What Korean Firms Can Learn from Toyota and Honda's Recalls

      February 01, 2010 11:03

      On the heels of Toyota's massive recall of 10 million vehicles, Honda is recalling 640,000 compact hatchbacks worldwide. Toyota's eight flagship models, including the Camry and Corolla, have been recalled due to faulty floor mats and sticky gas pedals that could cause unintended acceleration. Honda's recall stems from a problem that could allow water to seep into the power window mechanism and start a fire.

      Toyota's is the largest vehicle recall ever, with the volume of affected vehicles outnumbering the 7.81 million cars the company sold worldwide last year. The Japanese carmaker has been facing mounting complaints from U.S. consumers demanding to know why it sold them defective cars, and the U.S. Senate has begun looking into the matter. The problem has quickly reduced consumer confidence in the quality and safety of Japanese automobiles, and Toyota's brand image has been seriously damaged.

      Experts view the defect as the result of Toyota's radical cost-cutting measures. Price considerations led to the use of cheaper components produced overseas, increasing the number of foreign parts suppliers and making it harder for the company to maintain close quality controls. But another fundamental reason is Toyota's conceit and complacency as the world's top carmaker. U.S. customers had been complaining about the problematic gas pedals as far back as 2007, but Toyota just turned the blame around, saying the problem stemmed from driving mistakes rather than defective components. The company revealed its hubris by refusing to believe that its cars could be at fault. But the problem took on new proportions last August when a family of four was killed in a horrific accident after the gas pedal of their Lexus got stuck while on a busy California expressway.

      According to U.S. business consultant Jim Collins, a company's path to failure occurs in five stages: hubris born of success, undisciplined pursuit of more, denial of risk and peril, grasping for salvation, and capitulation to irrelevance or death. Since the 1990s, Toyota has reigned as the top carmaker in the world in terms of quality and safety, consumer confidence and net profit. In 2007, Toyota overtook GM to become the world's largest automaker in terms of sales. But while Toyota was basking in its glory, it ignored its customers' complaints and ended up in this mess. Several Korean companies achieved record profits last year. Rather than growing complacent, they should learn some lessons from Toyota's debacle, and remember that nobody stays on top forever.

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