Posted By
KIM KORTH
on
1/29/2010 5:03 PM
The Toyota recall story has been moving so fast and furiously, it has been hard to keep up. Given the amount of ink that has been used (and media air time) on this story, we were hesitant to jump into the fray but we also didn’t want people to think we were ignoring the story. For those of you that have been on another planet the last week, Toyota has recalled over 2.3 million vehicles in North America and another 2 million vehicles in Europe over a faulty accelerator pedal. While Toyota has been bearing (and will continue to bear) the brunt of the consumer backlash over this issue, it surfaced this week that the primary suppliers for this part are Denso and CTS, based in Elkhart, Indiana. Numerous sources yesterday confirmed that the faulty parts appear to be confined to CTS. While it is hard to address this issue in any kind of meaningful way in a short blog posting, here goes:
Impact on Toyota
• Profound but still “fixable” if they handle it correctly. Profound because their bullet proof reputation for quality is gone. They had declining consumer quality ratings for the last few years and with this recall they will have successfully thrown themselves under a bus. Too many front page stories of teary eyed drivers stressing how terrified they were when they lost control of their car;
• Fixable if they can convince consumers that taking this massive approach to the problem is what a quality/safety oriented company would do. The only problem is they apparently have known this was an issue for a long time so they may have a tough time explaining why they didn’t do anything before this. They also need to convince NHTSA that this approach is acceptable. If they have to replace the entire pedal assembly, the cost and damage to their brand could be astronomical;
• Further evidence for critics that Toyota has continued to cheapen their components in an attempt to reduce their cost structure (probably trying to improve their position against Hyundai). They were heavily criticized (and we agree), for example, for cheapening their interiors on most of their vehicles displayed at the recent Auto show;
• A huge present to Ford, GM and even Chrysler. Couldn’t have come at a better time for the Big 3 as they seek to recapture lost market share.
Impact on CTS
• Contrary to their current bravado, they will be lucky to survive without a “significant financial emotional event”. In their earnings call this week they claimed this would not have a materially negative impact on their earnings this year and besides, Toyota only represents 3% of their sales. Really? No major impact? I am frequently referred to as optimistic but this appears to border on delusional.
Impact on OEM Parts/Supplier Strategy
• Could lead to some serious re-visitation of parts commonization. Our guess is that there will be a greater attempt to balance the cost advantage vs. the risk;
• Could seriously reinforce the OEMs taking back design responsibility for some modules and components, particularly those that are safety critical. This could have the most long lasting effect of all.
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