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Toyota: It's Getting Even Worse

By John Rosevear – Updated Apr 6, 2017 at 8:00AM

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There's no end in sight to the automaker's troubles.

Toyota (NYSE:TM) has been on the hot seat for months over safety defects with a number of different vehicle models. The problem, as you'll recall, isn't so much the safety issues (though they're bad and they need fixing) as it is the company's longtime pattern of responding to problems with a mix of denial and foot-shuffling.

News flash: We can apparently add "regulatory bamboozlement" to that list.

According to Bloomberg, Toyota's Washington office hired former regulators from the National Highway Traffic Safety Administration (NHTSA), the car-safety arm of the Department of Transportation, and put them to work talking NHTSA out of forcing Toyota to recall cars.

It'd be easy to say, "Eh, that's business nowadays, they all do it," except that they don't: Ford (NYSE:F), General Motors, Chrysler, and Honda (NYSE:HMC) all say they have exactly zero ex-NHTSA people employed to deal with the agency on defects.

Toyota, once again, is a unique and special flower.

It isn't going away
All of this negative news coverage has had at least two effects: Toyota's sales seem to have taken a hit, and officials in high places in both the U.S. and Japan have gotten cranky. On Tuesday, the Department of Transportation ordered Toyota to turn over documents related to the various safety issues. That may not sound like a big deal, but it is -- the DOT is aggressively looking for evidence that Toyota knew of safety defects but didn't take appropriate action.

And if they find that evidence? Oh boy. With Secretary of Transportation Ray LaHood personally involved, it's clear that the heat -- inside NHTSA and inside Toyota -- is now intense.

Is there fire behind the smoke?
Meanwhile, the company's senior management keeps trying to beat back the flames. In a press conference in Tokyo on Wednesday, Toyota made a number of interesting revelations:

  • The Corolla could be next. Responding to reports of steering issues with the Corolla, Toyota said that the company is actively investigating and made a point of noting that it is considering a recall. The Corolla is the world's best-selling car. A global recall for a serious safety defect would be a huge deal.
  • Brake-system modification to become standard on all new Toyotas. Control systems will be modified to ensure that pressing the brake pedal always overcomes acceleration. (Yes, fellow car geeks, this one's an eyebrow-raiser. I look forward to your comments.)
  • Toyota is creating a global quality task force. You mean they didn't have one already? Seriously?
  • Toyota will add more black-box recorders. Sounds great, but these are supposed to become mandatory in the U.S. by 2012 anyway.
  • Toyota is cutting production due to declining sales. Two U.S. factories will be idled for a combined total of 14 days. The company estimates that it has lost 100,000 sales due to the safety mess during this fiscal year, which ends in March.

Also, company president Akio Toyoda said that yeah, maybe they've overreached a little: "The basic rule of the Toyota Production System is to only build as many cars as there is demand for, and we ourselves broke that rule."

That's nice to hear, but it's not even the beginning of enough.

The upshot
Most consumer-facing companies have recalls every now and then -- Johnson & Johnson (NYSE:JNJ), Mattel (NYSE:MAT), Campbell Soup (NYSE:CPB), Newell Rubbermaid (NYSE:NWL) ... I could go on and on, and I haven't even mentioned the other automakers. But all of those companies have had their share of recalls, as have many others.

The recalls, by themselves, aren't Toyota's big issue. The issue is what have they been hiding? And more to the point, can we trust their products?

With Congressional hearings starting later this month, and the full attention of regulatory bigwigs focused on finding smoking guns in the interim, it isn't going to get easier for Toyota any time soon. How bad will the damage be long-term? Only time will tell.

Fool contributor John Rosevear owns shares of Ford. Ford is a Motley Fool Stock Advisor recommendation. Johnson & Johnson is a Motley Fool Income Investor selection. Motley Fool Options has recommended a buy calls position on Johnson & Johnson. The Motley Fool has a disclosure policy.

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