Marketplace Scratch Pad

Toyota’s monarchy in danger

Scott Jagow Jan 28, 2010

Toyota’s recall mess might finally knock the Japanese company off its throne of auto domination. But American carmakers and unions aren’t waiting around for that to happen. They’re ready to knock down the castle door, rip off the emperor’s clothes and tar and feather him.

Down the road, Toyota’s decision to halt North American sales and production on eight models could prove a wise, preventative move — like J&J clearing the shelves of Tylenol in 1982. But right now, it looks like a tremendous opportunity for Toyota’s rivals. Read the specifics on the models and recalls here.

Ford CEO Alan Mulally said this during an earnings conference call today:

“It’s going to depend on how this all plays out and how fast Toyota gets this behind them,” Mulally said. “With the void right now, I am sure there is going to be more interest in Ford, but the cool thing is it’s going to be an opportunity for our products to be viewed again.

The unions aren’t being quite so gentle. The United Auto Workers and the Teamsters issued a press release today bashing Toyota for an unrelated decision to close a plant in California. The UAW said the closure and Toyota’s recalls were both examples of how the company had strayed from its principles. UAW Vice President Bob King:

“It’s outrageous that the number one-selling car in Cash for Clunkers was the Corolla, the car that is manufactured in the (California) plant. After receiving more money in this bailout program than any other company, Toyota is turning its back on American workers and American taxpayers by closing the plant in the state where they sell the most cars in the U.S., shipping these jobs to Japan, and then importing the cars back to the United States for sale.”

You can argue that Toyota’s zeal for trying to crush American carmakers has, in part, led to its problems. Ramping up production deteriorate quality control. And in response to the economy, Toyota took other steps that could endanger quality. More from Fortune:

Last month, for instance, it was reported that Toyota had “requested” its suppliers to help in reducing parts costs over the next three years to compensate for slowing sales. That’s a huge number, and a “request” from a big customer like Toyota is more like an order.

Cutting individual part costs can have a telling effect on their quality. Meanwhile, Toyota also moved more parts-buying overseas, away from familiar Japanese suppliers and into unfamiliar foreign ones. That may look good on the books, but it can lead to unreliable sources.

Just put an old and new Toyota side-by-side. You’ll see the corner-cutting impact from the surface down, and it isn’t pretty.

But this may not just be a Toyota issue. It may be a Japanese issue. Japan is immensely proud of its manufacturing prowess, known as “monozukuri” or “making things.” But The Wall Street Journal reports from Tokyo that monozukuri is showing signs of erosion:

In the five years between 2004 and 2008, the number of domestic cars recalled in Japan was double that of the preceding five years, based on transport ministry data.

The number of safety-related recalls on products sold here excluding cars, food and drugs rose to 189 during the fiscal year ended March 31, 2009, up more than 80% from three years earlier, according to Ministry of Economy, Trade and Industry.

This may all blow over without Toyota taking a significant hit. But Toyota’s shares are tanking, Fitch has put the company’s A+ credit rating on “watch negative,” and there’s potential for GM, Ford and Chrysler to turn this into a permanent business shift. From The Detroit News:

It would be hard to overstate the potential impact of Toyota’s stunning order to stop sales and production of eight models until an adequate fix is found to sticking accelerator pedals. Depending on the fallout and new details that may emerge, the move threatens to reorder, at least in the mind of the buying public, the perceptions of top automotive brands.

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