Problems at Toyota latest to taint Japan's corporate image

TOKYO — Toyota is the latest Japanese corporate icon making headlines for all the wrong reasons.

News of the automaker's massive vehicle recalls over faulty gas pedals in the United States came only days after Japan Airlines (JAL), a once-proud flag carrier saddled with billions in debt, filed for bankruptcy.

Sony has lost its lead in consumer gadgets to the likes of Apple and has suffered quality mishaps. Honda, Japan's No. 2 automaker, is recalling 646,000 cars worldwide because of a faulty window switch.

Taken together, Japan's stellar reputation for quality has taken a hit — just as China is about to overtake the nation as the world's No. 2 economy and rising South Korean companies compete ever more aggressively.

What went wrong with the giant that arose from the ashes of World War II?

The problems that confront Toyota, Sony and JAL differ, but experts say their struggles have common themes: the perils of global expansion, a tendency to embrace the status quo, and smugness bred from success or a too-big-to-fail mentality.

"Arrogance and some complacency came into play, driven by the idea that their ranking as No. 1 producer of quality goods wasn't at risk," said Kirby Daley, chief strategist at Newedge Group, a financial-services firm in Hong Kong. The global economic crisis helped to expose weaknesses, he said. "There was nowhere to hide."

Added to the mix for Toyota and Sony is intense competition from upstarts in South Korea, China and elsewhere in Asia.

"They can offer products as good as Japanese at much lower cost, even though quality of Japanese products is on the decline," said Shinichi Ichikawa, chief strategist at investment bank Credit Suisse.

Cutting costs to stay competitive while meeting growing demand, Toyota, Sony and others compromised on quality control, analysts say.

Toyota began using the same part across a range of models — saving vast sums of money but exposing itself to the risk that even a small defect could cause global mayhem for the company.

The automaker also faced difficulties ensuring quality as global sales expanded rapidly, reaching 8.9 million vehicles in 2008, when it displaced General Motors as the world's biggest automaker.

The result: recalls of more than 7 million vehicles in the United States, Europe and China for problems with their accelerators and floor mats, and the suspension last week of U.S. sales and production of eight models.

"Terrible blow"

It's a "terrible blow" for Toyota because its identity is linked so closely to quality and the company seemed slow to recognize the problems, said Kenneth Grossberg, a Waseda University marketing professor who has lived in Japan for 16 years.

"This is the company of zero defects," he said. "How could such a major fault get past them? It violates their operating principle."

Grossberg said a common problem at Japanese firms is "group think" that makes it difficult for an individual to raise a troublesome issue.

"It either falls flat and people ignore it, or it creates a problem for the individual who brings it up," he said.

Sony started facing problems after it misjudged several critical market trends.

It was slow to predict the switch to LCD televisions and fell behind South Korea's Samsung, which became a market leader.

Content with the success of the Walkman, the portable music player that became a global hit in the 1980s, Sony was slow to jump into digital players. The company has been hammered by Apple's iPod, as well as by cheaper gadgets and other Asian consumer electronics.

With Sony's empire sprawling into finance, movies and other businesses, some analysts said the corporation was losing focus. In 2006, it recalled nearly 10 million laptop batteries after some caught fire.

The company still is losing money even as CEO Howard Stringer wins praise for taking it back to basics.

Bankruptcy

At Japan Airlines, problems had festered for decades but repeatedly were papered over because of Japan's reluctance to let major companies go under.

Risky investments in foreign resorts and hotels went bad after Japan's property and stock bubble burst in the early 1990s. Bloated pension and payroll costs, as well as unprofitable but politically necessary domestic routes, led to government bailouts.

JAL had a good reputation for comfortable travel, but its lavish running costs had "generally been something of an industry joke," said Peter Harbison of the Sydney-based Centre for Asia Pacific Aviation.

Quality, too, eventually proved problematic: A spate of safety lapses tarnished JAL's image, and its rival, All Nippon Airways, benefited.

And while filing for bankruptcy with $25.6 billion in debt was an embarrassment, analysts expect JAL to slim down and emerge healthier.

Toyota, too, will bounce back, they say.

"Toyota ... will get this quality problem under control," said Martin Schulz, an economist at Fujitsu Research Institute.

In Japan, reaction to Toyota news has been more muted because the recall doesn't affect domestic models. Still, the blaze of bad publicity has struck at the idea of Japan as a technology powerhouse.

"For other Japanese automakers and manufacturers, it's not somebody else's problem," the Yomiuri newspaper said in a Sunday editorial. "They should keep in mind that safety and quality make the foundation of public trust in the Japanese way of manufacturing."

Associated Press reporter

Mari Yamaguchi contributed

to this report.