Toyota Feels Exchange-Rate Pinch as Rivals Gain

The Japanese Yen is at a 15-year high against the US dollar, and a 9 year high against the Euro.  While this makes it a nice time to be a Japanese tourist going to the U.S. or Europe, it's killing Japanese manufacturers like Canon and Sony.  For a large industrial powerhouse like Toyota, it's a real crisis.  Toyota, which imports 35% of its American-sold vehicles from Japan (Honda only imports 10%), is going to lose more money with currency losses than the massive recall it recently conducted to fix accelerator pedals.

For every yen that the Japanese currency gains in value against its assumed dollar rate of ¥90, Toyota says, it loses ¥30 billion, or $357 million, in operating profit. If the exchange rate stays at the current ¥84 to a dollar, Toyota’s operating profit for its financial year ending next March, which the company forecasts will reach ¥330 billion, could fall by half.

Toyota Feels Exchange-Rate Pinch as Rivals Gain - NYTimes.com

Did a Secretive Culture Lead to Toyota's Problems?

It seems like hardly a day goes by without more bad news for Toyota. It went from sticking floor mats to sticking gas pedals to faulty brake electronics to faulty steering components and now, today, a recall for a power steering hose in 2010 Camrys. How did a company so famous for its manufacturing processes, obsession to detail, prized for its quality and lean efficiency, stumble so badly? In a provocative Page 1 article, the Wall Street Journal suggests that the answer may lie in the secretive Japanese culture that surrounds Toyota, depriving the U.S. subsidiary of any real decision making authority and understating the problem until it was too late. The most startling part of this story is description of NHTSA officials when they found out Toyota knew about the runaway acceleration problems for almost a year before telling them -- they were "steamed."

Delay in Response Led to Rift Between Toyota and U.S. Regulators - WSJ.com

Extraordinary

As we digest the news that Toyota is recalling many popular cars such as the Camry and Corolla, and is taking the step of actually shutting down production at six of its plants next week, it's worth considering for a second what this will mean for Toyota.

First, the facts. There is a problem with the accelerator on the affected vehicles. This problem manifests itself with the accelerator is stuck, i.e., will not move. I've never been in a car with a stuck accelerator, but I have to imagine it's an absolutely terrifying experience. Being stuck in a two-ton hulk of glass, steel and plastic, traveling at lethal speeds, with no way to stop -- that's not good. Several people have died, including four in the Avalon above, which ended up upside down in a pond.

At first, Toyota put the blame on floor mats that bunched up under the gas pedal, and ordered the floor mats removed. Problem is, in the Avalon involved in the accident, the floor mats were already removed, and were in the trunk. Now Toyota believes the problem may be in the gas pedal assembly itself. The recall and sales suspension affects gas pedal assemblies from U.S. supplier CTS. Some Toyotas (including Lexus and Scion) have assemblies made by Denso in Japan, and are not affected by the recall.

At this point, this is speculation. Toyota does not know what the real problem is yet, and does not have a fix. Let me repeat that -- there is no fix. The cars have been recalled, sales have stopped, and production has stopped.

This is shaping up to be a disaster for Toyota. The company has a carefully cultivated reputation for quality and reliability. The burden on the company from this episode will be tremendous. Can you image how nervous the millions of Toyota owners out there must feel right now? Many will dump their cars, causing resale values to crash. When a fix is announced and production and sales resume, many consumers will continue to shy away, meaning heavy discounting will be in play. Many customers will bombard their dealers with imagined stories of runaway throttles and other maladies. Consumer confidence is shaken to the core, and how Toyota comes back, if it comes back, will be studied in B-schools for years to come.

Here's the extraordinary part -- Toyota did not have to take this action. Unless this problem is bigger than the company is letting on, ordering a sales and production stop is "unprecedented" -- in other words, no one can ever remember it happening in the auto industry. Many companies, facing problems even more serious than this one, have continued to sell their products through recall campaigns. The government certainly isn't forcing the company to do this, and settling the inevitable lawsuits are most certainly cheaper than the steps the company took yesterday. The company, it appears, is pursuing a new strategy -- safety first, profits and survival second. There's a lesson in here about corporate social responsibility and ethics, but until this episode plays out, I'm not sure if anyone will know what that lesson is.