Toyota does not sell cars because people crave their sleek design or because the Camry is a status symbol. People buy and drive Toyotas because they are reliable and they have a high resale value. They are well built and reasonably priced. What would happen if Toyota vehicles were suddenly unreliable, prone to defects, and lost their resale value?

This is one of the questions the article Disturbing Changes at Toyota: Legendary Quality in Shambles (Toyota no ihen kuzureta hinshitsu shinwa) asks in the July 26, 2006 issue of the Weekly Toyo Keizai business magazine.

The headline screams: The world's greatest factory floor is fatigued! The article lists the following disturbing changes at Toyota:

1) Recalls are increasing at a faster pace than ever before in the history of Toyota
2) Three senior managers of Quality Assurance were investigated by police for failing to address known defects
3) Toyota announces more recalls in the United States than Chrysler
4) An employee from a supplier sues Toyota for violation of labor laws
5) Hyundai surpasses Toyota in quality rankings
6) Toyota struggles with domestic sales of the Lexus vehicles
7) A separate and second Toyota labor union has been recently established to kaizen working conditions

Toyota's breakneck pace of expansion over the past 10 years is resulting in a surge in both design and manufacturing defects now surfacing as recalls. This is simply due to managers, engineers, supervisors and workers being stretched too thin both at Toyota and the supply base, according to the article.

The article cites revealing statistics from Japan's domestic Ministry of Transportation:

In the year 2001:

Toyota: market share = 42.1% share of recalls = 1.4%
Nissan: market share = 17.9% share of recalls = 11.9%
Honda: market share = 14.9% share of recalls = 21.9%

In the year 2005:

Toyota: market share = 44.0% share of recalls = 34%
Nissan: market share = 18.4% share of recalls = 3.5%
Honda: market share = 11.8% share of recalls = 3.6%

According to Toyota supplier sources the Toyo Keizai article declines to name, among the trends mentioned:

At the automobile manufacturer:
- The number of investigations into non-conforming quality has doubled in the past five years
- One third of the defects are related to manufacturing, and production processes in particular
- Even small process flaws are resulting in recalls
- Suppliers are increasingly evaluated first on quality

At the parts manufacturer:
- Hiring of supervisors and workers is not keeping up with production growth, resulting in greater strain on workers
- Managers and supervisors have an increases span of supervision
- Support to tier 2 and tier 3 suppliers is lacking
- Basic lack of inspection resulting in missed visual checks

What's going on? The commonization of parts has leader to the quantity of each recall being larger, since a bad part now must be recalled from a wider range of vehicles. The overburden on the fatigued factory floor, as well as strain on engineers and designers is leading to rising defects.

Another cause, according to the article who sites an automotive engineer:

"Education in the use of CAD (Computer Aided Design) is lacking at Japanese universities. Therefore, the creation of the CAD diagrams is outsourced. The designer is not the same person who creates the CAD diagram. Because of this, the designer can miss drawing errors. These errors were previously caught be experienced veteran engineers. However, as the number of these skilled workers becomes thinner, the errors are beginning to show."

The Toyo Keizai article cites a Toyota group company employee who says that there is now a chronic shortage of people at Toyota. The number of regular employees at Toyota has remained stable while the number of temporary laborers has double or even tripled, according to the article. The implied result of temporary workers playing a larger role in manufacturing is the larger number of quality problems and recalls.

The lights on the Toyota Technical Center building are on past 10PM, even at midnight on some days. There is no second shift of engineers, they are simply putting in very long hours. Toyo Keizai interviewed some young workers from a Toyota supplier "If we stay on this path, quality problems will increase and so will the lawsuits" and "If they keep working people this hard, eventually no one will want to work here."

Can anything stop Toyota's reckless push to expand? At an executive management planning meeting on the theme of "Global Master Plan" in January of 2006, executives presented plans to build new factories in North America, China and elsewhere. Honorary Chairman Shoichiro Toyoda spoke out:

"When did Toyota get to be a company like this? There is no reason to hurry. We need to think deeply and act quickly once we decide. That is the Toyota way."

According to the article this created a chill among the senior leaders present and many of the plans for new factories were put on hold.

There is a three-page insert in the article revealing for the first time the details of over 50 of the recalls based on research by Toyo Keizai. The list includes many design errors of software, parts configuration, raw material properties and a variety of surprising manufacturing errors from insufficient nut torque, missing fasteners, damage during assembly, and mis-assembly. I don't think this is what former Toyota Chairman Hiroshi Okuda meant last year when he said Toyota should give General Motors some breathing room.