Toyota's recall crisis a lesson to S Korean automakers

By Eugene Kim
0 CommentsPrint E-mail Xinhua, March 2, 2010
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Toyota Motors, one of the world's most admired automakers that had redefined the art of manufacturing through the so-called "Toyota Way," has lately seen its reputation of high-quality tarnished following the massive recall crisis.

In response, South Korean media and industry experts have voiced concerns that since many domestic brands have been following the precedent set earlier by Toyota in achieving global prominence, they should try to take Toyota's recall issue as a learning lesson, rather than just seizing it as an opportunity to expand market share.

Industry experts have pointed out lack of quality-control as the predominant reason behind the Japanese car giant's recall issue, as it couldn't adequately keep track of every step involved in its manufacturing process, stemming from an overwhelming global expansion while cutting costs simultaneously.

As a result, Toyota's plight has had ripple effects across the global auto-industry -- automakers around the world are making staunch efforts to toughen safety measures and South Korea, who's ranked as the world's fifth largest carmaker, has been no exception.

Lessons to be learned

"This isn't a matter only pertaining to Toyota," Bae Choong- shik, professor of mechanical engineering at (South) Korea Advanced Institute of Science and Technology (KAIST) said. "Other carmakers potentially could have similar problems arise, including South Korean brands who benchmarked after Toyota's business model. "

Bae emphasized Toyota's underlying problem has been "its excessive overseas expansion," as reflected in their overwhelming production increase; in 2000, Toyota produced 5.2 million cars but last year it had the capacity to make 10 million, all the while adding 17 more production sites.

Unsustainable growth in the number of assembly lines abroad has made it inevitable for them to procure auto-parts from overseas subcontractors, thereby making it difficult to oversee every procedure involved in the quality-control process, Bae said.

"Also, there was immense pressure to cut costs as competition grew," Bae said, adding Toyota reportedly requested a 30 percent discount to its subcontractors-- diluting Toyota's quality by the demands of lower costs.

Similarly, Hyundai-Kia Motors has also accelerated its overseas plant expansion in the last five years.

Hyundai built a number of plants abroad with a capacity to produce 300,000 units annually, as they erected them in the U.S. state of Alabama in 2005, in India and China in 2008, and in the Czech Republic in 2009.

Hyundai's rapid overseas proliferation of factory plants resulted in total production figures jumping from 670,000 per year in 2005 to 1.52 million in 2009, roughly a 127 percent spike.

"It would be impossible to abruptly stop overseas expansion amid competition to produce more at lower costs," Bae said. "South Korean producers must find a long-term plan to more efficiently manufacture cars while strengthening its quality-checking systems as well."

Lee Hang-koo, a senior staff at the (South) Korea Institute of Industrial Economics and Trade (KIET) said Toyota's recall has provided an invaluable lesson to local competitors as it gave them "an opportunity to review their overall quality-control process and seek ways to prevent any similar disasters from occurring to them."

Another factor that exacerbated Toyota's problem was the fact that its recalls were perceived as a "forced" act rather than a " voluntary" one, according to Lee, as the Japanese automaker failed to proactively respond to the customers' complaints in advance, which horribly damaged the company's customer-centric brand-image.

Quality-control at the forefront for S. Korea automakers

In the meantime, South Korean automakers have been mum on the Toyota recall crisis, abstaining from making any official comment on it and maintaining to just focus on improving its own quality.

Chung Mong-koo, the chairman of the Hyundai-Kia Automotive Group, however, reportedly told the board's executive meeting, " What happened to Toyota should never happen at Hyundai and Kia," according to local media, as the company heightened its awareness on safety problems.

On the heels of the massive recall by Toyota, Hyundai-Kia, the country's top two carmakers, has started conducting special safety inspections on the car parts provided by its subcontractors.

A company official said they have plans to dispatch inspectors to its 400 to 500 subcontractors, first focusing on auto-part manufacturers but gradually expanding it to a comprehensive safety inspection by the end of the year.

Also, Hyundai-Kia launched an employee training program aimed at enhancing safety awareness, as the official said, "If any customer complaint is filed, we will be ready to respond immediately."

Hyundai's decision last week to voluntarily recall about 47,000 units of its new YF Sonata sedan in the United States and South Korea, followed by Tuesday's decision to recall 515 Tucson sports- utility vehicles in the United States again came as no surprise considering the company's increased alertness over better-quality.

GM Daewoo, South Korea's partner company of the U.S.-based General Motors, has also stressed quality improvement, after hiring Mike Arcamone as their president and CEO last year, who told local media, "What matters most is improving quality-control of auto-parts affiliates in order to ensure overall quality."

Recently, there have been recalls for some of its Lacetti Premiere models after its seatbelt bracket control bolt was omitted from the cars, and Arcamone made actual visits to the plants that left out the missing parts and conducted oversight surveys for quality controls.

For Renault-Samsung, a local automobile brand that is predominantly owned by the French company, prioritizing quality has been their main objective, as shown in their mantra of "Never compromise with quality."

Lim Jong-seong, executive managing director of quality at Renault-Samsung, told local media, "Quality doesn't come from your head; it's born in your heart."

He said quality translates to value, and value equals profit for any business, adding that, "If quality can't create value, something is definitely going awry for the company."

"A lot of companies are struggling by neglecting this fact," Lim added. "It's important to put the customer at the center rather than just vaguely conceptualizing quality-improvement. The company has to make a concerted effort to utilize all of its resources revolve around its customers."

Ssang Yong Motors, South Korea's debt-ridden carmaker, also recognized that in order to normalize its business, increase in sales is inevitable and quality improvement is key to that, as it' s been putting increased pressure on restoring brand-image through heavier quality-control measures.

Future outlook of the industry

"Toyota won't lose its market-leader position all of a sudden after this recall crisis," Lee of the KIET said. "If anything, their market-share may slightly drop and it might lose some of its loyal customers; but it won't be as significant to completely alter the market outlook."

Bae of KAIST said, "In fact, Toyota may emerge as a more complete company after the recalls," as the company's world- beating mechanical skills remain unchanged and it has only added stronger safety measures, making it an even more "dangerous" brand.

"And the same theory applies to South Korean automakers -- they will gain more competitiveness in the market with added quality- control measures on top of its already developed manufacturing technology," Bae said.

One area that may see drastic changes is in the government regulations as the United States and Japan have already announced to step up its probe to quality issues for all of its domestic automakers in response to Toyota's recalls.

There's no question South Korea will follow suit, Lee said, adding, "It's only natural for the South Korean government to enhance regulations on its carmakers' quality-control measures as well, although it may put increased pressure on the companies' production costs as a result."

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