DAVID AUSTEN-SMITH, DANIEL DIERMEIER, AND EITAN ZEMEL Unintended Acceleration: Toyota's Recall Crisis The Crisis On August 28, 2009, Mark Saylor, an off duty California Highway Patrol officer driving on Route 125 in a 2009 Lexus ES350 sedan on loan from his Toyota dealer, lost control of his car as it accelerated to speeds of 120 mph. Saylor, his wife Cleofe, their 13-year-old daughter Mahala and 38-year-old brother-in-law Chris Lastrella were killed instantly. Most chillingly, the desperate calls 1 of help from Mr. Lastrella to a 911 operator were recorded live and released on the internet. "We're in a Lexus. . . and we're going north on 125 and our accelerator is stuck. . . we're in trouble. . . there's no brakes. . . we're approaching the intersection. . . hold on. . . hold on and pray. . . pray." Unable to stop, Saylor's vehicle sped ahead into an intersection, struck a vehicle, went through a 2 fence, over an embankment and into the bed of the San Diego River. The report on the fatal accident from the U.S. National Highway Transit Safety Administration (NHTSA) mentioned improperly installed floor mats, noting that the accelerator pedal's lower edge was bonded to the floor mat, the brakes were worn down, and that the design of the pedal 3 could have contributed to entrapment. In fact, the 2008 Lexus ES 350 Saylor was driving had been part of a September 2007 recall to replace the all-weather floor mats, shown to have potential to shift forward and cause the accelerator pedal to stick in a depressed position if improperly installed. The floor mats in Saylor's vehicle, however, were from a different Lexus 4 model, a Lexus RX400h sports utility vehicle, which had more driver foot-space. th On September 29 Toyota issued a recall and Consumer Safety Advisory to the drivers of eight models including the Toyota Avalon, Camry, and Tacoma, as well as the Lexus ES and IS, affecting about 4.2 million vehicles. The Advisory urged customers to remove their floor mats, 5 regardless of make and model, while possible design changes were evaluated. NHTSA, for its 1 A recording of the 911 call can be heard at http://consumerist.com/2009/10/toyota-911-call-of-familys-fatal-lexus-crash-due-to-gaspedal-stuck-on-floormats.html [Last accessed July 27, 2011]. 2 San Diego Union-Tribune, August 31, 2009. 3 Los Angeles Times, October 24, 2009. 4 See Jeffrey K. Liker (with Timothy J. Ogden). 2011. Toyota Under Fire. Lessons for Turning Crisis into Opportunity. New York et al.: McGrawHill, p. 64. 5 See Liker, 67-69 and 123-4. 2011 by the Kellogg School of Management, Northwestern University. This case was prepared by Professor David Austen-Smith, Professor Daniel Diermeier, and Professor Eitan Zemel (NYU Stern). Many thanks to Michael Sara for his superb research assistance. Cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 847-4915400 or e-mail cases@kellogg.northwestern.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the permission of the Kellogg School of Management. part, stated that the recall was in response to unintended acceleration (UA) incidents related to factors including the use of unsecured mats, the configuration of pedals in the affected vehicles 6 and the processes necessary to turn off the engines in vehicles with keyless ignition. From the beginning, however, it was evident that NHTSA and Toyota disagreed on the proper th response. In a letter sent to NHTSA on October 5 , Toyota stated that although they were willing to treat the campaign as a safety recall, they had yet to determine if any of the vehicles contained a safety-related defect. The following month, in a statement announcing it had begun mailing letters to customers detailing the safety recall, Toyota stated that the letter, in compliance with the National Traffic and Motor Vehicle Safety Act and reviewed by the National Highway Traffic Safety Administration (NHTSA) also confirms that no defect exists in vehicles in which the driver's floor mat is compatible with the vehicle and properly secured. NHTSA quickly responded days th later on November 5 with a public rebuke of Toyota for issuing inaccurate and misleading statements asserting that no defect exists in the recalled vehicles. According to NHTSA there was, in fact, an underlying defect involving the design of the pedal and the foot well. 7 Subsequent media reports pointed out that NHTSA had investigated UA in Toyota eight times since 2003, with six of those cases closed without finding a defect and two resulting in the recall of 100,000 vehicles. On November 25, 2009 Toyota announces details of the recall to increase 8 the distance between floor and pedal. Unintended Acceleration The issue of unintended acceleration (sometimes labeled as unwanted, sudden, or runaway acceleration) was not new. In 1986 Volkswagen of America (VWoA) suffered a severe crisis regarding its Audi 5000 model. Unintended acceleration events in this model were linked to six 9 deathschildren among themand 700 accidents in the first half of the decade. This type of unintended acceleration occurred immediately after shifting the vehicle out of park, allegedly accompanied by simultaneous brake failure. Several media reports focused on the issue followed, including a 60 Minutes segment in November 1986 titled Out of Control. As became clear later, the producers, in an attempt to visibly demonstrate sudden acceleration in an Audi 5000, had a hole drilled into the transmission so that they could pump in high-pressured air. Nevertheless, 60 Minutes was the third highest rated program at the time, and its portrayal of runaway Audis, through alleged victims' stories and unidentified simulations, proved catastrophic for the automaker as sales proceeded to plummet 60%. By 1991, sales of Audis in the U.S. had dropped to 12,283, down from its high in the 1980s of 74,061. It took ten years for Audi to again reach its 1980s sales high. Audi was defending itself 10 in more than 140 different suits with damage claims in excess of $5 billion. Subsequent studies on unintended acceleration, however, concluded that driver error and/or human factor design errors were responsible, effectively exonerating Audi. The key problem was that drivers mistakenly continued to push the accelerator rather than the brakes, a behavior known as pedal misapplication. In response to this issue VWoA conducted two different recalls that installed a shift interlock, now a familiar safety feature (a driver needs to press down the brake pedal when shifting from park to drive), and replaced defective idle stabilizer valves. 6 New York Times, September 29, 2009. Los Angeles Times, November 4, 2009. 8 These included shortening pedals by of an inch, removing floor padding, and developing replacement pedals, New York Times, November 25, 2009. 9 BusinessWeek, February 4, 2010. 10 Wall Street Journal, December 18, 1989. 7 2 KELLOGG SCHOOL OF MANAGEMENT While many safety experts believe that driver error or floor mat entrapment is to blame for most cases of unintended acceleration, (Exhibit 1 and 2) media reports have repeatedly pointed 11 towards others causes such as problems with electronic throttle controls (ETCs) , first developed by BMW in the 1980s. In contrast to an all mechanical system, ETC equipped vehicles use sensors to monitor the position of the gas pedal and to transmit that information to the engine control module and the ETC, causing the throttle to let more or less air into the engine's 12 combustion chamber. Cars using ETC have various control and fail-safe systems. Moreover, many of the concerns on the role of ETC also involve brake failure, a wholly independent system from ETC and engine control. Thus a situation of continued acceleration while the driver pushed down the brakes would amount to the failure of two independent systems, one electronic, the other hydraulic. During the Toyota crisis the U.S. car magazine Car and Driver successfully tested the ability of Toyota Camry brakes to slow down the car while the accelerator was fully 13 jammed to the floor. That said, leading car insurance providers such as State Farm had noticed an increase in reports of unintended acceleration in Toyota cars after the introduction of ETC, though the exact cause of the increase in reports was not clear (Exhibit 3). Toyota Motor Corp. th The origin of Toyota can be traced back to the late 19 century when Sakichi Toyoda created Toyoda Loom Works, which utilized Toyoda's patented automatic loom (the first in Japan). Along with his son, Kiichiro, Toyoda created and established the principles that guide Toyota to this day: The Original Toyoda Precepts (1935) 14 1. Be contributive to the development and welfare of the country by working together, regardless of position, in faithfully fulfilling your duties. 2. Be ahead of the times through endless creativity, inquisitiveness, and pursuit of improvement. 3. Be practical and avoid frivolity. 4. Be kind and generous; strive to create a warm, homelike atmosphere. 5. Be reverent, and show gratitude for things great and small in thought and deed. The company created its first automobile prototype in 1935 and began selling the first massmarket vehicle in 1947. After financial losses amid a Japanese economic recession in the 1950s, Toyota improved its operation procedures to such a degree that it has avoided losing money ever since. Toyota established Toyota Motor Sales U.S.A., Inc. in 1957 and, for the first time, began producing cars specifically for the American market. The Toyota Way At the basis of Toyota's success lies its much admired Toyota Production System (TPS). The objectives of TPS are to offer the highest quality at the lowest cost and shortest lead time. With its origin traced back to Sakichi Toyoda's original precepts, the TPS instilled an inherent 11 Los Angeles Times, November 29, 2009. Liker, p.71-72. 13 Dave Vanderwerp. \"How to Deal with Unintended Acceleration\