Toyota Experienced the Cruelest Consequences of Quality Erosion Due to Cheaper Production

By recalling cars with defects produced in the Czech Republic, Toyota lost $20 billion in just one week. A similar situation is occurring with Peugeot, again in the factory in the Czech Republic, but this is not a lesson for Fiat, which intends to close five factories in Italy as it is more profitable to produce in Poland or Brazil.

Written by: Vanja Figenwald
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As if the state of the industry were not desperate in itself, Toyota experienced one of the worst crises in its history last month. From the very beginning of the recession, the automotive industry has been the hardest hit, extremely dependent on the level of consumption, or the willingness of consumers to afford luxury, but Toyota went a step further and shot itself in the foot, raising questions about what is really happening with an industry that is slowly becoming a case study. It has been revealed that a whole range of models, a total of eight, has an extremely serious defect in the gas pedal that can get stuck, which is certainly one of the worst possibilities while driving, but to make matters worse, their models have also been dragging a problem with floor mats since last year.

After the scandal broke somewhere in mid-January, although the whole story has been dragging on for some time, likely as a result of attempts to minimize the negative effect from the company, every subsequent day for Toyota was its worst enemy as it brought only an even greater number of models and vehicles that had to be recalled. The current number has reached about 7.9 million vehicles worldwide (practically the total number of vehicles sold last year), which can without exaggeration be called a pure disaster, especially for a manufacturer that owes its first place in the world largely to its image as a reliable and quality manufacturer.

The very number of potentially defective vehicles suggests that the Japanese giant has also succumbed to the pressures of unfavorable times and increasingly ruthless competition, which could ultimately cost them dearly. Twenty billion dollars to be precise, which is how much the company lost in market value in just one week, along with a production halt lasting at least a month. It didn’t take long for news to start arriving that their direct competitors from South Korea, a very aggressive player that increasingly threatens established brands, began to record profits at the expense of their neighbors. Shares of South Korean manufacturers rose simultaneously with the decline of Japanese ones, and they are also supported by very good sales figures from January. After such a debacle, Toyota had no choice but to apologize, which President Akio Toyoda did on January 29, and urgently find a way to repair that endless army of vehicles as painlessly as possible. This event shows that the problem of indifference is not limited only to General Motors or Chrysler, but that the entire industry has evidently felt too comfortable for a long time. This is further supported by the fact that Peugeot Citroen also announced a recall of about 100,000 cars produced in the same factory in the Czech Republic, where Toyota cars are also produced.

Pressure on Governments
The second storm in the sector, which admittedly passed with significantly less fanfare for obvious reasons, was caused by Fiat’s announcement of the closure of a factory in Sicily, thus joining other manufacturers who can no longer maintain inefficient production to meet the demands of various politicians. Sergio Marchionne, the head of Fiat responsible for saving the company from the brink of collapse, has been announcing restructuring and the closure of factories, five of them in Italy, for some time, but the situation exploded at the end of last year and the beginning of this year when the definitive closure of the Termini Imerese plant was announced, the smallest and also the least efficient factory where Fiat loses about a thousand euros per produced car, compared to cheaper plants outside Italy. Marchionne decided to combine the pleasant with the useful and at the same time pressure the Italian government, whose incentives for purchasing new cars are expiring, to continue actively supporting the automotive industry, which has not been met with serious funds as France and Germany have done. Last year, several automotive sagas had the same inspiration as this New Year’s one. The most famous was the saga of Opel, which was gasping for breath while the German government and General Motors’ owner were squabbling over its fate. The government clearly indicated that it wanted a Russian-Canadian consortium, as that bidder would secure jobs in the plants in Germany, while GM was unwilling to share technology with the Russians. The matter was temporarily resolved by GM’s withdrawal from the sale after a warning from Brussels to the German government that it could not condition aid by choosing a bidder.

Destroyed Concept of Quality
The French government also suffered from the same syndrome. President Nicolas Sarkozy conditioned aid to the industry worth six billion euros by favoring domestic production at the expense of cheaper Eastern European production, which is a recurring motif. Interestingly, Toyota and Peugeot owe their disaster to the factory in the Czech Republic, while Italian trade unionists harbor their hatred for the factory in Poland. Developed countries are simply unbearably expensive, especially in times when quality plays an increasingly lesser role. All that is happening in the automotive industry is actually very symptomatic and shows a significantly more fundamental and extremely worrying trend. Probably for the first time in history, the very essence of capitalism and its greatest advantage, competition, is turning against the system. Competition has indeed gone so far, and globalization has generously enabled it, that faster and cheaper production is beginning to destroy the concept of quality, which is by no means sustainable in the long term. This process is currently most visible in the automotive industry due to circumstances, but it is increasingly present in everything.

Shifting production to countries that do not have sufficiently skilled labor, saving on labor costs, production processes, and quality control, rushing products to market, and not responding to identified defects, which is precisely what is being attributed to Toyota, is beginning to create a world of cheap and low-quality goods in which consumers find it increasingly difficult to obtain a quality product at a reasonable price. Or they can buy luxury in the highest price range, where quality guarantees are also becoming increasingly scarce, or cheap goods that break down quickly. In this case, it is not just about a defect; a runaway Toyota can kill its owner, as seems to be the case in America, where the connection between that defect and several deaths in traffic accidents is being investigated.