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Anchor Marco Werman speaks with Economics Professor Susan Helper of Case Western University about how a global car company maintains quality control across international borders.

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MARCO WERMAN: Susan Helper is a Professor of Economics at Case Western University.  She studies the global automotive industry.  Professor Helper, as we’ve just heard Toyota’s image is all about high quality and trustworthiness.  Does the current recall pose a kind of identity crisis for Toyota?

SUSAN HELPER: It does.  It’s not necessarily an insurmountable one.  Toyota’s new CEO has argued that the company needs to go back to basics and so this will reinforce the strategy they’ve already implemented.  So if they can solve this problem, they don’t need to fundamentally change what they’re doing, they need to go back to some things that they used to do in the past.  So if they can solve these problems, it could be something that they can get done with relatively quickly.

MARCO WERMAN: At the heart of the current recall is a faulty accelerator pedal supplied to Toyota by a company in Indiana called CTS.  In this global economy, Susan, when a car company designs a vehicle and its parts, but does not manufacture all those parts, how does it maintain quality control?

SUSAN HELPER: Well particularly in Toyota’s case, the way it has done so is by long term relations, very close supervision of the supplier by Toyota.  There will be Toyota people visiting the plant very frequently.  There will be people from the supplier that spend a lot of time at Toyota’s design and engineering centers to make sure their quality problems are identified and resolved quite quickly.  So the system I think is inherently not at fault.  The problem is when the system is stressed by a combination of fast expansion, model proliferation, a move away from mechanical and into electronic parts, all these things may just mean that there are too many potential issues that arise and are difficult to assign root causes to and make any kind of production system very difficult to operate.  It could be that that has led them to a breaking point now.  It could also be that they were just unlucky.

MARCO WERMAN: And is it at a breaking point now, do you think, because the Toyota model of high quality craftsmanship and continuous improvement is maybe essentially at odds with a global business model?

SUSAN HELPER: I don’t think that’s true, that it’s at odds with a global business model.  I think it suggests some ways that one has to expand.  That one may need to expand more slowly.  Toyota has been extremely worried about competition from low cost auto companies in Korea and China.  It could be that by focusing so much on their low cost competition that they took out some content that they should not have done and are thus suffering at the middle end and the higher end.  So I don’t think that the global business model is a problem and I think Toyota’s operations in the U.S. are generally quite high quality.  It may mean that they need to slow the expansion, slow down the number of models.  But as far as a fundamental change in the direction of the company, I don’t think that’s necessary.

MARCO WERMAN: Susan, you said earlier this faulty accelerator episode could actually be surmountable.  I am wondering what does Toyota need to do to turn this around?

SUSAN HELPER: Well Toyota first needs to really figure out what the problem is and convince the public that they have a complete solution.  Right now there are these lingering reports of problems that don’t have to do with the two causes they’ve identified.  They need to demonstrate as well as they can that that’s in fact not the case, that they’ve found the problem.  I think it’s too soon to tell to know if this is an episode that’s going to permanently damage Toyota.  I mean I think there are credible estimates that this could end up costing Toyota a billion dollars once we’re all through with this.  That could be.  But Toyota is a very large company with a very long history.  So I think we don’t know if this is blip, perhaps a focusing event that causes Toyota to really return to basics, or it could be the start of a kind of falling apart.  But I definitely would bet on the former, that it’s more of a short term thing that Toyota can fix.

MARCO WERMAN: Professor Susan Helper is the Chair of Economic at Case Western Reserve University’s Weatherhead School of Management.  Thank you very much.

SUSAN HELPER: Thank you.

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