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Toyota in Turmoil

Experts mixed on future of Blue Springs plant

The wave of recalls that have created a public relations crisis for Toyota took direct aim at Mississippi last week when the automotive company announced that the 2010 Prius hybrid was being recalled because of problems with its antilock braking system.

Prius joined a handful of other Toyota models, with most of the others targeted for repair due to sticky accelerators.

The past three weeks, Toyota has found itself in an unfamiliar and uncomfortable position: on the defensive.

Toyota had spent decades developing a reputation as the most quality-minded company in the automotive industry. The company’s vehicles were renowned for their lasting power and resale value, and were considered by industry analysts as superior to American cars.

Toyota’s rock-star status it enjoyed in the corporate world contributed heavily to the euphoria state political and economic development leaders experienced when it was announced in Feb. 2007 that Toyota would build the Highlander crossover SUV at a facility in Blue Springs.

When Toyota switched gears in the summer 2008 and decided Blue Springs would be home to the Prius, it touched off another round of celebration.

The buzz kill arrived later in 2008, when Toyota said it was delaying the opening of the Blue Springs plant indefinitely as it waited for the automotive sales markets to rebound from the recession.

Despite Blue Springs running into its second significant setback before the doors are even open, Gov. Haley Barbour, whose terms will feature Toyota as a major highlight, is confident the Prius recall will not affect the plans for the plant.

“The American people have made a pretty plain statement about Toyota over the years in the confidence they have in the company,” Barbour said. “We have hundreds and hundreds of auto recalls every decade. Not very many of them involve Toyota.

The Toyota Prius is one of many Toyota models that have been recalled because of safety defects. The hit to the brand name could be enough to keep the plant in Blue Springs from ever opening.

The Toyota Prius is one of many Toyota models that have been recalled because of safety defects. The hit to the brand name could be enough to keep the plant in Blue Springs from ever opening.

“Toyota’s decision about when to open Blue Springs is going to be predicated on the market, on when automobile sales show that they’re going in the right direction enough to be profitable. I suspect that date is not going to change any because of these recalls. I think Toyota sales will continue to be strong.

“The first reason this is such a big story is that Toyota has such a reputation for quality, it’s kind of a man-bites-dog deal.”

Barbour pointed to what he thinks is another reason for the infamy Toyota has recently gained: the United Autoworkers (UAW). The union has held protests the past few months outside of the New United Motor Manufacturing Inc. (NUMMI) plant in Fremont, Calif. Toyota had operated the facility as a joint venture with General Motors (GM) until last year, when both car companies ceased operations there. The facility employed approximately 4,500 members of the UAW. As a result of the government bailout of GM, its two biggest stockholders became the UAW and the federal government, and both entities agreed that NUMMI was a losing venture.

“So the government and the United Auto Workers decided NUMMI was not a good place for General Motors to operate because they were going to lose money there,” Barbour said. “But now, the United Auto Workers wants Toyota to have to operate there, even though they said it’s not suitable for the company they own 18 percent of the stock in. I think you see a lot of that in all the drum and drang about Toyota.”

Toyota spokeswoman Barbara McDaniel echoed Barbour, calling the recalls and the company’s plans for Blue Springs “totally unrelated.”

The National Highway and Transportation Safety Administration has been investigating the causes of each of the recalls. Transportation Secretary Ray LaHood even said that owners of recalled Toyotas should stop driving their vehicles until repairs were made, but he quickly backed off that statement.

Barbour joined governors from Indiana, Kentucky and Alabama – states that have Toyota manufacturing facilities – in writing a letter to Congress urging fair treatment of the company from the government, and not one, according to the letter “tainted by the federal government’s financial interest in some of Toyota’s competitors.”

Michelle Krebs, senior analyst at Edmunds.com, said Toyota’s priorities right now should center on dousing the fires set by the massive recalls, and then worry about when Blue Springs should start production.

“They’ve got to get through this mess before anything happens there,” she said. “I can’t imagine they will do anything with it any time soon.  It’s hard to say, but stay tuned.

Click for larger view.

Click for larger view.

“The market conditions aren’t going to get better for a while. For one, the economy still remains soft. Toyota sales were down last month, and I’m sure they’ll be down again this month. On top of that, we just don’t know the full extent of the fallout from this. I have no doubt that Toyota will turn this around (and eventually open Blue Springs), but how long that will take remains to be seen. This is unprecedented on a number of levels – the number of vehicles, the number of models, but also the simple fact that it’s Toyota, which is supposed to be the king of quality.”

Mark Ragsdale has run some numbers on the potential length of the recall crisis, and his analysis suggests it could be well into spring before it’s over.

Ragsdale, former owner of car dealerships and past president of the National Automobile Dealerships Association who now serves as a consultant to the automotive industry, says the number of cars needing repair and the number of available service technicians does not add up to a quick fix.

“Here’s what I think the biggest issue is: Aside from the Prius, right now there are 4.6 million cars with accelerator problems,” Ragsdale said. “If we just take Toyota at face value, and they’re correct in assessing what is creating this problem, at 4.6 million units, and the factory says it’s going to be a half hour to fix each, which factories typically shave the time by 25 percent, assuming all that, that’s 2.3 million labor hours. How do you get through 2.3 million labor hours with 15,000 Toyota (service) technicians? If they all worked and did nothing else for a straight month, they still wouldn’t get through with it on time.

“Toyota has not acknowledged that it’s going to take a couple months to get through this. They have a mathematical nightmare going on right now.”

TOYOTA TIMELINE:

2009
AUG. 28, 2009
• A family driving a Lexus is killed after the gas pedal is caught under the floor mat.

NOV. 2, 2009
• The automaker issues a safety notice for 3.8 million vehicles due to the crash risk posed by the gas pedal becoming caught under the floor mat.

NOV. 4, 2009
• NHTSA accuses Toyota of providing owners with “inaccurate and misleading information” about its floor mat entrapment recall.

NOV. 25, 2009
• Toyota recalls 3.8 million vehicles to reconfigure gas pedals due to the risk of floor mat entrapment.

2010
JAN. 21, 2010
• The automaker recalls 2.3 million vehicles to correct a problem that could cause the gas pedal to stick.

JAN. 26, 2010
• Toyota suspends sales and halts production of eight models due to its recall for sticking accelerator pedals.

JAN. 27, 2010
• Toyota expands its floor mat entrapment recall to 1.1 million additional cars.

FEB. 1, 2010
• The automaker says it has developed a fix for the sticking gas pedal issue and has begun shipping the new parts to dealers.

FEB. 3, 2010
• NHTSA says it has received more than 100 complaints about brake problems from Prius owners.

FEB. 4, 2010
• Toyota says the recalls for gas pedal-related issues could end up costing the company $2 billion.

FEB. 4, 2010
• The automaker blames a software glitch for braking problems in its 2010 Prius.

FEB. 4, 2010
• The NHTSA opens a formal investigation into the braking system of the Prius hybrid model.

FEB. 4, 2010
• Toyota confirms that the total number of vehicles recalled now comes to 8.1 million.

FEB. 9, 2010
• Toyota recalls 437,000 hybrids worldwide over brake problems.

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About Clay Chandler

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