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Lessons from the Toyota debacle

By Claes Bell, CFA · Bankrate.com
Thursday, May 13, 2010
Posted: 2 pm ET

Recalls of cars are always unnerving for those who borrowed large sums of money to buy a vehicle that ends up being judged unsafe. I think this is particularly true for those who bought a Toyota in the last few years, mostly because the massive recalls were so unexpected.

It's hard to remember now, but prior to the revelations about sticking gas pedals and unintended acceleration, the national press was almost unanimous in its admiration for Toyota. BusinessWeek proclaimed it the No. 8 best brand in the world in 2009, well above Apple and just under Google. Consumer Reports' 2007 brand perception survey found that well over a third of consumers considered Toyota to be the best brand of cars in the U.S. The company consistently had resale values that were at the top of the market, winning Kelley Blue Book's Best Resale Value Award in December 2009.

But that image of invulnerability changed with the revelation of potentially lethal manufacturing and design defects in a broad cross-section of the company's cars that date back years. How did Toyota get away with selling faulty products for so long? The power of the Toyota brand helped blind the media, regulators and customers to the company's metastasizing quality control problems, caused in part by the company boosting production so quickly its quality control apparatus couldn't keep up. In a way, the company was a victim of its own success: In an attempt to meet the rising global demand for its products, it ended up undermining the very quality that helped create that demand.

There's a lesson for car buyers here: A brand is just a brand; it's not a guarantee of a repair-free vehicle or a higher quality vehicle. Yes, if past experience holds, a Honda is less likely today to experience the same level of unreliability as, say, a Dodge. But that fact doesn't mean that the same will be true in a few years or even tomorrow.

Truth is, there's no 100 percent reliable way to make sure you don't get stuck with a money pit on wheels. Great car companies build crappy models all the time, and car companies you thought were lackluster can show quick improvement, as Ford and Hyundai showed by having a surge of new models named among Consumer Reports' Top Picks for 2010.

Instead, it pays to research individual models via Consumer Reports, J.D. Power and other quality surveys, and to keep an open mind at the outset about what model of car you're going to buy. Make sure that you're buying the vehicle you want, and not just a respected nameplate, because, in the end, a nameplate won't get you to work in the morning or to Grandma's for Thanksgiving.

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6 Comments
Dane
May 22, 2010 at 8:04 pm

I totally agree that Toyota fell victim to its own brand success. However, it's worse than just a brand being an unreliable indicator of quality: even a given model of a given year can have significant deviation in terms of quality between individual cars.

Choler
May 14, 2010 at 2:29 am

There is no such thing as a perfectly reliable car. Likewise, there is no such thing as a fool-proof auto brand. The best way is always to use your own judgement and experience. Over-reliance on media reports and reviews often gives a false impression of auto brands. Before, Toyota could do no wrong. Now it seems anything that is wrong has to do with Toyota. The reality is neither. Those who write-off Toyota now is just as guilty as those who praise Toyota as the perfect car company.

Henry
May 13, 2010 at 8:03 pm

Sometimes the old traditions do have some wisdom behind them. Don't let emotions rule your decision making. You should like your car, but lust isn't appropriate. If you find yourself overwhelmed by your desire for a vehicle it probably isn't possible for you to make an informed decision.

Another very good rule is that when a huge new change to a model or a new model is marketed, avoid being an early adopter. Some ultimately really good cars suffered huge problems with quality when first introduced. I have a brother in law who bought an Accord about a year and a half after it was originally marketed. The A pillar rusted out about 3 years later. Ouch.

Better to judge them on how forthcoming they are when they have a problem. Remember Audi's problems.

Meagan
May 13, 2010 at 4:36 pm

But even Consumer Reports bases their reliability index on how past models from the same brand have performed. There really is no fool proof way to avoid a lemon. Thats why buying used cars is a better bet.