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Another day, another Toyota recall

By Claes Bell, CFA · Bankrate.com
Thursday, August 26, 2010
Posted: 4 pm ET

Today we have news that Toyota is issuing a voluntary recall of 1.3 million Corollas and Matrixes (Matrices?) built between 2005 and 2008. Apparently, some engine control modules installed in those cars may have been improperly manufactured. The issue has been under investigation by the NHTSA since November because the faulty engine control modules could cause the cars to "stall at any speed without warning and not restart."

I guess Toyota is making progress here. After all, this recall comes without a massive cover up or months of battling with the federal government. Also, a car whose engine won't shut off is better than one that won't stop accelerating, I guess.

Seriously though, it goes without saying that if you own one of these vehicles, you should take it in to your local dealership as soon as you get your recall notice. Nobody wants to get caught on the highway doing 70 mph and have their car shut down and refuse to restart. If that happened, your power steering assist and power brake assist would be disabled, making it tough to safely stop and pull over.

The broader question is, how did a company that once symbolized quality, and still does for so many people, rack up over 10 million recalls in two years? There was an excellent Bloomberg article earlier this year that explored this question. Here's an excerpt:

On the job as Toyota's chief executive for less than three months, Watanabe told New York’s financial community at the Sept. 12, 2005, gathering that a cost-reduction program he designed had wrung out more than $10 billion of savings over six years. Called "Construction of Cost Competitiveness in the 21st Century," the initiative was only a start, he said.

"Under CCC21 activities, which I led, Toyota realized cost reductions of more than 200 billion yen ($2.2 billion) a year on a consolidated basis," Watanabe said. Next was an "aggressive version of CCC21" Watanabe called "Value Innovation" that promised more savings by making the entire development process cheaper and further trimming parts and production costs.

Those cost reductions made Toyota a profit powerhouse, but along with a rapid expansion of production that forced Toyota to outsource more design and production of its cars to suppliers, who were being squeezed by the company's cost-cutting initiatives.

Modern automobiles are incredibly complicated to build and assemble, and even small slips in quality control and design can cause potentially lethal problems. I just hope Toyota's difficulties, and its resulting loss of prestige, brand perception and stock price, will serve as a cautionary tale to its current management and to other automakers always looking for new ways to increase profitability.

What do you think? Is Toyota's string of bad breaks deserved? Will the company clean up its act and return to making some of the highest quality cars in the world?

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