Rapid Growth has lead to problems for Toyota

Implications: This interesting article by Jerry Flint, a respected automotive commentator, summarizes a number of recent events that taken together present a troubling problem for Toyota. As Mr. Flint points out, it not the end of the world, but it does indicate that the mighty Toyota company can stumble in its businesses just as other manufacturers. The quality image that has been so important to its rapid growth may be tarnished by these developments.

Analysis:  

The rapid growth and success of the Toyota Motor Car company in the North American market has been primarily based on its reputation for quality and more recently by the "green" image generated by its successful Prius Hybrid vehicle. However, as Mr. Flint points out that Toyota has stumbled several times in the past few years. The quality reputation enjoyed by Toyota took a long time to achieve, and will not be easily destroyed by these recent missteps. However these are indications that the rapid growth it has enjoyed has strained the limits of its management and has resulted in a number of problems. In my opinion, the sales shortfalls for Toyota in recent months reflect the overall automotive market rather than a particular Toyota problem. In reality, Toyota sales have faired substantially better than most of its competitors. The large numbers of Toyota vehicle recalled for safety defects in recent years is serious concern, reflecting either design or production problems. My opinion is that management has not been able to focus on all of the issues necessary as their business has grown in North America. The recent departure of three senior executives may only make this a more serious problem. Mr. Flint makes an interesting point on this matter noting that it is rare for a Japanese executive to leave the employ of his company to move to a competitor. This probably has resulted in suspicions of the remaining American nationals among the native Japanese managers. This may increase internal frictions and lead to more managerial problems in the operations of the business. Consumer Reports has recently turned critical of Toyota, an almost unheard of development. As this is an important source of customer information, this does not bode well for Toyota. Toyota needs to proceed with caution if it wants to preserve it vaulted quality reputation.

As noted above the second pillar of Toyota’s reputation is its green image. It is well deserved in that it has been extremely successful in marketing its Prius and other follow on hybrid vehicles. However the fuel economy performance of many of its products is inferior to its competition and high fuel prices are making many customers sensitive to this issue. The large fuel-efficient Hybrid vehicles currently being introduced by General Motors and others may leave Toyota behind in technology.

With both pillars of its marketing strength being challenged, Toyota is vulnerable. However it is a strong company and is capable of overcoming these hurdles. The question is can it react fast enough to avoid long term damage.