After D.C. Hearings, Now What for Toyota?

Reluctant CEOs appearance not enough to begin brand’s turnaround from the damages of an ongoing safety scandal.

by on Feb.25, 2010

Toyota CEO Toyoda was cool under fire, but may not have doused the flames of the safety scandal.

Throughout a blistering afternoon that could have broken a weaker man, Akio Toyoda, often described as the “reluctant” President and CEO of embattled Toyota Motor Co., retained a sense of cool as he stared down the members of a Congressional committee investigating problems that have not only resulted in the recall of millions of Toyota products but tattered a reputation the maker has spent decades cultivating.

It was a critical moment for both Toyota and Toyoda, the executive initially declining to come to Washington, then reversing that stand in the wake of furious headlines.  But with a relatively weak grip on English, and the likelihood that the members of the House Oversight and Government Reform Committee would engage as much in a sort of Kabuki theater as a real inquiry, many observers wondered whether the 53-year grandson of Toyota’s founder could salvage both the automaker’s reputation – and his own.

Sticking close to the script, Toyoda wouldn’t give much ground, despite the toughest questions.  But neither would he yield many details – leaving that up to his subordinates.  And there may lie the real future of Toyota, for in two days of testimony before a pair of Capitol Hill committees, the company that has long stressed safety and quality as its hallmarks suddenly seems both more interested in the bottom line and less able to build safe, reliable cars.

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Toyoda’s appearance before the Oversight Committee began on a reasonably congenial note.  After swearing in, the Toyota chief executive read from a prepared statement in a heavily accented but understandable English.  And, as he has done during three news conferences, back in Japan, in recent weeks, Toyoda began with an apology for the problems his company has caused.

“My name is on every car. You have my personal commitment that Toyota will work vigorously and unceasingly to restore the trust of our customers,” said the man often referred to as “The Prince,” back in Japan.  In turn, the assembled Congress men and women offered polite thanks for Toyoda’s decision to come to Washington.  But the friendly tone didn’t last very long, and the executive switched to working in Japanese, through a translator.

That things would get testy shouldn’t have been surprising.

On Tuesday, Toyota officials from the U.S. met with a separate Congressional committee in a session that was tense and confrontational.  While there were moments of grandstanding, the hearing ultimately got down to critical issues.

An internal Toyota document, leaked over the weekend, showed the automaker celebrating its success in severely limiting the scope of an early unintended acceleration recall, saving $100 million in the process.  Lawmakers questioned how long Toyota knew it had a problem, whether it hid that information from regulators – a violation of law.  But perhaps most importantly, Cong. Henry Waxman asked whether the latest recalls will solve the various safety issues with Toyota vehicles.

“Not totally,” admitted Toyota’s top American executive, Jim Lentz.   In fact, the current two recalls, to fix problems with “carpet entrapment” and sticky accelerator pedals, Lentz revealed, might address only about 30% of the complaints lodged by owners about unintended acceleration.

Worse, one of the government’s witnesses, Prof. David Gilbert, of Southern Illinois University, appeared able to discredit a critical Toyota claim that it has been able to rule out unexplained glitches with the electronic systems that control the throttles on its products.

If further tests validate the professor’s claims, that could create untold problems for Toyota, though it’s unclear how long that might take.

By the time the initial pleasantries with CEO Toyoda had passed, lawmakers turned up the heat, asking for detailed answers that the executive clearly wasn’t willing or able to provide.  He remained surprisingly calm, largely repeating points made in his opening remarks, promising that the embattled automaker will be more vigilant and more responsive going forward.

That scored some points with the lawmakers.  But not all.  Rep. Marcy Kaptur, of Ohio, found the leaked document “absolutely appalling,” and contended that Toyoda’s apologies did not, “reflect significant remorse for those who died” due to defective Toyota products.  So far, at least 34 deaths have been linked, allegedly,  to such problems, and the number may grow.

During the two days of hearings, several owners testified about harrowing experiences when their vehicles lurched out of control, some narrowly escaping injury, others suffering through collisions.

It may take some time to get a true measure of how well Toyoda performed, especially in light of the damaging comments made by other executives.  Among other things, it became clear that even the most senior U.S. executives are largely left out when it comes to making key decisions about critical issues, such as safety and recalls.

The recalls and revelations, of recent weeks, have seriously tarnished what Toyota officials call the “cornerstones” of the brand: safety, quality and reliability.  But

The latest testimony also clearly contradicts Toyota’s frequent claims to being “an American company.”  In regular TV and print ad campaigns, the maker touts its multi-billion-dollar investments and large employment base.

Toyota isn’t the only one damaged by the Congressional hearings.  Lawmakers raised serious questions about the role played by America’s National Highway Traffic Safety Administration.  Ray LaHood, the Secretary of Transportation, whose department runs NHTSA, defended his staff, though he admitted it does not have the resources to investigate many of the more technical issues raised by the Toyota crisis.  If anything, NHTSA could come out of the hearings with additional funds and staff – and a new mandate to be tougher than under the industry-friendly Bush Administration.

Observers expect still more revelations – and recalls – for Toyota.  But it could take months to measure the overall impact on normally loyal Toyota buyers.  So far, there are mixed signals from the marketplace.  But Toyota is already ramping up spending on incentives to bring buyers back and that could have a major impact on future earnings.

The real question is whether senior executives might find themselves testifying again.  The U.S. Securities and Exchange Commission is looking into several possible irregularities, and a federal grand jury has been convened to explore possible criminal actions.

One thing is certain: the Toyota crisis is far from over.

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2 Responses to “After D.C. Hearings, Now What for Toyota?”

  1. George Lenko says:

    This is a very nice recap & analysis. I watched much of the proceedings and you captured the essence better than the print and broadcast media. (simple soundbites don’t cover the layers & nuances in the proceedings)

  2. Jill Krahn says:

    Thanks Paul, I listened to as much of the hearings as I could. I do wonder where it goes from here and your article is very helpful.