of poor maintenance all engines would be failing not just specific engine families, he whupped Toyota’s ass winning a class action suit worth billions.
Toyota should erect a larger than life statue of Meckstroth at its head office to keep the high cost of arrogance front of mind.
http://www.nytimes.com/2007/02/04/automobiles/04SLUDGE.html?ex=157680000&en=442c9752be048b43&ei=5124&partner=permalink&exprod=permalink
Frank,
Do you have the rest of that 42-page Toyota Memo at hand to share with us?
From what I understand, Toyota’s warranty claims are down by 50% since 2002, so that is one positive statistic for them.
macarose:
February 10th, 2007 at 10:37 pm
If you wanted to buy a Camry LE with ABS in the Southeast during the mid-1990’s, well, you couldn’t get them there because the distributor and dealers refused to order em’.
The reason for this is that in the southeast US Toyotas are distributed by the only privately held company in Toyota’s distribution network – JM Family Enterprises. JM – Jim Moran was an auto dealer from Chicago (I believe he was the only auto dealer to ever make the cover of Time magazine), who signed an exclusive deal with Toyota around 1968 to handle distribution in 5 or so southeastern states. Now they order them with very few features from the factory and in their processing facility at the port of Jacksonville Florida they add their own updgrades: stereos, leather seats, wheels and wheel covers, etc. That’s why Toyota’s in the southeast are a little different than in other parts of the country. How do I know this? I used to work for them.
nino:
February 11th, 2007 at 4:26 am
Now it’s someone elses turn to re-post my post in italics and respond with “But Uncle Joe had a Buick that ran 200,000 miles….”
But uncle Joe had a Buick that ran 200,000 miles!
I had a Chrysler LeBaron convertible that ran for 198,000 miles. I sold it still running, so it’s past 200k now…
Our 1984 Buick LeSabre RWD V8 was passed down through the family for an extraordinary 13-years and 300,000-miles before it succumbed to body rust along the top edge of the windshield. It still ran like a Swiss watch!
Oil top-ups were not required. It went through three or four water pumps and a couple of radiators. All other maintenance was routine stuff; oil and filter changes every 3,000-miles, antifreeze and transmission fluid changes every two years, new brakes and tires when required.
The B-bodies, in my view, were the best cars GM ever made. It would not be in deep doo-doo if it was still making them. Our next GM was a disgrace, and we were shabbily treated regarding warranty repairs.
We now have an Acura and a Toyota and wouldn’t look at a new domestic car, much less purchase one. Who needs the non-stop aggravation and expense?
Sorry I’m late to the party but the article brings up some interesting points.
Is Toyota in trouble today? No way. Will it be in trouble half a decade from now if it continues to have quality concerns and is hell-bent for leather on being number one?
Undoubtedly.
Toyota already has one of the oldest customer bases in the industry, it stands to reason that if it gets a rep as a company that makes a decent car…BUT then it may face a similar problem that plagues the domestics, attracting enough new buyers to replace the old.
CJ
On top of all the strategic and tactical issues Toyota faces in their new position at the top in the North American market, the company must be very concerned about their future in the China market. That market will become the largest one of all within the next couple of decades. The Chinese clearly have issues with Japanese over what has happened between them during the last century.
Oh well, uneasy lies the crown . . .