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Toyota Doesn’t Deserve This February 11, 2010

Posted by Amir Roth in business.
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I have a Prius. A 2007. I’ve had some annoying problems with it, the most annoying being that the gas gauge is messed up and signals that the tank is empty when there are 3+ gallons left in it, leaving me to play a game of gas tank chicken using only the trip odometer. It also does this strange thing when I hit a pot-hole. My wife has said that she has noticed strange acceleration and problems with the breaks. I haven’t. The 2007 model isn’t mentioned in any of the recalls, but the way things are going there may be a gas-gauge recall next week. And a dome-light recall the week after that. And a back-left speaker recall after that. And a screw-it-all-models-recall after that. Is this deserved? Is this really what we want?

Evidently, Toyota malfunctions have already been linked to 19 fatalities. I’ve read this terrible story and a few others like it. They are haunting. Toyota has already paid dearly for these. The scheduled recalls are going to cost two billions dollars. Lost reputation and future business are going to cost billions more. And it should pay dearly in direct compensatory damages to the families of the deceased. But now I am reading about reopening unsolved cases involving Toyotas and about multi-billion dollar class action lawsuits involving lost future resale value.  People, what do you think is going to happen to your resale value if Toyota goes out of business?

Is Toyota actually in danger of going out of business because of this? Probably not as things stand now, but things could change in a hurry. Toyota does about 200 billion dollars worth of business annually and usually reports profits of around 8 to 15 billion, although in 2009 it reported a 4 billion dollar loss. Toyota can survive a 2 billion dollar recall. It can probably survive several of them. It can probably survive several billion dollars worth of lawsuits. And losing 20 to 40 billion dollars in annual sales. And a reduced credit rating. And 50% of its stock price. It can survive these things and it will, although it might lose as much 25% of itself in the process. By the way, if this happens, some the 25% will come from the 35,000 US manufacturing jobs in Tennesee, Kentucky, Indiana, etc. And some more will come from US Toyota dealership jobs.

But it shouldn’t happen. Toyota doesn’t deserve it. Quotes like “lawyers are ‘champing at the bit’ to get after Toyota” (see this CNN article) will have you believe that Toyota is guilty of at best criminal negligence and at worst conspiracy. But is it? Prior to the public apologies by Mr. Toyoda himself (why did his dad spell the name of the company differently than his own name, anyways?) the company has been in public denial mode, blaming floor mats, discounting the scope and severity of the problem, etc. But this is a panic-driven public relations failure. It may be negligent, but it is no more negligent than any other carmaker has been in the face of a similar situation (Ford Pinto exploding gas tank anyone?). And it certainly isn’t a willful conspiracy. Do you honestly believe that Toyota knowingly put out potentially dangerous vehicles and is now in the process of a massive cover-up? This is the most socially responsive and responsible auto company in history!  They had never dealt with something like this before (to their credit). They were caught off-guard and they panicked. They tried to use denial to buy themselves a little time to find and fix the problem, and when they couldn’t they stonewalled rather than coming clean. They goofed. Badly. But only after the fact. They aren’t Philip Morris. They didn’t knowingly put out harmful product and lie to the public and to congress about it. Maybe there is a smoking hot trail of internal memos with titles like “We should probably issue a proactive recall” and “Screw it, nothing is going to happen.”  I doubt it. By the way, can congress investigate a foreign company?

Assuming that there is nothing premeditated and willful here, how is what Toyota has done any worse than what Ford and GM have done? Ford and GM know quite well that huge SUVs are dangerous. Not to the people driving them, but to the other cars on the road. Does GM get sued every time a Yukon hits a Civic at 25 mph and kills everyone inside? And Ford/GM’s refusal to invest and build fuel-efficient cars and continuing to push oversized, unnecessarily-horsepowered, low-mileage vehicles may be just as criminal. Not only for perpetuating unsustainable driving practices and propping up the oil industry, but by stupidly reducing their own ability to compete globally and extorting 50 billion dollars worth of bailout from the taxpayers. Crying to congress about lost jobs in swing-states is extortion. And extortion is criminal.

I am sure that GM and Ford are ecstatic about what is going on. And this isn’t just schadenfreude. This is a chance to get back some of their lost standing and US marketshare. I wouldn’t be surprised if they are privately prodding the legal feeding frenzy, not that lawyers need to be prodded. But the truth is that the US would trade GM for Toyota in a heartbeat. And the worst thing that could happen is for Toyota to falter and make it easier for Ford and GM to continue with business as usual.

If Toyota puts a recall on the 2007 Prius, I will take it to the dealer and get whatever software patch will presumably fix the problem. And I will get the gas-gauge rebooted while I am at it (that worked the last time and stayed fixed for about four months). But I am not signing up for any class action lawsuit. And I will buy five more Toyotas before I buy a GM car.

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