Huge Toyota Recall? No Big Deal.

It sure sounds like a big deal: On Thursday, Toyota (NYSE: TM  ) announced a global recall of 1.53 million (with-an-M) vehicles, the company's 14th recall campaign in what has been a year of quality-related woes for the giant Japanese automaker.

I've taken Toyota to task several times this year for its handling of some of those earlier recalls. Documents were spun, reports were delayed, blame was shifted to places it might not have belonged ... it was a parade of PR blunders that made Toyota look like an out-of-touch, arrogant colossus, just as the companies' harshest critics had been saying for years. It was almost a textbook example of how not to manage a crisis.

With that background in mind, it's tempting to follow the lead of my fellow Fool Rich Smith, who reacted to the recall news by saying, "It's hard to overestimate how bad this fiasco is for Toyota."

But I disagree. I think it's quite easy to overestimate -- in fact, I think the whole thing is no big deal. One could even argue that it reflects well on Toyota.

One of these things is not like the others
As recalls go, this one's a mixed bag. On the one hand, it's an awful lot of cars: About 750,000 in the U.S. and another 599,000 in Japan, mostly sedans and midsize SUVs made from 2004 to 2006. There are a couple of separate problems being addressed, but most of the U.S. cars are affected by a seal in the brake system that could dry out and cause a small leak if the wrong brand of brake fluid is used.

Is it a safety issue? Yes, if it's ignored. On the other hand, it's not a particularly dramatic problem. A slow leak of brake fluid makes the brakes feel weird over time, and eventually, the car becomes harder to stop. But such a leak would trigger a dashboard "Check Brakes" warning light, leading most owners to get the problem addressed long before there was any serious danger.

Because it's a safety issue, Toyota was legally obliged to issue a recall right away, even though no accidents or injuries have been blamed on the problems. And that's exactly what the company did. In fact, National Highway Traffic Safety Administration head David Strickland actually praised the company in a Detroit News interview, saying, "Toyota really is taking safety much more seriously than they did before I took office [in January]" and that it is "working very hard to be a better company going forward."

Is this sounding like a PR disaster to you?

This is what business as usual should look like
Every automaker has recalls from time to time. Honda (NYSE: HMC  ) announced on Thursday that it would be recalling some of its own cars for the same brake problem, probably attributable to a part used by a common supplier. Even tiny Tesla Motors (Nasdaq: TSLA  ) , which has built fewer than 2,000 cars ever, had a recall recently, as did Ferrari. And of course even this giant-sounding Toyota recall pales in comparison with massive headache-inducers like Ford's (NYSE: F  ) ongoing efforts to fix 17.5 million cars with faulty cruise-control switches.

Ford's cruise-control recall is serious stuff. The defective switches, which were used for years in many different models, can cause fires even when the cars are turned off. And those recalls have drawn their share of media attention and owner howls over the years. But if recent sales figures and earnings projections are any guide, that fiasco isn't doing much damage to Ford's business now. In fact, the company is doing exceptionally well, because they've corrected the problem and moved on.

That's what Toyota's doing now -- correcting the problem, promptly. That's what the company didn't do earlier this year, and that's what caused all the trouble.

And that's why this recall isn't going to be a big problem for Toyota. It's just business as usual. That makes all the difference. The fact that Toyota is taking this approach now shows that the company has learned something. And that is good news.

General Motors is another automaker that has had more than its share of recalls over the years. Is GM finally on the right track?

Interested in reading more about Toyota? Add it to My Watchlist to find all of our Foolish Toyota analysis and commentary.

Fool contributor John Rosevear owns shares of Ford, which is a Motley Fool Stock Advisor pick. You can try Stock Advisor or any of our Foolish newsletter services free for 30 days, with no obligation.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On October 23, 2010, at 9:18 AM, TMFMileHigh wrote:

    Good work, John. I'm with you that there's at least somewhat of a shift in thinking at Toyota, but I also contend we're a long way from seeing the quality problems eradicated:

    http://www.fool.com/investing/general/2010/10/22/weekly-walk...

    My old Sienna (2005) still operates with a faulty low-pressure detection system for run-flat tires -- a known issues that's best described here:

    http://www.aa1car.com/library/tire_monitors.htm

    To be fair, Toyota settled a class-action suit over run flats in 2006, but my local dealer and regional service manager have both denied Toyota's designs have contributed to the problem. I'm unconvinced.

    An ABS detection system is always going to be less effective with a new run-flat tire, because the new versions are built with extra-thick outside walls to avoid rapid degrading. In my vehicle, at least, this is merely trading one problem for another.

    Sorry for the rant. You're surely right that Toyota is doing better than it was. Still, with the recalls and my own experience, I can't yet bring myself to trust the automaker.

    FWIW,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On October 23, 2010, at 10:20 AM, baldheadeddork wrote:

    Ah, c'mon John.

    The newest vehicle affected by the Ford recall came off the assembly line seven years ago. The oldest is twenty years old. There are 14.5 million vehicles affected, but a high percentage of those went to the crusher years ago. Comparing it to Toyota's problems for cars made in the past three years is ridiculous.

    There's also a hell of a difference in cost. I was a Ford tech in an earlier life and electrical recalls are easy and cheap (for the manufacturer) as long as you don't have to replace the wiring harnass. Unplug the bad part, unscrew however it's mounted, and replace it. Most recalls for stuff like this paid only a couple tenths of an hour and the part itself retailed for less than $50-80. Toyota's accelerator recall is going to fall in this group.

    But their two most recent recalls are a whole other matter. That valve spring recall is going to be an all day job on each car that comes in. Pulling and replacing the master cylinder is going to be a couple hours per job and this isn't a cheap part.

    I'm also calling BS on their excuse. Brake fluid isn't like coolant or power steering/transmission fluid where the manufacturers cook up a new proprietary formula every few years. Brake fluid is either DOT3, 4, or 5.1. Toyota DOT4 fluid has to be interchangable with any other DOT4, and the components in the system need to be able to function with the characteristics of the fluid. Owners who put the wrong fluid into the system (DOT3 in a DOT4, for example) wouldn't trigger a recall. The only way this happens is if Toyota or their supplier cut the specs on this seal a little close to save a few cents per part and Toyota relies on additives to their fluid to make up the difference. The rubber compound you need for a given brake system is well known. If they didn't use it, it's because someone chose to.

    (The timing of the Toyota and Honda recall make me wonder if they have a shared supplier for master cylinders on these models? It would be a lottery ticket coincidence for this to happen at the same time from unrelated suppliers.)

    The big point you miss in the story is, this by itself isn't a PR nightmare - but it damn well extends the life cycle of their earlier PR nightmares. For some owners of these models, this is going to be the third or fourth recall they've received in the past year. How do you think those owners are responding to Toyota's new (and massively ballsy) "peace of mind" ad campaign? For the public as a whole, it's another reminder that Toyota today might not be the company you remember from decades past. How many of these will people put together before perception becomes reality?

    And because of how Toyota ran itself for the last decade, it's unlikely that we're close to being done with this. Cost-cutting decisions made years ago about the design specs for a fuel pump or transmission component are going to become recall issues as the parts get a few years of service on them. It will take most of this decade for Toyota to eradicate this problem.

  • Report this Comment On October 23, 2010, at 10:24 AM, TMFMarlowe wrote:

    Tim, you're right. The long development lead times -- 3 years, give or take -- for new cars means that any dramatic change in the company won't be seen in the showrooms for a few years yet. Toyota's approach to recalls (and to expansion at all costs) seems to have improved greatly since earlier this year, but it's way too early to say that the company is back to where they'd like us to think they are.

    FWIW, the tire pressure detectors in my Cadillac work great. (But the power steering pump made a disturbing noise yesterday. Ah, GM...)

    John Rosevear

  • Report this Comment On October 23, 2010, at 10:28 AM, TMFMarlowe wrote:

    @baldheadeddork, I disagree. I think this'll blow over quickly, at least in terms of doing any PR damage to the company. The unintended-acceleration stuff is already yesterday's news. The perception that Toyota is no longer invincible on the quality front will linger, but between Hyundai and the Ford resurgence that was in serious danger anyway.

    And yeah, it has to be a shared part, or at least a shared supplier, with Honda. I'll try to find out more.

    John

  • Report this Comment On October 24, 2010, at 1:35 PM, Milligram46 wrote:

    Great write up as usual John and I agree that this is a cloud with a silver lining. It's a cloud in that it is another large scale recall for Toyota that puts another spot of tarnish on the once perfect halo they had. On the other hand Toyota appears to have thrown out their old playbook such as:

    1) It is the customer's fault

    2) It is the customer's fault

    3) We do nothing wrong

    4) Let's do a silent recall, write a TSB and tell customers it is their fault

    5) It is the customer's fault

    The irony here is that in this case, the defect would be largely due to the customer, or the customer's mechanic making a mistake - thus - if done outside of the Toyota dealer network it would be - the customer's fault.

    They are as you noted by regulation required to do the recall.

    Accelerationgate for Toyota has cost them about 2% marketshare in the United States, and caused even more damage to their reputation. Ford and Hyundai appear to be the big winners in snapping up that lost marketshare. GM is cloudier because their marketshare has slipped but they killed four brands - so is a 1.2% loss minus half your brands a "bad" thing? Hard to read those tea leaves but it seems very clear that Buick is absolutely getting sales from Lexus, which is hemorrhaging marketshare.

    Toyota's bigger issues are not in the United States anymore (beyond a rash of lawsuits that will take years to go through the courts). With the end of government subsidies (what, government aid) in Japan to help drive car sales ending last month, and Toyota not enjoying much traction in the largest car economy of the world called China, they are already girding themselves for further declines in global sales and revenues.

    A near mortally wounded General Motors with four less brands is expected, at current projections, to retake the top car maker in the world title this calendar year.

  • Report this Comment On October 25, 2010, at 10:33 AM, govreg wrote:

    I agree completely with @baldheadeddork. Every one of Toyota's recalls were basic design flaws; frame corrosion, pedal design, valve spring design, and yes, leaky brake seals. You could argue that the master cylinder is a supplier part but it is Toyota's responsibility to make sure their specifications on those parts include compatibility with all noise factors, including incorrect fluid (or incorrect floor mat placement for that matter). I work with the 3 main brake American car company brake suppliers (German based) and seal compatibility with different brake fluids is not an issue since the suppliers and the auto makers specify and run extensive test for compatibility. This is such a basic and fundamental requirements for brake systems, that for a supplier and manufacturer to miss this (along with other fundamental errors like not protecting for road salt corrosion on a truck) is just one more example of a patter of poor designs and I would expect that the Toyota recall train is just leaving the station.

  • Report this Comment On October 25, 2010, at 12:44 PM, jpanspac wrote:

    If you rely on your dashboard lights to warn you of safety issues you are indeed a fool. My Camry recently developed a brake line leak and lost nearly all of its brake fluid before I could get it to the shop. I'm not blaming Toyota for the leak, because it's a '92 with 160K miles. But the dashboard light never came on.

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