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Auto insiders blame Toyota's problems on a rush to global growth

By Blaine Harden
Washington Post Foreign Service
Friday, January 29, 2010; A16

TOKYO -- Toyota sacrificed quality for global growth and got burned.

That's the story Japanese automobile analysts are offering to explain the faulty gas pedals that led to the automaker's unprecedented decision to shut down five North American assembly plants and suspend sales of eight of its most popular vehicles. Toyota's own top executives do not dispute it. On Thursday, the company said its recall of millions of U.S. vehicles due to issues with faulty gas pedals was being extended to cover vehicles in Europe and China.

"Our president, Akio Toyoda, has said that expansion may have occurred to the extent where it is difficult for us to keep an eye on the ball," said Paul Nolasco, a Toyota spokesman in Tokyo. "Other executives have said that part of the troubles we are having today have been because of speedy moves in the past."

Toyota's push to become the world's largest carmaker has occurred during an especially risky era for the industry, with sluggish sales, thin profits, mounting competition and relentless pressure to cut costs.

"This is a really tough time to make money," said Koji Endo, managing director of Advanced Research Japan, a corporate research firm in Tokyo. "Toyota has become maybe too successful, with operations spread around the world, and they always have to come up with new ideas to reduce costs."

One of those ideas was to use the same part -- an accelerator pedal mechanism made by a supplier in Elkhart, Ind. -- in the eight different car models whose production was halted this week.

All big car companies use this kind of "platform sharing" to reduce costs, analysts say. But when something goes wrong -- in Toyota's case, the gas pedal sometimes got stuck and caused runaway acceleration -- then "you increase the risk of having a really big problem," Endo said.

Last week, Toyota recalled 2.3 million vehicles (the eight models it stopped making on Tuesday) and late last year it recalled as many as 4.3 million vehicles. Some of the recalls were to fix gas pedals, and some were to replace floor mats that could jam the pedals.

Late Wednesday, Toyota recalled an additional 1.1 million cars and light trucks in the United States. On Thursday, the company announced that it will recall vehicles in Europe and China with gas-pedal issues.

Toyota has informed Chinese authorities that it will start a recall in February for 75,500 RAV4 sport-utility vehicles that were manufactured in China between March 2009 and January 2010, Toyota spokeswoman Ririko Takeuchi told the Associated Press. In Europe, the automaker is still investigating which models will be recalled, and how many.

Toyota said this week that its recalls and its decision to stop making eight models were "voluntary." But Transportation Secretary Ray LaHood said Wednesday that Toyota made these moves because federal safety officials told the company to do so.

Toyota is facing a possible congressional investigation by a panel from the House Energy and Commerce Committee, and at least three major rental car companies have said they were temporarily removing tens of thousands of Toyotas from their fleets.

Investors appear to be rethinking the value of Toyota. On Thursday in Tokyo, the company's stock fell 3.9 percent; it has lost 15 percent over the past five trading days. As Toyota shares sank, the stock of its main Asian rivals -- Honda, Nissan and Hyundai -- all rose.

"If I owned Toyota, I think I would have to sell now," said Edwin Merner, president of Atlantis Investment Research in Tokyo. "I think it is going to take a couple of years for Toyota to overcome this blow to its image. There is a lot of competition from people who are making good cars and who want Toyota's customers."

Toyota, though, has very deep pockets, with tens of billions of dollars of reserves. Analysts also say the company understands the seriousness of its problems.

"I think they are trying to be as earnest as possible," said Masahiro Fukuda, a senior analyst at Fourin, an automobile research company in Nagoya, Japan. "They are stopping the production lines and sales. I think they want to do it right and honestly."

Still, industry insiders have known for some time that Toyota was expanding production in a way that hurt quality, Fukuda said. U.S. consumer ratings of Toyota quality have fallen in recent years.

"There was a feeling that this may happen," Fukuda said. "Production was expanding so fast that there was a lack of trained mechanics to teach the new ones. Those mechanics teaching were doing so with a bit of concern about their expertise."

Special correspondent Akiko Yamamoto contributed to this report.

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