A public apology by Akio Toyoda at a congressional hearing Wednesday included this explanation for Toyota’s surging gas pedals and faulty brakes: The company put growth ahead of safety and profits before consumers.
It is a regret – and a lesson – for more than just Toyota.
Wall Street still needs to learn from the 2008 financial meltdown that was caused by its own reckless pursuit of growth at any speed without regard to the safety of its prime assets – stable US housing prices and reliable mortgage payments.
Both Toyota and Wall Street fell from grace because they took great risks in relentlessly seeking the holy grail of market dominance and profit maximization. Blinded by their single-minded focus, they ignored critical details in risks, and too often shooed away internal complaints and warnings of potential dangers.
In Toyota’s case, a pell-mell rush over the past decade to become the world’s automaker caused it to pursue “growth over the speed at which we were able to develop our people and organization,” Mr. Toyoda admitted.
Since 2000, Toyota has nearly doubled its production capacity. And the Japanese company has more than tripled the number of its production sites around the globe. Such rapid growth, combined with the increased complexity of cars and their computers in general, led Toyota into dangerous lapses in its safety controls.
Despite its reputation for quality, Toyota failed to ensure that technical knowledge was adequately implemented across its world enterprise. “Quite frankly, I fear the pace at which we have grown may have been too quick,” Toyoda said. “I would like to point out here that Toyota’s priority has traditionally been the following: first, safety; second, quality; and third, volume. These priorities became confused....”
Wall Street, too, saw similar rapid growth from 2003-2007 in lending to the housing industry, relying too heavily on subprime mortgages to buyers with low creditworthiness. These mortgages were then bundled into complex financial products and sold and resold with little accountability for their soundness.
All the facts about problems with Toyota’s vehicles have yet to emerge – by its own admission. Even in recent weeks, according to a House panel investigating Toyota, the company resisted questions about possible electronic defects in its accelerators, relied on flawed information, and made misleading statements about the adequacy of its recalls.
As Toyota’s US president James Lentz III told Congress at a Tuesday hearing, the company lost sight of its customers and “outgrew our engineering resource.” As US Transportation Secretary Ray LaHood said, the company’s “business model for making decisions needs some adjustments.”
Wall Street had also lost sight of its customers in a race for pay bonuses, quick returns, and an easy reliance on flawed computer models that ignored the details of shaky mortgages.
Whether it is sticky accelerators or risky loans, business leaders need to focus on more than profits. For Toyota and Wall Street, it must now be back to basics, such as better corporate ethics. That means lowering their risks, becoming less insular, and being more open to critics.
And most of all, putting safety first.