Toyota's fractured structure may be at root of safety problems
Former insiders says the carmaker's system of tight control from Japan over technical matters tied the hands of U.S. subsidiaries.
By Ralph Vartabedian and Ken Bensinger
February 22, 2010 | 3:38 p.m.
In a bold national television appearance early this month, a top executive at Toyota's U.S. sales office in Torrance declared that the automaker had discovered the exact causes of sudden acceleration in its vehicles: floor mats and sticking pedals.
But only days earlier, executives from Toyota's regulatory office in Washington told congressional investigators that they could not be absolutely sure what was behind the problem. And the company's attorneys acknowledged shortly after the meeting that sticking pedals would not cause sudden acceleration.
The contradiction led Rep. Henry A. Waxman (D-Beverly Hills), chairman of a powerful House committee investigating Toyota, to issue a stinging letter asserting that the company couldn't get its story straight.
To former Toyota insiders, however, the mangled message has roots in the company's fractured organizational structure in the United States -- a design that put key decision making in the hands of executives in Japan and ultimately impaired its ability to prevent the now-burgeoning safety problems before they reached the crisis stage.
As Toyota Motor Corp. has grown into a powerhouse of the auto industry over the last decade, it has built up a vast complex of engineering centers, test tracks, financial arms, sales offices and manufacturing plants that spread from California to New York, spilling over into Canada and Mexico as well.
But Toyota lacks a single U.S. headquarters; its units can operate as fiefdoms that report independently to Japan. The complicated tasks of gathering information about sudden-acceleration reports, analyzing the problems and engineering fixes, as well as reporting the issues to federal safety regulators, were handled by different Toyota subsidiaries, each managed separately in many cases from Japan, former Toyota managers and employees say.
And documents released by House investigators show that some of the disjointed subsidiaries of Toyota had an explicit strategy to minimize safety recalls, saving the company hundreds of millions of dollars even while reports of fatal accidents were increasing.
On Monday, Toyota disclosed that a federal grand jury in New York and the Securities and Exchange Commission had subpoenaed documents, adding criminal and securities investigations to its expanding political and regulatory probes.
"You know the joke that every bank branch has a president -- well, every Toyota facility has a president and one can't tell another what to do," said John Jula, former engineering manager at the company's technical center in Ann Arbor, Mich.
Jula, who left Toyota in 2003 after eight years, said he had almost no interaction with the sales or dealership organizations that were collecting safety data from consumers, because all of the information flowed to Japan and all of the key engineering decisions came out of Japan. He left the company, he said, convinced that its dedication to safety had deteriorated.
Jula said he also had little contact with American plant managers even though he was responsible for designing interiors for some of the models the company made in the U.S.
But the tight control exercised from company headquarters in Toyota City, outside of Nagoya, led the company into a series of disastrous miscalculations, critics say.
"They let Americans do what they do best, advertising and services, and in that area they left us alone," said Laurence Boland, who left Toyota in 1995 after a 25-year career at the automaker's sales organization based in Torrance. "But when it came to money and technical matters, they kept the control in Japan."
Boland and others say the system of the tight control from Japan has been characteristic of the company's handling of safety issues for decades.
Boland, who handled regulatory compliance, recalled that he was assigned in 1979 to collect information requested by U.S. safety regulators about sticking gas pedals in the Celica model. The pedal was attached to the floor by a hinge, which would rust over time in wet climates and then stick. The records he amassed, however, were sent to Toyota's engineering operations in Japan, he recalled.
When he later visited Toyota's Washington office and reviewed the submission to the National Highway Traffic Safety Administration, he discovered that much of what he had collected was gone.
"It got cleansed in Japan," he said.
The strategy parallels the conduct in the last year, in which the company boasted of successful efforts to minimize safety recalls and save the company hundreds of millions of dollars, according to documents released Sunday by House investigators.
The document was addressed Yoshimi Inaba, the low-profile president of Toyota Motor North America, based in Manhattan. Inaba's title may suggest he runs all of the company's operations in its most important market, but in fact he has direct responsibility for about only 1,200 of the company's 40,000 employees in North America. Inaba's authority includes investor relations and federal regulatory issues, but he no role in engineering or manufacturing vehicles. Those operations report through different channels to Japan.
Toyota's current crisis began to emerge publicly last fall, as attention focused on sudden-acceleration problems that had quietly dogged the company for almost eight years. Now, three congressional committees are investigating the company and NHTSA has launched several investigations into Toyota's handling of the issue.
By their nature, all automakers are complex. Not every carmaker with global operations is run the same way as Toyota, however. Honda Motor Co., Japan's second-largest auto company, has global regions that are operated semiautonomously. Its design, engineering and manufacturing plants in the U.S. report to a single executive, Tetsuo Iwamura, chief executive of American Honda Motor Co. "These regions are set up intentionally to be self-reliant," said Jeffrey Smith, a Honda spokesman.
Toyota's structure emerged over the last several decades, as the company was vastly expanding U.S. operations, increasing its North American assembly plants to half a dozen. At the same time, it was cutting costs and increasing the complexity of vehicle electronics.
"That was the culture that created this downfall of Toyota's quality," Jula said.
As for Inaba and his predecessors, he says they wield limited power.
"Mr. Inaba is a facade, just as I was a facade," Jula said. "We put an American face on a Japanese company."
Former Toyota attorney Dimitrios Biller, who defended the company in liability suits, said, "No real decisions are made in the U.S."
Biller said he was regularly forced to ask executives in Japan to provide documents for trials that he knew were located at Toyota offices in Washington, Ann Arbor and Kentucky.
"I couldn't request them directly from the source," said Biller, who left the company in 2007 and is currently involved in several lawsuits with Toyota. "Everything had to come through Toyota City before I could see it."
The fact that Toyota's quality and safety problems have affected almost every model in its line suggests that the automaker has a systemic management problem, said Robert Bea, a UC Berkeley professor who is studying the Toyota situation in a graduate-level engineering class. Bea, who has accumulated about 800 case studies of corporate and government-agency meltdowns, said the cultural and organizational problems affecting Toyota are similar to those that allowed NASA and the Army Corps of Engineers to ignore structural issues leading to the Columbia space shuttle and Hurricane Katrina disasters.
"It's what I call arrogance, indolence and ignorance," Bea said. "With those three, you have an explosive combination."
In the last decade, 2,600 complaints about sudden acceleration in Toyota vehicles have been filed with the U.S. government, among them allegations of at least 34 fatalities. Yet when federal safety regulators repeatedly investigated the matter over the last eight years, Toyota asserted that many of the complaints were not relevant.
Although such behavior may seem irrational, the phenomenon is known as the "normalization of deviance," a theory advanced by Columbia University professor Diane Vaughan. In a groundbreaking study, she found that NASA had slowly come to believe that safety anomalies in the shuttle were "normal," because they had not caused an accident in the past.
Toyota has used its structure to fend off lawsuits, forcing attorneys to file repeated requests for information to different subsidiaries, said John P. Kristensen, an attorney in a suit against the company.
"You don't need an MBA to know that Toyota's American subsidiaries were intentionally created to keep them in the dark," Kristensen said. "The system was set up intentionally to work like this."
