We're very pleased to announce that veteran automotive journalist and Publisher of TheDetroitBureau.com, Paul Eisenstein, has joined the Autoblog team as a Contributing Editor. His editorials will appear regularly on Autoblog, beginning with this one:

Toyota: From "Benchmark" to "Troubled," the Decline of an Icon

It's been said that when the gods want to punish a company, they first give it 40 years of success. Okay, we might quibble with the precise number, but that certainly seems to fit Toyota. Even with last year's bankruptcy at General Motors providing perspective, it's hard to find any more rapid fall from grace.

It was just a year ago that the giant maker seemed to have everything going for it. It had toppled GM, the long-time automotive king-of-the-hill, to become the world's biggest carmaker. It was routinely touted as the benchmark for what industry types like to call QRD, or quality, reliability and dependability to everyone else. Its Toyota Manufacturing System was the benchmark that everyone else set out to emulate. And as former Ford Vice Chairman Allan Gilmore was fond of repeating, the Japanese maker had "more money than God."

Yet, it didn't take long for things to turn upside-down following the release of the global 2008 sales numbers. Even as Toyota was savoring victory in its battle with GM, which was quickly plunging towards Chapter 11, Toyota's financial house turned out to be in alarming disorder, the maker reporting its worst – indeed its first – loss since the guns fell silent at the end of World War II.
Paul A. Eisenstein is Publisher of TheDetroitBureau.com, and a 30-year veteran of the automotive beat. His editorials will bring his unique perspective and deep understanding of the auto world to Autoblog readers on a regular basis.

In fact, there were already plenty of warning signs of trouble to come. In an annual measure of factory floor productivity, the Harbour Report, Chrysler – yes, Chrysler – had actually caught up to the vaunted Asian maker and GM and Ford weren't far behind. In fact, warned the eponymous Ron Harbour, Toyota could very well lose its lead as a result of the concessions Detroit's Big Three had won from the United Auto Workers Union in 2007.

And that didn't even take into account the massive givebacks that the UAW reluctantly approved last year to help keep GM and Chrysler alive. For much of the last 25 years, since Toyota and the other Japanese automakers began opening their "transplant" assembly lines in North America, the Detroit Three have had to spend at least $2,000 more to produce the typical midsize car than pace-setter Toyota. The latest concessions have turned that upside down, says David Cole, director of the Center for Automotive Research, or CAR, in Ann Arbor, MI.

That $2,000 to $3,000 cost advantage is money GM, Ford and Chrysler can either put in the pocket of shareholders; use to build better, more lavishly-equipped vehicles; offer to buyers in the form of even bigger incentives or – as it now seems – spread the money out among all those options.

There was another telling hint of trouble even before Toyota's global sales victory, when the influential Consumer Reports took the rare step of lifting the Recommended Buy rating from several Toyota models, including the star-crossed Tundra, for quality problems. If the folks at the non-profit Consumers Union only had a crystal ball.

To be fair, even the best manufacturers are going to run into trouble. Recalls are the price of doing business and it helps to understand why Toyota's recalls have generally been rare, but the numbers large. The maker has made a maxim of maximizing economies of scale – cutting costs by sharing platforms, parts and components among numerous vehicles. It's great when all goes well, but a disaster when, well, when you have loose carpets and sticky accelerator assemblies.

In fact, Toyota is not unique here. Ford has recalled millions of cars to fix potentially fire-prone ignition switches. And the Dearborn maker will be even more prone to large-scale problems as it moves forward with its One Ford strategy, commonizing products, platforms and parts around the world.

But is there something unique about Toyota that has made the latest recalls so particularly disastrous?

Toyota was making some foolish bets with its future.
For the last five years, I have been hearing trusted outsiders – and the occasional insider – tell me that Toyota was beginning to look like the GM of old, the arrogant, self-impressed giant that ultimately spiraled into the ground. Whether the lawyers were winning out or the nearly all-powerful Chief Engineers, it was becoming harder and harder to find anyone at Toyota willing to acknowledge a problem, indeed accept the idea that everything the company did wasn't darned close to manna from heaven.

I had that conversation with a number of senior executives, including Don Esmond, the second-highest-ranking American at Toyota Motor Sales USA, a year ago. "Arrogant? Where?" he asked, sounding a bit like Captain Renault in Casablanca. But, indeed, there was gambling going on, and Toyota was making some foolish bets with its future.

"It's up to us," Toyota's top-ranked American, TMS President Jim Lentz, said Monday, when asked about the importance of getting the ongoing recalls right. The reputation for QRD – and safety – that Lentz called Toyota's cornerstone, is rapidly eroding. Key competitors aren't waiting to see what happens, and are unloading both barrels, with competitive ads and hefty incentives specifically targeting Toyota owners.

The problem for Toyota, warns J.D. Power's chief of Automotive Research, Dave Sargent, is that plenty of makers are now catching and even exceeding Toyota quality. Even Buick beat the formidable Lexus in their Power Vehicle Dependability Survey last year.

Don't rule Toyota out. Even though the company is now likely to post another weak earnings report for the current fiscal year, which ends March 31, it still has plenty of money. And resources. And drive. But it isn't the same omnipotent giant with the pre-ordained future that many observers believed just a year ago.
Paul A. Eisenstein is Publisher of TheDetroitBureau.com, and a 30-year veteran of the automotive beat. His editorials will bring his unique perspective and deep understanding of the auto world to Autoblog readers on a regular basis.