Seeking to Be No. 1, Toyota Traded Quality for Quantity

News that Toyota Motor's (TM) recall of 2.3 million vehicles in the U.S. due to faulty gas pedals has been expanded to include additional vehicles in China and Europe is sending reverberations around the automotive world. The beefed-up recall is on top of another similar recall, issued last fall, that was expanded Wednesday to include a total of 5.4 million vehicles which may accelerate unintentionally due to jammed floor mats. Toyota owners around the globe are worried that they could find themselves in the unlucky position of the San Diego driver whose Lexus ES350 sedan accelerated out of control on the highway last August, causing a crash that killed all four occupants.As yet, the company is unclear how many vehicles in Europe will be effected by the recall, but what is becoming clear is that Toyota decided to place growth ahead of quality when it embarked on its quest to win bragging rights as the globe's biggest vehicle maker.

This corporate turning point came in 2002, when Toyota management saw an opportunity to take the top spot in the global automobile industry away from General Motors. According to The New York Times, that was the year that Toyota executives set themselves the goal of controlling 15% of the global auto industry by 2010 -- which, if achieved, would put it ahead of GM.

To achieve that goal (and it did), Toyota had to grow at an astonishing rate of 50% -- leading it to build new plants in the U.S. and across Asia, and to introduce a host of new models. Further, Toyota widely expanded its supplier base, purchasing parts from companies around the world and shifting away from its reliance on the small group of Japanese firms that had been its longtime partners.

The sudden acceleration problem at issue in the current recall might be attributable to that decision: The pedals in the vehicles affected come from a supplier's Canadian plant, according to The New York Times.

Toyota appears to have been dragged reluctantly into halting production of the vehicles with the stuck accelerator problem. According to The New York Times, it took "prodding by the Transportation Department" for Toyota to announce on Tuesday that it was temporarily stopping production and sales of eight models that make up more than half of its U.S. sales after two major recalls since November.

But these problems go back a long way. According to The Wall Street Journal, records at the National Highway Traffic Safety Administration show sudden acceleration complaints for Toyota and Lexus vehicles dating back six years. The Journal found that in 2004, NHTSA investigated reports of speed-control issues in Lexus ES350 and Toyota Camry sedans from the 2002 and 2003 model years.

Toyota grew for decades because it had a reputation for quality that sprang from vehicles that cost less to maintain and lasted longer -- attributes for which consumers happily paid a price premium, as I wrote about four years ago. But when Toyota management set its sights on overtaking GM, it may have abandoned the values that had given consumers that willingness to pay more.

Now, it looks like Toyota's push to achieve market dominance led it to ignore any information that got in the way of that goal. This is a decision-making disease called confirmation bias -- a problem about which I wrote in connection with GM's failure. The syndrome, which causes leaders to ignore inconvenient truths in pursuit of their goals, is now costing Toyota in ways that could far offset all the benefits it gained from winning the right to call itself the world's biggest vehicle maker.
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