Putting Recalls in the Rearview Mirror

By Mark Green

Toyota team members assemble a vehicle March 18 in Georgetown at Toyota Motor Manufacturing Kentucky. The worker inside the vehicle is sitting on a device Kentucky team members suggested for easier access to their task.

Toyota’s top Kentucky executive has been assigned a central role in putting the world’s leading auto manufacturer’s image-denting recall woes in the rearview mirror. Steve St. Angelo, president of Toyota Motor Manufacturing Kentucky and executive vice president of Toyota Motor Engineering & Manufacturing North America, is now also chief quality control officer for North America.
Kentucky’s business and government sectors alike wish St. Angelo well – Toyota has a $3.9 billion annual impact on state GDP, according to Gov. Steve Beshear.

“Toyota’s presence in Kentucky has a tremendous impact on the state’s economy,” said Beshear. “Since opening its Georgetown manufacturing facility in 1988, Toyota has also located its North American manufacturing headquarters in Erlanger and North American Parts Center in Hebron, investing a total of $5.5 billion in the commonwealth. Toyota’s decision to locate in Kentucky led to a significant addition of jobs for suppliers and support businesses – some 65,000 Kentuckians now work in support of the auto industry.

“In 2008, Toyota’s employment impact on Kentucky’s economy, either directly or indirectly, was an estimated 37,100 jobs, generating approximately 2 percent of Kentucky’s total employment.”

Beyond the private sector billions, Toyota’s presence generates large amounts of occupational and property tax revenue for state and local governments. Suffice it say, the last thing the state needs in a “jobless” economic recovery is big trouble for the largest member of its automaker sector.

“The new organization will open the lines of communication globally and enable us to respond faster here in North America to any concerns about our vehicles,” St. Angelo said via a news release March 25 announcing the North American Quality Task Force. “In keeping with (Toyota CEO) Akio Toyoda’s mandate, North America will have greater autonomy and play a critical role in decision making on recalls and other safety issues.

“We are making fundamental changes in the way our company operates in order to ensure that Toyota sets an even higher standard for vehicle safety and reliability, responsiveness to customers, and transparency with regulators,” St. Angelo said.

Meanwhile, aggressive 0 percent financing and subsidized lease incentives Toyota launched in March were well received in the marketplace. Sales jumped 41 percent. Automotive News reported that Edmunds.com forecasts U.S. light vehicle sales for all makes for March will be up 31 percent from a year ago.
Toyota’s incentives lead the way and its vehicles are selling strong, according to Carl Swope in Elizabethtown and Tracy Farmer in Louisville, each of whom sell a variety of lines of vehicles at multiple Kentucky dealerships. (See related story, Page 30)

Barring another major safety-related recall in the near future, Toyota appears to be putting the organization-testing difficulties behind it.

Distress in the Bluegrass
The 6,000-plus Toyota team members in Georgetown were upset about cars they produced being among those recalled in January because of reported uncontrolled accelerations. Television news crews suddenly became regular visitors, and they were not focusing their cameras on the 10 J.D. Power and Associates Initial Quality Study award banners hanging at TMMK, the most of any car production site in the United States.

Among vehicles recalled in connection with customer-frightening acceleration complaints were 2007-2010 Camrys and 2005-2010 Avalons built on TMMK’s Line 1. There are two production lines in Georgetown; Camry, Camry Hybrid and Venza vehicles made on Line 2 were not recalled.

With media reports growing more and more sensational and questions expanding to virtually all Toyota products, the company halted all production and sales of its vehicles for a week as engineers, administrators and executives looked for the root cause and extent of the fix.

TMMK?employees approached St. Angelo on the factory floor, expressing concern and asking what they could do, said Rick Hesterberg, the Georgetown-based assistant manager for external affairs for TEMA.

“Our team members took this recall very personally,” Hesterberg said.

Worry among workers and management who build the Camry, Camry Hybrid, Avalon and Venza in Scott County rippled from the massive production facility to much of Kentucky, the nation’s No. 3 auto manufacturing state. More than 90 of the state’s nearly 450 vehicle parts makers count Toyota as a key customer.

Toyota’s overall President Akio Toyoda came to Kentucky Feb. 25, visiting with St. Angelo and the company’s team members in Georgetown a day after testifying before Congress in Washington. He created the Special Committee for Global Quality the next week.

Toyota officials took further steps in late March to improve information flow to key decision makers within their worldwide operation. Hesterberg said Toyoda himself said the organization was slow to see the problem it was having, and that made it slow to react. Bad news can be a reluctant traveler up the chain of command of an organization, whether due to sheer size, cultural differences or that age-old fear about the fate of the messenger. Information flow will play a significant role for the new Toyota entities of which St. Angelo is now a member.

He will guide the implementation of regional improvements in concert with the Special Committee for Global Quality led by Toyoda. As chief quality officer for North America, St. Angelo will serve with counterparts from the other regions on Toyoda’s committee, which met for the first time on March 30 in Japan.

Each regional task force is specifically charged with executing a six-point action plan outlined back on Feb. 5 by Toyoda. Its elements include improved quality assurance; enhanced customer research; strengthened quality management training; incorporation of best practices through outside professionals; closer cooperation with regulatory authorities; and improved regional autonomy.

Communication was key during the early days of the Toyota crisis. TMMK and other company production facilities stay in close contact with suppliers, Hesterberg explained. Toyota executive, engineers and workers trade visits with suppliers and share best practices to help keep costs down and improve productivity. Open channels of communication had long been in existence, headed by TMMK’s purchasing department.

“We kept open lines of communication. They were concerned,” Hesterberg said.

As with the company’s workers, Toyota seeks a long-term relationship with suppliers in which the benefits, financial and otherwise, flow both ways, he said.

“They have to make a profit. We have to make a profit,” Hesterberg explained.
“Obviously suppliers have to have success, too, or we can’t succeed.”

Ultimately, the acceleration problem with the Georgetown-produced Toyotas was pinned down to a pedal being supplied to TMMK Line 1 by CTS Corp. in Elkhart, Ind. Line 2 uses a pedal from another supplier.

“It was a mechanical issue with that part,” Hesterberg said. “It had nothing to do with how a team member was assembling that part.”

March Car Sales Approach Pre-Recession Levels
Car sales are regaining momentum according to the trio of major Kentucky dealers The Lane Report checked with in late last month. In fact, March numbers could rival those of “clunker” month last August.

“This month will speak volumes when the numbers come out,” said Carl Swope, who along with his brother Bob leads the Swope Family of Dealerships, based in Elizabethtown. “The preliminary reports are very encouraging.”
Together, the Swopes’ father Bill and uncle Sam began selling cars in 1952. Today the Swope Family of Dealerships and affiliated Sam Swope Group have 25 dealerships with 28 franchises in Hardin, Jefferson, Fayette and Madison counties in Kentucky and Southern Indiana.

“I join the majority who who expect steady improvement through the year,” Swope said. “March has been a pretty exciting month for us.”

January and February are traditionally slower months, especially so this year with extra harsh winter weather. Additionally, Swope said he believes the media storm regarding Toyota recalls affected other brands, too – and he would know since the various Swopes sell Chrysler, Dodge, Jeep, Nissan, Toyota, Ford, Mitsubishi, Hyundai, Cadillac, Buick, GMC, Infinity, Lexus, Honda, Acura, Toyota, BMW and Volvo.

“I think the whole industry was in a funk last month (February) because of the Toyota situation,” he said.

Tracy Farmer owns the Oxmoor Automotive Group of seven dealerships centered on Shelbyville Road in Louisville. They sell Toyota, Scion, Ford, Lincoln, Mercury, Isuzu, Hyundai and Mazda.

“We’re nearly back to where we were before,” said Farmer. That means prior to the financial crisis that hit in fall 2008, crippling credit operations and slamming the brakes on the economy and credit-sensitive car sales all over the United States.

The improvement has been less dramatic for Paducah Ford Lincoln Mercury Mazda, according to Owner/President Larry Stovesand. But that’s because his 27-year-old operation did not experience a significant falloff in sales during the depth of the recession.

“It was never that bad for me,” said Stovesand, who took over ownership of his Paducah dealership in 1983 and opened another in Nashville four years ago. Overall annual sales were up year over year in 2007, 2008 and 2009.

Why? “Who knows,” he said, “but I don’t look a gift horse in the mouth.”

Farmer agreed with Swope’s assessment that March sales will rival those of last August when the federal Cash for Clunkers program revved up a moribund market. The clunker program, which provided vouchers of up to $4,500 when customers traded in a wide range of older, low-gas-mileage vehicles on new cars, was akin to the Christmas sales season for retailers, Swope said. “Most dealers made their money in clunker month.”

A major reason for the current sales boost is the “serious set of incentives” Toyota introduced in March to reinvigorate its sales, prompting other makers to follow suit or be left behind. Buyers obviously feel “Toyota still makes safe cars despite all the media hysteria,” Swope said.

Toyota’s sales have been strong the past month, and it has plenty of product available, Farmer said, suggesting other vehicle producers “cut back perhaps too much.”

Stovesand also said he is experiencing inventory difficulties with some vehicles. “I am short of big SUVs,” he said, “and probably will be for the rest of the year.”— Mark Green

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