In winter 2010, the Toyota Motor Corporation faced a crisis. Following a number of highly publicized accidents involving Toyota vehicles, the company was forced to recall millions of cars with potentially deadly defects. Toyota shut down production at several of its North American plants, halted sales of some of its most popular models, and issued a public apology. Customers fled the showrooms, and Toyota sales in the U.S. dropped 16 percent in January 2010. Additionally, the U.S. government promised to get involved as both the Obama administration and Congress threatened investigations.
Observers were astonished. Toyota had built a reputation for the reliability of its automobiles. Over a period of decades, the company had pioneered lean manufacturing and a stringent quality control system that had become the envy of the world. Building on this success, in the late 1990s, Toyota’s leadership had set a goal of capturing a 15 percent share of the world auto market. From 2000 to 2005, Toyota had steadily expanded its global manufacturing capacity and had also worked to reduce costs by benchmarking to Chinese manufacturers.
The strategy seemed to work. By 2005, Toyota was worth more than the Big Three American car companies put together, and The Economist called it “The Car Company in Front.”By 2007, Toyota achieved its goal of becoming the largest car manufacturer in the world.
However, at the end of the decade, significant problems appeared. In the mid-2000s, the number of recalls on Toyota vehicles began to increase. The company’s quality rankings slipped, and in 2007 its vehicles were downgraded by Consumer Reports. By 2009, Toyota recalls affected over four million vehicles in the United States alone. In December of 2009, The Economist, the same magazine that had lauded the company just five years earlier, now declared on its cover “Toyota Slips Up.” Other publications followed suit with equally prominent stories about slipping quality at Toyota. The New York Times published a front page story under the headline “Toyota’s Slow Awakening to a Deadly Problem,”and The Wall Street Journal pronounced, “Toyota Is Unable to Hit the Brakes on Crisis.”During January 2010, broadcast news outlets featured nearly daily updates on Toyota’s woes.
Auto industry analysts suggested that the company’s rapid expansion had strained Toyota’s ability to control its quality. In winter 2010, the company that had become one of the great success stories of the automobile industry faced a crisis that could cost it billions of dollars and threaten its survival. Observers wondered what, if anything, the company could do to restore the quality of its products and its reputation for reliability.
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Arthur Swersey, Andrea Nagy Smith, Catherine Forman, and Jaan Elias, “Toyota 2010,” Yale SOM Case 09-040, February 3, 2009