IHS Global Insight Perspective | |
Significance | A leaked July 2009 Toyota internal presentation to top U.S. executive Yoshimi Inaba reveals the company boasting about saving US$100 million after successfully negotiating a limited "equipment recall" for floor mats to solve a "sudden acceleration" issue, instead of a full vehicle recall. |
Implications | The presentation also boasts about shutting down an investigation into rusting Toyota pick-ups and delaying safety regulation legislation that would have affected the company. The leaked document provides a damning insight into Toyota's motivations that seems at odds with the public relations spin it is attempting to put on the ongoing recall saga. |
Outlook | This is not the "smoking gun" revealing a cover-up by Toyota, but the document certainly gives Congressional investigators considerable ammunition ahead of this week's hearings. |
The U.S. Congress is set to turn its investigative eye towards Toyota tomorrow with the first of two hearings set to examine the company's handling of a massive recall involving 8.5 million vehicles, and in preparation it has subpoenaed several thousand documents currently tied up in a Californian legal fight between Toyota and one of its former in-house corporate lawyers. One of those documents has been made public, and the information it contains could potentially be the latest devastating blow in the company's ongoing public relations meltdown. The document in question is a July 2009 internal memo to top U.S. executive Yoshimi Inaba that boasts of having successfully lobbied the U.S. government not to issue a full vehicle recall related to "sudden acceleration" issues, instead limiting a 2007 recall to just 55,000 floor mats, ultimately saving the company US$100 million. Under a section of the presentation labelled "Key Safety Issues", the presentation lists "sudden acceleration on ES/Camry, Tacoma, LS, etc.", but notes that Toyota's safety officials saved the company a significant amount of money. "Negotiated 'equipment' recall on Camry/ES re SA (Sudden Acceleration); saved $100M+, w/ no defect found," the document said. The very next month, an off-duty Californian police officer and his family were killed in a Lexus ES that reportedly experienced unintended acceleration, prompting Toyota to issue a massive recall covering trapped and sticking accelerator pedals. Other "wins" for the company outlined in the presentation included avoiding an investigation into rusting Tacoma pick-ups and securing delays to the implementation of various new federal safety regulations.
"There are significant questions regarding the interactions between Toyota Japan, Toyota North America and government regulators", said Kurt Bardella, a spokesman for Representative Darrell Issa of California, the ranking member of the House Oversight panel. Was Toyota "lobbying for less rigid actions from regulators to protect their bottom-line?", he asked. "The question this raises is, was the bottom line factored into Toyota's decision making? Did regulators do their due diligence once problems were brought to their attention? Did Toyota raise potential safety problems with regulators as soon as they knew a problem existed?", he added.
A big focus of the committees' investigations will be the role that the National Highway Traffic Safety Administration (NHTSA) played over the last several years in investigating the automaker and forcing it to issue the necessary recalls. The Detroit News reports having reviewing several emails over the weekend (20–21 February) between the NHTSA and auto insurance giant State Farm that date back as far as 2004 and deal with the unintended acceleration issue. In the emails, the government acknowledges that it is already investigating the issue, but no information is then presented as to why the NHTSA dropped its investigation. U.S. Department of Transportation spokesperson Olivia Alair said over the weekend that the NHTSA was already aware of the issue—and indeed had been as early as December 2003—when State Farm contacted the agency in early 2004. The NHTSA "had already begun looking into complaints of unintended acceleration in certain Toyota vehicles in 2003 before State Farm supplied any information on that topic to the auto safety agency", Alair said, as quoted by the Detroit News. "While insurance data is a useful source of supplemental information in identifying auto defect trends, the primary sources are consumer complaints, early warning reporting from manufacturers, technical service bulletins provided by manufacturers to car dealers and foreign recalls on vehicles that are similar to vehicles sold in the U.S.", she added.
Outlook and Implications
It is assumed that the internal Toyota memo came from the large number of documents subpoenaed by the House committee, but its exact source is uncertain. Still, it provides a damning glimpse of Toyota's internal procedures and strategy, and if accurate stands in direct contrast to the marketing spin that Toyota is trying to put on the massive global recall as it attempts to convince an increasingly sceptical public that it places customer safety considerations over profits. These types of documents are exactly the kind of ammunition that the Congressional investigative committees are going to use to attack Toyota executives during the hearings, which Toyota president Akio Toyoda is now expected to attend. The one thing that could make the entire public relations fiasco surrounding the ongoing quality and safety issues at Toyota even worse would be the unearthing of documents proving a cover-up; although this memo does not exactly provide such a "smoking gun", it is sure to fuel anger among politicians. Not only do the media smell blood, but so does the U.S. Congress, and the questions for Toyota are only likely to get tougher from here on in. The role of the NHTSA will also be closely scrutinised as the Toyota memo suggests that it was able to negotiate a lesser equipment recall over its acceleration issue despite years of supposed investigations by the regulatory body. This could potentially have a deleterious effect on the industry as a whole, well beyond Toyota, if the NHTSA's actions over the previous decade start to be questioned. If nothing else, extensive investigations into the NHTSA's handling of the various crises could mean leadership changes within the Department of Transportation, if it is determined that the agency has not been doing its job in keeping consumers safe and has instead been negotiating less stringent requirements for automakers over the last decade. At the moment, however, more attention does seem to be focused on Toyota and the actions that it may or may not have taken, and more importantly its true motivations over the last decade in a host of product recall situations.