William J. Holstein

Toyota: More Cracks
Jan. 27, 2010--As I have been writing for months in this blog, and as I wrote in Why GM Matters, Toyota Motor is facing huge management challenges. And the decision to suspend the sale of eight models in the United States is the most powerful evidence to date. I've been following Toyota for 25 years, ever since I edited the cover story "Toyota In The Fast Lane" for Business Week in 1985. It's been a remarkable run for them, but now they have made the most serious stumble in that quarter century.

What accounts for stopping the sale of these models? Obviously, they've been having problems with accelerators getting stuck and having drivers lose control. The issue of floormats getting jammed up under the accelerators seems to be only part of the story. Even without the floormats, problems have occurred.

What went wrong? The simplest explanation is that Toyota came on too strong and too fast in the United States. They were mesmerized by their desire to beat General Motors, so they opened factories or announced plans to launch factories in eight states. The clear intent was to "buy" the support of the senators and representatives from those states. They wanted to become politically powerful, which they did.

But their just-in-time production system couldn't handle such widely distributed plants. In Japan, the Toyota system is very concentrated in Aichi prefecture. They can maintain control of quality and manage the smooth flow of parts. But that system broke down in the United States, and fixing it won't be easy. It is a structural problem.

It's going to be fascinating to watch how Akio Toyoda, the new CEO, handles all this. Will he rise to the level that his father and grandfather did and shake Toyota by the scruff of the neck? Or will he be the Toyoda who presides over Toyota's fall from grace?