Leadership during Crisis – The Takata Recall

Handling of Takata Recall Points to Issues at the Top

The big news in the automotive industry last month was the escalation of the ongoing Takata airbag affair. The fault in the airbag inflators was initially brought to the public’s attention with a recall of a limited number of vehicles in 2013.

We have since had Takata state that it is does not know which airbags have been supplied for use in which vehicles, with worldwide recalls following involving dozens of models from several car manufacturers. Issues with Takata airbags resulted in at least 139 injuries across all automakers, and at least two deaths and 30 injuries in Honda vehicles.

Last month I received a request from a London-based journalist for comment on the issue. She asked if the Japanese had lost control over production processes implemented by their suppliers and factories abroad? I did not consider this the case in general, and given when the defective inflators were manufactured, we can only comment on the state of the automotive supply chain from more than ten years ago.

I think the bigger issue here, and the one that the US Government and press have been pointing to, is the response from Takata and Honda. It is difficult to know if the allegations of cover-ups levelled at Takata are true, and given the “anonymous sources” cited, it is difficult to credit these claims. However that Honda didn’t report 1700 incidents related to the airbags when it was required to do so is quite surprising. Each year we visit auto manufacturers in Japan, and the approach to quality and safety is certainly not lip service – they take these very seriously. Their priorities are safety and quality and only after those do they consider productivity – that is always the order.

I’m not sure if it has been noted by the mass media over the past month, but a quick look at the list of Takata shareholders shows Honda with a 1.2% holding. It might be questioned if there was any additional motivation not to report because of this; however as it is common for Japanese companies to hold stakes in their peers, I personally don’t think this had anything to do with it.

Takata’s Response to the Airbag Recall

In the case of Takata, I’m really surprised that Shigehisa Takada, Chairman and CEO, has hidden from the press throughout the recall debacle – this is one of the most critical junctures in the history of this company (a seat belt recall in 1995 having been the other, again involving Honda and at the time being the second largest recall in the 30 year history of the Japanese Department of Transportation). Apart from some reshuffling of senior staff and a token pay cut in late December, the best the company has been able to do is a Chairman’s Statement which leads out with “We’re sorry – but don’t forget our products save more people than they kill.” Classy.

Toyota’s Handling of the Sticky Pedal Recall

Toyota experienced a similar setback in 2010 with their electronic accelerator pedal issue, but Akio Toyoda, President and CEO (who is widely respected by his staff in Japan, and the automotive industry in general) stepped up and showed real leadership. Despite not being behind the wheel at the time the quality issues occurred, he apologised profusely to all concerned and famously admitted “we pursued growth over the speed at which we were able to develop our people and our organization.” In short, Toyoda made sure Toyota took full responsibility and instructed his staff to provide complete transparency and full cooperation with investigators throughout. He didn’t play the blame game, and instead pointed the finger squarely at his own company. He gave a nod to his company’s lean manufacturing philosophy with regards to handling defects “…its a long-standing tradition and pride, we never run away from our problems or pretend we don’t notice them,” and in closing gave his personal commitment to restore the trust of Toyota’s customers, noting that his name was on every car.

It is a shame to see Takata not following Toyota’s lead in this case. In the case of Honda, they have been doing a bit better following a bumpy start, however I’d expect much pressure on President Ito to step down at the end of the financial year in March.

Too Big to Fail

An interesting question that arises from all of this is the impact on the global automotive industry should Takata go out of business. They’re currently number two in an industry with only three large airbag makers. There would be incredible strain on the supply chain if Takata did meet its demise. The resulting duopoly would not be welcomed by auto makers for a number of reasons, not least for the risk to the supply chain. Takata’s share price has plummeted and I’d expect huge losses in the years to come, but it will be in the interest of the industry as a whole to make sure they survive. We can expect the industry to come to their rescue in some form.

Good Judgement, Quick Action

It is an unfortunate reality that no matter how good a company’s product development, production management and quality control systems are, a zero defect level is always going to be extremely difficult to achieve. For companies the size of Takata, Honda and Toyota, recalls are still going to be a fact of life. Rather than point to deficiencies in the management of the supply chain, what these incidents cast light upon is the effectiveness of the company leader to have good judgement and take quick action and the necessity of leadership presence in times of crisis. This is what Takata and Honda should be reflecting on at this time.