The Toyota Train Wreck Continues

Et tu, Consumer Reports?

In what seemed like an almost surreal development in the context of Toyota's (NYSE: TM  ) long list of troubles, Consumer Reports on Tuesday placed a "Don't Buy: Safety Risk" warning on the Lexus GX 460, the venerable magazine's first such warning since 2001.

The warning was issued after the SUV's rear wheels showed a tendency to slide sharply during a standard test maneuver, in which the driver quickly lifts his foot off of the accelerator in the middle of a turn. That handling characteristic is called "lift-off oversteer," and while it's arguably useful in certain circumstances -- in a vintage Porsche handled by an expert driver on a racetrack, say -- it creates a serious rollover risk in an SUV.

Electronic stability controls built into most new SUVs are intended to correct such handling problems, and most of them work quite well. But the system in the Lexus doesn't intervene quickly enough to help, says Consumer Reports, and it formally recommended that readers shop elsewhere until Toyota develops a fix. For its part, Toyota said it would halt sales of the GX 460 until a solution was found. It's also testing all of its SUVs, worldwide, for similar problems.

Now, under normal circumstances, such a warning would be a point of concern prompting a strong PR response and an all-hands engineering effort to find a solution as quickly as possible, but it would likely blow over in a matter of weeks.

But these aren't normal circumstances for Toyota.

An ever-lengthening list of woes
The week started off with yet another jolt for the embattled automaker: An Associated Press investigation concluded that Toyota "has engaged routinely in questionable, evasive and deceptive legal tactics when sued." The AP contended that Toyota has engaged in a systematic pattern of hiding the existence of documents harmful to its position in lawsuits around the country.

Hiding the existence of documents relevant to a lawsuit is a major no-no, one that courts look upon very dimly. The timing of the AP's report -- arriving just as major litigation against Toyota over the unintended-acceleration issue is getting under way -- is exquisitely inconvenient for the auto giant.

The report's impact on the company's business, though, may not be significant. In a year that has already seen numerous recalls, extensive publicity over the unintended-acceleration issue, and congressional hearings that included testimony from CEO Akio Toyoda himself -- testimony that made headlines all over the world -- these latest developments may seem like just more chapters in a story that's already getting old.

But there's a deeper drama going on here, one that should be of serious concern to Toyota shareholders.

The story behind the stories
Like Ford (NYSE: F  ) , Toyota's history is a long story of interplay between members of the company's founding family and the professional executives brought in to run the firm. But unlike Ford, where the family's representative holds a nonexecutive role and is strongly supportive of management, Toyota's executive ranks have been split by a longtime feud between the Toyodas and several of the company's senior managers, including Vice Chairman Katsuaki Watanabe, who served as president until being replaced by Akio Toyoda last year.

According to a Wall Street Journal report earlier this week, the challenges of recent months have intensified this feud, with the Toyoda camp claiming that Watanabe and other nonfamily executives were responsible for placing growth over quality in recent years. Akio Toyoda has said that's the source of the company's current troubles.

Watanabe and his aides have countered by saying that the problems stem largely from current management's responses and prove a point they have been trying to make for years. Akio Toyoda, the company's youngest chief executive in decades, is not up to the task of running the giant automaker, they say.

This is a real problem
At this point, it almost doesn't matter which side is "right." While there are merits to both sides' arguments, the issue for shareholders is that there's a battle going on in the company's executive suite at a moment when the company urgently needs to refocus and move forward.

The challenges are immense. The company's U.S. market position -- which is being held aloft by an expensive incentives program -- is under assault from several directions, as Ford, General Motors, and even incentive-phobic Honda (NYSE: HMC  ) have moved to counter Toyota's campaign. Recalls and negative publicity are mounting in critical growth markets such as China, and could be turning away buyers at a moment when other automakers are seeing big gains.

Add in those lawsuits and peeved regulators in several governments, and it's clear that this is a crucial moment in Toyota's history -- one calling for clear, focused, intelligent leadership. For shareholders, the question now is this: Does Toyota's management have the focus to deliver?

Fool contributor John Rosevear owns shares of Ford, which is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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