A Knife Fight Breaks Out Among Car Companies

GM had to recall 1.3 million cars this week, which took away much of its current marketing advantage over Toyota. The perennial No.1 domestic car company could claim that its Japanese rival had lost its ability to make defect-free and safe vehicles. Toyota’s 8.5 million worldwide recall was proof of that.

GM now reports that most of the responsibility for the problem that forced it to ask owners in the US, Canada, and Mexico to bring their cars in for service was due to defective parts from a supplier partly owned by Toyota. The FT reports that Bob Lutz, GM’s vice-chairman said that a supplier – separately identified as JTEKT, a joint venture between Toyoda Machine Works and Koyo Seiko – had not met “all requirements for reliability and durability.”

US car sales are not expected to rebound as much in 2010 as the car industry had forecast late last year. The US auto market may produce well under 11 million unit sales, which, while better than 2009, will seriously undermine the hopes for a recovery in this sector. The federal government’s bailout twins—GM and Chrysler—will face a harder time paying off their debt to the taxpayers. The cost cuts by the industry, which have thrown tens of thousands of people out of work, are unlikely to make the industry profitable, now.

GM’s accusation creates the sort of rumors that major companies hope will circulate and hurt their competitors. The GM claim is vague enough to be unsubstantiated but with enough small details to give it an ounce of credibility.
Bob Lutz, the oldest major executive in the automotive industry, has long had a habit of letting his mouth open before his synapses fire. There is certainly nothing wrong with that. Lutz is one of the great product development people in the sector. He is also the only colorful car guy the industry has left. He is, in short, the perfect rumor monger. He has been around long enough to be tolerated for his verbal indiscretions without being viewed as mean-spirited.

But, what Lutz has to say about JTEKT is no more than noise because the things that make cars break are not isolated collections of parts. Design and assembly are just as important. Lutz did not mention these as factors that GM had ruled out. Since the company has not given a detailed description of why the steering issue is a problem, the public and press are left with nothing more than idle comments as hints.

There have been significant attacks on Toyota by its competition since its recalls began. It is only good business to kick the competition when it is down. Toyota had been particularly arrogant about its strong sales and quality reputation both of which cost American car companies substantially. Executives at GM probably believe that Toyota should be kicked hard and often. But, there is no reason to replace a good beating with rumors about sinister behavior.

Toyota has already dug its own grave.

Douglas A. McIntyre