If there is an overriding theme that has characterized the first month of the new decade, it is, undoubtedly, “expect the unexpected.”

Had you told me six months ago that an American car company would post a nearly $3 billion profit for 2009, barely a year following its taxpayer-funded rescue, I would have replied that that was as likely as the New Orleans Saints playing in the Super Bowl.

And, had you forecast that Toyota, whose car owners by-and-large swear by its reliability, durability and safety, would recall 2.3 million vehicles in this country alone and temporarily halt manufacturing of eight of their models because of safety concerns, I would have countered that such an occurrence was about as plausible as a Republican being elected to Ted Kennedy’s Massachusetts Senate seat.

The reversal of fortune in the automobile industry has been as remarkable as it has been sudden. An American car manufacturer being profitable, barely a year after American taxpayers kept them afloat? True, Ford, unlike Chrysler and General Motors, did not take public money.

Still, it has been nowhere near profitable as of late, having lost $14 billion in 2008. Its stock price had fallen to $1.50 per share, and Wall Street analysts expected continued losses at least through 2011.

But on January 29, Ford reported a 2009 profit of $2.7 billion, its first profitable year since 2005. Its swing to profitability is in marked contrast to the misfortunes that have recently befallen Toyota, which is currently struggling to contain the adverse consequences arising from faulty gas pedals in some of its best-selling models.

The fallout threatens to taint Toyota’s sterling reputation for quality and reliability that has enabled it to recently surpass General Motors as the world’s largest car manufacturer. The surprising developments at both companies can be used as case studies for what works—and does not work—­­­­in the car industry and business in general.

Let’s start with Ford. Two primary factors have been responsible for its turnaround.
First, it has learned from the best techniques of its competitors. When Alan Mulally became Ford’s chief executive in 2006, he determined that its production system needed to be substantially upgraded.

While serving as the CEO of Boeing in the 1990s, he had traveled to Japan to study Toyota’s manufacturing methods, which he considered to be the best in the world. He used those methods to speed up production of his company’s 777 jets.

At Ford, Mulally decided that copying from Toyota was even more appropriate. In addition to its efficient and reliability-honed production techniques, he pinpointed what had made Toyota so profitable.

By doing so, he gave rise to the other component responsible for Ford’s turnaround­­—the simple, yet often-overlooked requirement of giving the customer what it wants.

He focused on building fuel-efficient cars, upgrading quality, and producing so-called globalcars, unveiled at last month’s Detroit Auto Show, to be identically built at plants in Detroit, Europe and China. He even hired a top Toyota executive to oversee the transformation. The result: a dramatic jump in overall quality and fuel efficiency.

Ford is now building cars of the type that enabled Toyota to not only dominate the annual JD Powers car rating surveys, but also made it immensely profitable. In 2009, the Powers survey rated Ford’s vehicles the most reliable of the US manufacturers’, with the gap between Ford and Toyota closing.

What Ford has accomplished is what American car companies seem to have neglected. Through the 1960s, the “Big Three,” General Motors, Ford and Chrysler, sold more than 90 percent of the cars purchased in this country, producing automobiles that the car-buying public wanted to own.

Since that time, they have seemingly put their customers’ desire for quality and reliability on the backburner, allowing foreign auto companies, most notably from Japan and Germany, to make deep inroads in the American market.

At long last, it seems that a domestic car company understands and is acting upon the need to produce cars and trucks that Americans want to own. Hopefully, General Motors and Chrysler are paying attention.

How ironic that the company from which Ford adopted many of the techniques responsible for its return to profitability now finds itself on the defensive. Recall that reports surfaced as early as last April of unintended acceleration and loss of control in several Toyota models resulting from the gas pedal becoming entangled with the floor mat.

Toyota dealers also received hundreds of complaints from drivers who had dislodged their floor mats, as Toyota had recommended, but were still experiencing stuck gas pedals In response, Toyota ordered a recall of the defective floor mats but not of the gas pedal itself.
Problem solved? Not quite. Complaints of stuck gas pedals persisted throughout the last half of 2009, often with dire consequences. A recent Los Angeles Times study attributed 19 deaths and hundreds of injuries to the faulty accelerator pedals.

Rather than proactively dealing with the problem when the company first became aware of a potential and serious defect, Toyota insisted that its cars were safe and took no action with respect to the faulty pedals.

It was not until January 12 that Toyota halted production and ordered a gas pedal recall. Even then, it appears that it did so reluctantly.

According to published reports, Toyota was, as late as early January, still resistant to ordering a product recall or halting production but was compelled to do so by the US Department of Transportation. And, as if Toyota does not have enough on its plate of troubles, the last few days have revealed problems with the braking system of the 2010 Prius, its gold-standard automobile.

From a public relations standpoint, not to mention from a safety perspective, Toyota’s handling of this entire matter has been shortsighted, callous and potentially disastrous, putting at risk a reputation for quality and reliability earned over many decades.
Toyota’s tone-deafness has already yielded the expected results.

As reported in the New York Times, U.S. automobile sales saw Toyota’s market share drop from 17.9 percent in January 2009 to 14.1 percent last month, a decline of nearly 20 percent (contrast that with Ford, whose domestic market share last month rose to 16.7 percent from 14.2 percent a year earlier).

Going forward, questions about Toyota products will persist at least for the immediate future.  In its drive to overtake General Motors as the world’s largest car manufacturer, has quality control been sacrificed at the altar of rapid growth? How much damage to its nearly legendary reputation has Toyota incurred? Can it undo or at least mitigate all or most of that damage?

Toyota is hoping that last week’s announcement of a remedy, the installation of a spring-like device to keep the gas pedal from sticking, will finally solve the problem. If that does not prove to be the case and if, as some suspect, the problem lies in its computerized electrical system (which Toyota denies), then all bets are off.

In that event, many of its millions of heretofore-loyal customers will begin taking their car-buying business elsewhere—perhaps to Ford.

Nathan Mitzner is a junior risk management insurance major. He can be reached for comment at [email protected].