NINE MILE

Management Consulting

Toyota Global Operations

Unintended Acceleration & Unintended Consequences
February 2013

www.ninemileco.com
Copyright 2013. All Rights Reserved. The Nine Mile Management Consulting Group

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February 2013

Toyota Global Operations Unintended Acceleration & Unintended Consequences Table of Contents
1. 2. 3. Introduction (pg. 3) 1.1 Toyota Production System (pg. 3) Global Operations (pg. 4) Strategic Global Operations Issue (pg. 5) 3.1 Issue Statement (pg. 6) 3.1.1 Impact of Unintended Vehicle Acceleration on Toyotas Global Operations & Financials (pg. 6) Analysis of Input Factors leading to Strategic Global Operations Issue (pg. 6) 4.1 Comparison of Suppliers (pg. 7) 4.1.1 Design Considerations (pg. 7) 4.1.2 Materials & Cost Considerations (pg. 8) 4.2 Engineering & Toyota-Supplier Relationship (pg. 9) 4.2.1 Manufacturing & Tooling Considerations (pg. 9) 4.2.2 Cost Considerations (pg. 10) 4.2.3 Denso Pedal Assembly Unit Patent Considerations (pg. 10) 4.2.4 Skills & Training Considerations (pg. 11) 4.2.5 Growth Oriented Management Focus (pg. 11) 4.2.6 Perceived Superior Performance Considerations (pg. 12) 4.3 Summary of Input Factors leading to Strategic Global Operations Issue (pg. 12) Strategy & Recommendations for Future Global Operations & Toyotas Globalization-Localization Plan (pg. 12) 5.1 Immediate Considerations for Supply Chain Issues (pg. 12) 5.2 Localization of Suppliers (pg. 13) 5.2.1 Toyota-Supplier Relationship for Parts Engineering & Testing (pg. 13) 5.2.2 Toyota-Supplier Relationship & Third-Way Approach (pg. 14) 5.3 Future Considerations for Emerging Markets (pg. 14) Recommendations & Strategies for Crisis Management (pg. 15) 6.1 Convoluted Problem Reporting Processes (pg. 15) 6.2 Public Relations & Transparency (pg. 16) Financial Analysis Component Analysis & Overview Costing of Components for Pedal Assemblies, Manufacturing Processes, & Materials Used Chronology of Events Leading to Automotive Recalls Previous Background Research

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Appendix I Appendix II Appendix III Appendix IV Appendix V References

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Introduction Toyota Motor Corporation is one of largest multinational automobile manufacturers, headquartered in Toyota City, Japan. It was founded in 1937 and throughout the companys history, Toyota has diversified their vehicle range through Lexus, Scion, Daihatsu, Hino Motors, & Fuji Heavy Industries, with manufacturing and service facilities located all over the globe (Wan, 2011). Toyota is the fifth largest company in the world and has the greatest world (Worlds Largest Carmaker, 2011). Toyota also holds the greatest world market share in terms of production output at 11% (2012) (Lassa, 2012), and a total output of 7.3 million vehicles produced globally, and 1.3 million vehicles produced in the North American market (2011) (Ohnsman and Naughton, 2012). Additionally, they are acknowledged for being a progressive organization recognized for their innovative approach for mass-market hybrid vehicles and being the first to mass-produce Hybrid Electric Vehicles (HEVs), i.e. the Toyota Prius (Hino, 2005). Since inception, Toyota has been using its guiding principles to produce reliable quality vehicles and invest in sustainable development; for example, Toyota currently tops the North American Corporate Average Fuel Economy (CAFE) ratings at 26.7 miles per gallon (mpg) (Abeulsamid, 2008). 1.1 Toyota Production System The Toyota Way is a methodology, framework, and mindset that permeates throughout all aspects of the company, Appendix V (Wiley, 2010). This strategy was formally summarized in 2001 through the adherence to five key principles: (1) Challenge: long-term vision, (2) Kaizen: continuous improvement, (3) Genchi Genbutsu: mutual ownership of problems, (4) Respect for People: building mutual trust, and (5) Teamwork: opportunities for development (Hino, 2005). The Toyota Production System (TPS) arises from this methodological way of thinking and is established on two key concepts: (1) Jidoka, and (2) Just-in-Time (JIT) manufacturing (Womack, 1991). The principle of Jidoka emphasizes the stoppage of production in case of defects, whereas JIT

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focuses on productivity improvements through an optimum combination of inventory and supply for continuous flow in production (Cole, 2011). Additionally, the TPS strategy is centered on the elimination of excess waste (overproduction, transportation, inventory), which is defined as anything above and beyond the minimum input requirements to achieve a desired output, i.e. raw materials, energy, labour (Liker and Meier, 2005). In the end, the focus of this strategy results in organizational change in operations instead of short-term cost performance for example, the production time per vehicle has actually increased to 27.9 hours, up 5.5% from 2003 and through a commitment to standards and quality, Toyota has achieved an overall average profit of approximately $1,488 USD per vehicle (Lassa, 2012). 2. Global Operations The global operational reach of Toyota has resulted in vehicles sold in over 170 countries; 51 bases in 26 different countries and a total of 9 R&D locations (Globalization & Localization, 2012). With increased globalization, Toyota has adopted strategies for increasing the local presence of production facilities, supplier relationships, and distribution networks summarized by the Globalization-Localization Strategy (Globalization & Localization, 2012). The primary advantage of adopting a localized manufacturing base allows Toyota to be close-to-market, i.e. vehicle specifications can be adapted to the demands of the local market, as was in the case of Lexus for the US market, and the Yaris for the European market (Johri and Petison, 2008). Furthermore, Toyotas restructured profit centers in Japan, North America, and Europe has further facilitated the Globalization-Localization strategy such that each group can focus on catering to the demands of the region and allowing for increased structural autonomy through the Toyota organization (Johri and Petison, 2008). In order to increase offshore (outside of Japan) production capacity

(globalization), the following 3 localization efforts were undertaken: (1) establish local sales network, (2) build production facilities, and (3) establish joint-ventures.

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The proof of Toyotas Globalization-Localization Strategy can be further be seen in production and net revenue figures for 2011 (Table 3, Figure 8, Figure 13) which indicate that while 52% of total vehicle production was conducted in Japan, 48% of vehicles were manufactured oversees (outside of Japan) and 19% were produced in North America (Toyota, 2012). From the perspective of net revenues (Table 3, Figure 9, Figure 14), over half, i.e. 53% of total revenues come from overseas markets and 23% come from North America alone (Toyota, 2012). While the bulk of Toyotas overseas strategies are dependent on North America, they are also targeting emerging markets in Asia (Figure 7, Figure 11), such as China (growth of 24% between 2010 and 2011), which are steadily increasing in sales revenues. In regards to their current 5 year plan, Toyota forecasts a 50-50% split between sales in emerging markets compared to those in industrialized nations (The Toyota Global Vision, 2011). 3. Strategic Global Operations Issue: Though Toyotas year-over-year sales figures and net revenues had been steadily increasing up until 2008, a systemic issue faced all business units that of unintended vehicle acceleration. The Los Angeles Times (Figure 23) was the first media source to report of these vehicle problems claiming that Toyota had ignored approximately 1,200 complaints about unintended acceleration over a span of 8 years (MacKenzie and Evans, 2010). Negative publicity associated with 5 cases of deaths of owners also emerged (MacKenzie and Evans, 2010). The problem of unintended acceleration results in the gas pedal not returning from the accelerate to the neutral un-throttled position leading to sudden acceleration, uncontrolled acceleration, or lack of responsive acceleration of the vehicle under the force of the users foot (Motovalli, 2010). Defective North American pedal assemblies were later recalled on January 21, 2010 affecting 2.3 million vehicles including the Toyota Avalon, Camry, Corolla, Highlander, Matrix, Rav4,

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Sequoia, and Tundra representing approximately 50% of Toyotas 2011 vehicle sales (MacKenzie, 2010). 3.1 Issue Statement The remainder of this report will categorically analyze what went wrong in regards to the issue of faulty pedal assemblies, who are the responsible parties, and how should Toyota proceed to maintain adherence to quality standards in the face of its GlobalizationLocalization strategy through engagement of its key stakeholders and suppliers. 3.1.1 Impact of Unintended Vehicle Acceleration on Toyotas Global Operations & Financials The vehicle recall led to a 6% decrease in vehicle sales in 2009-10 (Table 3, Figure 7). Furthermore Toyotas stock price fell approximately 10% overall and about 30% relative to the S&P 500 over the period from early September 2009 through April 2010 (Welch, 2010). The Wall Street Journal and JP Morgan also estimated a loss of approximately $5 billion USD over the next fiscal year 2010-11, considering litigation costs, warranty costs, increased marketing and incentive campaigns to countervail the negative publicity surrounding the claims of unintended acceleration (Neff, 2010). Despite having $29 billion USD in cash and little debt (Financial Results: FY2012, 2012), the credit rating agency Fitch placed the companys A+ rating on the negative side because of recall issues and subsequent decline in sales and brand reputation of its vehicles (Neff, 2010). Furthermore, from an operational point-of-view, Toyota suspended sales of affected recalled vehicles after the recall as well as shutdown assembly lines in 5 North American production plants for 5 days to recalibrate. 4. Analysis of Input Factors leading to Strategic Global Operations Issue The lead-up to the massive Toyota (Table 9, Table 10) recall stems from a variety of different input factors and perspectives, all of which combined created an unfavourable situation for Toyota.

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4.1 Comparison of Suppliers The issue of unintended vehicle acceleration was determined to be rooted in the pedal assemblies manufactured by a Toyota supplier. In the case of pedal assemblies, Toyota sources its parts through either Denso Corporation (Kariya, Japan) or CTS Corporation (Elkhart, Indiana) (Niedermeyer, 2010). The proximity of pedal assembly manufacturing facilities to Toyotas vehicle assembly plants results in an advantageous relationship in terms of JIT manufacturing. While Toyota has a 33.35% stake in Denso (6902.T, Tokyo SE) and has been in a part-supply relationship with Toyota since 1949, since the 2005 appointment of CTS Corporation (CTS, NYSE) to supply pedal assemblies to the North American market, Denso has been predominantly supplying Toyotas Japanese assembly plants for both Toyota as well as Honda to a lesser extent (Hiles, 2011) (Table 1, Table 2). 4.1.1 Design Considerations Through an analysis of the actual pedal assemblies of both suppliers, it is clear that the Denso and CTS designs are fundamentally different in their modes of operation, Appendix II. In order for a vehicles pedal assembly to return the accelerator pedal to its original un-throttled state, a springloaded mechanism is used to achieve the necessary unobstructed spring back. In the case of the Denso unit (Figure 17, Figure 18), the pedal assembly achieves spring back via friction between a curved-loaded spring sandwiched between two injection molded plastic casings which also house the pivot for the gas pedal such that rotational motion and depressing of the pedal via the users foot can be achieved. However, the CTS unit (Figure 19, Figure 20) requires the use of an injection molded friction lever with curved gear grooves to achieve the spring back as it pivots around a steel pin inserted in a brass sleeve. The fundamental complexity and added number of parts of the CTS unit, especially the presence of the friction lever design, is one contributing factor to the vehicle recalls surrounding unintended acceleration (Niedermeyer 2010). Furthermore, Toyota definitively

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outlined the CTS manufactured pedal assemblies as being defective in regards to operation in high temperature and humidity environments (i.e. the result of turning on the vehicles on-board heating system which in turn may blow downwards on the gas pedal), resulting in catastrophic malfunction (Green and Ramsey, 2010). 4.1.2 Material & Cost Considerations In the case of materials, the cost of engineering plastics constitutes over 70% of the overall cost of injection molded part (Table 7); furthermore the cost of the injection molded parts in the pedal assembly represent 74% of the total final part cost (Benhabib, 2003). In the case of the Denso unit (Table 4) manufactured via polyphenylene sulfide (PPS), the overall part cost is estimated to be $28.87 USD including material ($10 USD/lb), manufacturing, assembly, quality control, shipping, duties and taxes. However, in the case of the CTS pedal assembly (Table 5), the initial choice of polyamide PA46 (Nylon) at a material cost of $2.10 USD/lb (Table 7) means that overall injection molded part costs are significantly reduced in comparison to the Denso unit and the total cost of the part is approximately $10.19 USD cheaper; overall part cost is estimated to be $18.68 USD. Through investigations by the US National Highway Traffic and Safety Association, it was also determined that the material of the friction (Table 8) lever used in the CTS design, i.e. PA46, was also a key contributor to the malfunction of the pedal assembly (Internal Memo, 2010). In the case of PA46, while it has a long history of use in automotive applications and is used to replace metal in high temperature applications, its major drawback comes due to its high moisture uptake (Fakirov, 1999). These material properties in combination with the formation of condensate due to duct heating in the car resulted in increased friction between the friction teeth and the internal grooves in the pedal assembly leaving the pedal in the accelerate position (Niedermeyer, 2010). Furthermore, well before the recall of 2.3 million Toyota vehicles, between February and June 2009 (Table 9, Table 10), Customer Quality Engineering Japan (business unit within Toyota) had

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made a material change from PA46 to PPS and then later on to POM (Delrin acetal resin), as well as increasing the actual physical dimensions of the CTS friction lever design itself in order to avoid pedal sticking (Internal Memo, 2010). 4.2 Engineering & Toyota-Supplier Relationship It is clear through the previous discussion that there were significant differences in terms of overall design, material specifications, and costs between the Denso and CTS pedal assembly units. The current relationship between Toyota and its suppliers means that most parts are outsourced; in reality, Toyota as a company has moved more and more towards being the destination of final assembly, rather the manufacturer of car parts (Canis, 2011). In most cases, Toyota outlines its specifications for a part, allows several suppliers to bid for the manufacture of that part, and works with Toyota engineers in order to achieve the final part performance specifications that are required therefore a clear interplay exists between the initial requirements presented by Toyota and the final design as manufactured by the supplier (Case Study, 2010). At the end of the day, even though parts are manufactured outside of the company, they are directly responsible for the performance of each part, and guarantee its safe operation, dimensional tolerances, and reliability. In this case, Toyota assumed full responsibility for the malfunctioning CTS manufactured unit; however, several possible scenarios are elaborated upon to understand why Toyota would accept such a drastically different designed part by CTS. 4.2.1 Manufacturing & Tooling Considerations As outlined in Section 4.1.2, the cost of the injection molded plastic components that make up the pedal assembly actually account for greater than 70% of the part costs (Table 7). The process of injection molding requires an injection molding machine capable of producing enough clamping force (in this case, approximately 150 tons) (Table 6). Plastic is quickly injected and cooled in a mold under clamping pressure which results in the final design shape (Benhabib, 2003). For the

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manufacturing of pedal assemblies, this would result in capital investment of approximately $40,000 to $200,000 in terms of the cost of tooling and molds, per machine with the cost of the injection molding machine with the right clamping force adding an additional $500,000 to $1 million dollars (Benhabib, 2003). One highly plausible scenario in regards to the initial acceptance of the CTS designed part could reside in the fact that CTS is also a pedal assembly parts-supplier to Honda, Nissan, Ford, Chrysler, and Mitsubishi and CTS has also publicly stated that Toyota accounts for only 3% of their overall parts sales (Green and Ramsey, 2010). Therefore, the CTS unit could be the result of another auto manufacturers design which has been incorporated and modified to result in the final CTS design while maintaining the tooling and molds from existing processes to reduce capital investments on the part of CTS (Merx & Ramsey, 2010). 4.2.2 Cost Considerations Cost considerations always are a key factor in final design considerations, and in this case, the reduced cost of PA46 in CTS initial design (Table 5, Table 7) could be reflective of their previous experiences manufacturing with this engineering plastic in order to meet similar performance requirements as demanded by Toyota. Additionally, the initial decision to go for a supply-partner in the US was an extension of their Globalization-Localization strategy as well as to reduce associated costs due to shipping, freight, duties, and taxes to transfer parts from Japan to North America. 4.2.3 Denso Pedal Assembly Unit Patent Considerations While the replication of the Denso design could not be possible due to the nature of the design patent that the Denso Corporation holds on its pedal assembly, the drastic variation of the design could also be due to patent considerations (Merx & Ramsey, 2010).

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4.2.4 Skills & Training Considerations Toyotas senior engineers are referred to as their Sensei (master or teacher). Their ultimate function is to coach teams from supplier factories, for example, to maintain an understanding of the principles of lean production (Case Study, 2010). With the increased globalization focus, this ultimately put strains on their human resources base, having too few Sensei to support expansion (Meigs, 2010). In the case of the Toyota relationship with CTS, this could have also been a

contributing factor leading to the acceptance of the CTS design and also the lack of responsive feedback to the recall crisis itself, Section 6.1, Section 6.2. 4.2.5 Growth Oriented Management Focus As echoed by a MIT Sloan Management Review article by Professor Robert E. Cole, the reason for the lack of rigorous design inspection and review of Toyota parts is also a result of the focus of Toyota management on growth, weakening its traditional emphasis on quality (Cole, 2011). This growth phase can be attributed in large part to the presidency of Hiroshi Okuda for Toyota and his ambition of achieving 15% global market share by 2010 (Cole, 2011). Furthermore, between 2008 and 2008, the by-product of this global growth strategy resulted in an overall year-over-year sales increase of 9% and overseas manufacturing rise from 37 to 53% (Cole, 2011). This focus on growth can also be seen through the companys ignorance of approximately 1,200 customer complaints about unintended acceleration as well as the convoluted and hierarchical approach to dealing with Field Technical Reports (FTRs) outlining vehicle issues within the field. In effect, car dealers often act as the first line of defense and reporting in relation to vehicle problems. The management focus on growth was in large part counter intuitive to the principles of TPS and in the end, totally irrelevant to any customer (Womack, 1991). This ultimately led Toyota to [work] with a number of suppliers with whom they were unfamiliar and who did not truly understand how Lean [production] should work (Case Study, 2010).

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4.2.6 Perceived Superior Performance Considerations The last speculative consideration results from the comparison of the CTS design to that of the Denso unit. Internally, Toyota may have tried to move to another engineering design to alleviate intrinsic flaws of the Denso unit even though the Denso units had never been implicated in a pedal acceleration issue in the past. 4.3 Summary of Input Factors leading to Strategic Global Operations Issue The acceptance of the CTS design likely involved a mutual collaboration between Toyota and CTS engineers in order to optimize the part for performance and cost. While the responsibility of defects lies with Toyota, the initial acceptance of such an un-vetted, unproven, and drastically different design goes against the TPS principles. From the point-of-view of CTS, the likely

combination of existing tooling, reduced capital investment, and ease of manufacturing may have initiated the pedal design. But from the point-of-view of Toyota, this unfamiliar design and related unknown performance under extreme conditions had not been conclusively tested. 5. Strategy & Recommendations for Future Global Operations & Toyotas GlobalizationLocalization Plan The future of Toyotas extended global operations vision is directly proportional to the way Toyota addresses its key relationships with stakeholders and suppliers in the future. Moreover, however unfortunate this unintended acceleration issue was, it also presents key insights for how Toyota should proceed in the future to maintain productive relationships and to uphold its adherence to quality standards such that another mass vehicle recall does not occur. 5.1 Immediate Considerations for Supply Chain Issues The current Toyota recall affects cars between the 2005 and 2010 model years and the current fix is either through a replacement of the faulty pedal assembly unit with an improved CTS unit (MacKenzie, 2010). However, Toyota faces certain immediate supply chain issues due to the lack of

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parts inventories to maintain both a supply for auto manufacture assembly lines as well as dealerships for recalled cars since the current annual output capacity for CTS is 2 million pedal assembly units per year (Green and Ramsey, 2010). The current demand is approximately 3.6 million units for North America. Therefore, in order to maintain a continuous supply for their assembly facilities, Toyota should prioritize and maintain supply for the automobile assembly plants as well as source additional Denso units to repair recalled vehicles. In the near time frame, they may also consider investing some of the $5.6 billion that Toyota publically set aside to deal with these recall issues (MacKenzie, 2010). 5.2 Localization of Suppliers Creating a local supply network to meet the needs of JIT assembly means vehicle manufacturers must also adhere to stringent production demands. However, Toyota should look back into their past when the first greenfield Toyota production facility opened in 1985 in Georgetown, Kentucky; Toyota had believed that [d]eveloping human infrastructure was TMCs foremost priority in transplanting TPS to Georgetown (Toyota Motor Manufacturing, 1995). At the time, Toyota provided training for suppliers including top management to assembly workers and allowed for site visits to other Toyota plants to get a feel for the Toyota principles (Toyota Motor Manufacturing, 1995). With their current rapid growth, Toyota must fall back on the principles of localization and establish joint-ventures in knowledge transfer, training, and best practices. 5.2.1 Toyota-Supplier Relationship for Parts Engineering & Testing Related to their localization framework, Toyota must also develop relationships between engineering departments at both Toyota and the supplier. In this way, part designs can be looked at more rigorously for non-obvious defects. Additionally, the defect relating to unintended

acceleration could have earlier observed if a conjoined test program had been initiated between Toyota and CTS since all vehicle parts undergo limitations and failure-point testing to determine the

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extreme operating window for safe operation. It is then recommended that Toyota integrate design and testing programs for its parts through the transplanting of Toyota engineers that act as consultants to the parts supplier. 5.2.2 Toyota-Supplier Relationship & Third-Way Approach A third-way approach is not deemed a realistic feasibility for Toyota. While Toyota has built a responsive supply chain network, the switching costs to move from one parts-supplier to another remains very high in terms of both cost, engineering, and knowledge transfer. The strength of the Toyota supply chain is a result of the network of suppliers and the ultimate continuity of the Toyota Way in each of their operations. 5.3 Future Considerations for Emerging Markets As outlined in Toyotas global plan, they are in plans to evenly distribute their sales base such that 50% of revenues come through pre-existing industrialized nations, and 50% of the remaining revenues come through sales from emerging markets such as the BRIC nations of Brazil and China (The Toyota Global Vision, 2011). In the words of current Toyota president Akio Toyoda, China and other emerging markets are the subjects of great expectations in our industry. At Toyota we hold especially high hopes for the Chinese market. We have set a target of securing 15% of our global unit sales in China (The Toyota Global Vision, 2011). Such a strategy will demand increased localization and in this case, Toyota should take an increasingly proactive approach in sourcing these supplier relationships and overseeing quality through: (1) more emphasis on skills infrastructure and training, (2) ensuring senior Sensei/Master engineers are able to work with suppliers to develop their parts and ensure adherence to Six Sigma Process Control, and (3) developing an efficient logistics network in these emerging nations to facilitate JIT manufacturing.

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6. Recommendations & Strategies for Crisis Management The Toyota recalls and issues with unintended acceleration also clearly outlined a lack of crisis management and public relations strategies on the part of Toyota. 6.1 Convoluted Problem Reporting Processes Via an analysis of the chronology of events (Table 9, Table 10) leading up to the announcement of the recalls, many unintended acceleration incidents were reported. Car dealerships often act as the first service and contact point between an owner and Toyota (Figure 24). In the current structure of the company, Toyota dealers take complaints and issues from the market and bring them to the attention of regional Customer Quality Engineering Groups through Field Technical Reports. However, it is unclear of the processes that take place between Toyota Engineering, Toyota Distributors, Customer Quality Engineering Groups, Toyota Engineering, and lastly the partssupplier itself, CTS. The increased hierarchy seen in the reporting process means that issues must travel through a long and complex inter-departmental chain of information flow before reaching key decision makers that have the ability to oversee the entire issue. For example, in Toyotas own account of the unintended acceleration issue, they had received 4 FTRs in January of 2008 regarding acceleration problems yet Quality Engineering Japan oversaw the failure analysis instead of European group the overall result is clear, while Toyota first learned about this problem as early as July 2006, they did not act to make design changes until June 2009, and furthermore did not issue vehicle recalls until January 2010 (National Highway, 2010). The lack of an efficient problem reporting process goes against the principle of Jidoka according to the Toyota Way. While streamlining processes for larger organizations can present challenges, it is recommended that regional Customer Quality Engineering Groups take a front-line approach via partnership with dealer networks to conduct failure investigations and collect and recover parts

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from faulty vehicles. Furthermore, Customer Quality Engineering Groups should then work handin-hand with Toyota Engineering in order to address defects and design modifications. 6.2 Public Relations & Transparency The other key ingredient that Toyota lacked was an attention to media, marketing, public relations, and transparency when this initial unintended acceleration issue was outlined by the press. For example, even though issues with unintended acceleration had dated back from 1999 to 2006, they actively decided to monitor the situation instead of taking action (Internal Memo, 2010). Furthermore, it was only until the Los Angeles Times started to investigate this issue, did the company begin to respond; in the beginning Toyota had sent a letter to owners indicating that no defect exists (MacKenzie, 2010). After subsequent investigations by the LA Times and notification of the US National Highway Traffic & Safety Administration, Toyota began to respond and take light of this issue. Toyotas lack of initial response and lack of clarity also resulted in the declaration by the US Department of Transportation and the US NHTSA that Toyota would be liable for civil penalties after providing a Defect Information Report to the NHTSA a full four months after Toyota began to rectify and take action regarding the situation in the European market (National Highway, 2010). Therefore, in terms of crisis management, Toyota should adopt more transparent external reporting policies such that defects that relate to human safety are made clear to the public and the authorities. Furthermore, an internal company watchdog department should also be put in place, not to increase the level of bureaucracy, but to ensure that the company adheres to transparent public communication on issues of safety.

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I. Table 1:

Appendix: Financial Analysis Presentation of Denso Corporation Financial Summary in Millions of USD or Japanese Yen (2002 2011); Sales, Operating Income, Net Income, R&D, and Profitability Ratios
2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Net Sales in Japan () Net Sales Outside Japan () Total Sales () Operating Income (Loss) () Net Income (Loss) () Year-Over-Year Change (%) R&D Expenses () R&D as % of Sales () Return on Sales (%) Current Ratio (-) Return on Equity (%) Japanese Yen/USD Dollar () Net Sales in Japan ($) Net Sales Outside Japan ($) Total Sales ($) Operating Income (Loss) ($) Net Income (Loss) ($) Year-Over-Year Change (%) R&D Expenses ($) R&D as % of Sales (%)

1,506,681.00 1,518,105.00 1,615,771.00 1,976,877.00 1,859,046.00 1,609,215.00 1,554,795.00 1,442,645.00 1,325,637.00 1,277,865.00 1,624,779.00 1,458,604.00 1,526,894.00 2,048,199.00 1,750,654.00 1,498,115.00 1,245,154.00 1,119,766.00 1,007,123.00 1,123,233.00 3,131,460.00 2,976,709.00 3,142,665.00 4,025,076.00 3,609,700.00 3,107,330.00 2,799,949.00 2,562,411.00 2,332,760.00 2,401,098.00 188,331.00 143,033.00 95% 290,069.00 9% 4.6 235.3 7.4 $ $ $ $ $ 84.68 17,792.64 $ 19,187.28 $ 36,979.92 $ 2,224.03 $ 1,689.10 $ 95% 3,425.47 $ 9% 136,640.00 73,247.00 187% 270,077.00 9% 2.5 230.4 4 91.31 16,625.84 $ 15,974.20 $ 32,600.03 $ 1,496.44 -$ 802.18 -$ 187% 2,957.80 $ 9% -37,309.00 -84,085.00 -134% 297,148.00 9% -2.7 206.3 -4.3 100.90 16,013.59 $ 15,132.75 $ 31,146.33 $ 369.76 $ 833.35 $ -134% 2,944.98 $ 9% 348,652.00 244,417.00 19% 311,474.00 8% 6.1 162.6 11.3 113.24 17,457.41 $ 18,087.24 $ 35,544.65 $ 3,078.88 $ 2,158.40 $ 19% 2,750.57 $ 8% 303,068.00 205,170.00 21% 279,890.00 8% 5.7 151 9.9 116.10 16,012.45 $ 15,078.85 $ 31,091.30 $ 2,610.40 $ 1,767.18 $ 21% 2,410.77 $ 8% 266,559.00 169,648.00 28% 256,339.00 8% 5.3 160.6 9.4 118.86 13,538.74 $ 12,604.03 $ 26,142.77 $ 2,242.63 $ 1,427.29 $ 28% 2,156.65 $ 8% 213,895.00 132,620.00 21% 238,241.00 9% 4.7 161.4 8.4 116.92 13,297.94 $ 10,649.62 $ 23,947.56 $ 1,829.41 $ 1,134.28 $ 21% 2,037.64 $ 9% 188,659.00 110,027.00 -1% 214,917.00 8% 4.3 163 7.6 103.92 13,882.27 $ 10,775.27 $ 24,657.53 $ 1,815.43 $ 1,058.77 $ -1% 2,068.10 $ 8% 159,893.00 111,018.00 54% 182,886.00 8% 4.8 161.2 7.9 107.42 12,340.69 $ 9,375.56 $ 21,716.25 $ 1,488.48 $ 1,033.49 $ 54% 1,702.53 $ 8% 133,340.00 72,313.00 185,627.00 8% 3 174 5 120.14 10,636.47 9,349.37 19,985.83 1,109.87 601.91 1,545.09 8%

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Figure 1:

Denso Corporation Sales Trends within Japan & Outside of Japan in Comparison to Total Sales (2002 2011)

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Figure 2:

Denso Corporation Operating Income & Net Income Historical Trends (2002 2011)

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Figure 3:

Denso Corporation Profitability Ratios: Return on Sales & Return on Equity (2002 2011)

Table 2:

Presentation of CTS Corporation Financial Summary in Thousands of USD (2004 2011); Sales, Operating Income, Net Income, R&D, and Profitability Ratios
2011 2010 2009 2008 2007 2006 2005 2004

Net Sales ($) Operating Income (Loss) ($) Net Income (Loss) ($) Year-Over-Year Change (%) R&D Expenses ($) R&D as % of Sales (%) Return on Sales (%) Current Ratio (-) Return on Equity (%)

$ 588,506.00 $ 552,641.00 $ 498,982.00 $ 691,707.00 $ 685,945.00 $ 655,614.00 $ 617,484.00 $ 531,316.00 $ $ 25,240.00 $ 20,967.00 $ -5% 19,990.00 $ 27,843.00 -$ 17,829.00 $ 30,830.00 $ 28,062.00 $ 17% 18,306.00 $ 3% 4% 2 10% 32,275.00 $ 23,947.00 $ 5% 15,896.00 $ 2% 3% 1.9 7% 32,818.00 $ 22,834.00 $ 10% 15,873.00 $ 2% 3% 1.8 7% 37,932.00 $ 20,756.00 $ 4% 17,092.00 $ 3% 3% 1.5 6% 31,128.00 19,956.00 19,063.00 4% 4% 2 6%

22,038.00 -$ 34,050.00 $ 165% -221% 18,313.00 $ 3% 4% 2.1 8% 14,154.00 $ 3% -7% 2.1 -14%

4% 2.3 8%

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Figure 4:

CTS Corporation Total Sales (2004 -2011)

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Figure 5:

CTS Corporation Operating Income & Net Income Historical Trends (20042011)

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Figure 6:

CTS Corporation Operating Income & Net Income Historical Trends (20042011)

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Table 3:

Presentation of Toyota Motor Company Financial Summary in Millions of Yen (2007 2011); Profitability Ratios, Auto Sales, Production, Net Revenues, Operating Expenses, Operating Income Geographical Breakdown by Region
2011 2010 2.5% 1.4% 3.9% 1,913,117 2,031,249 795,534 1,255,016 1,313,123 7,308,039 26% 28% 11% 17% 18% 100% 0.8% 0.7% 2.1% 2,162,418 2,097,374 858,390 979,651 1,139,329 7,237,162 30% 29% 12% 14% 16% 100% 2009 2.2% 1.4% 4.0% 1,944,823 2,212,254 1,061,954 904,892 1,443,433 7,567,356 26% 29% 14% 12% 19% 100% 2008 8.6% 5.3% 14.5% 2,188,389 2,958,314 1,283,793 956,509 1,526,934 8,913,939 25% 33% 14% 11% 17% 100% 2007 9.3% 5.4% 14.7% 2,273,152 2,942,661 1,223,628 789,637 1,295,581 8,524,659 27% 35% 14% 9% 15% 100%

Operating Income Return on Revenues (%) Return on Assets (%) Return on Equity (%) Japanese Auto Sales (units) North America Auto Sales (units) Europe Auto Sales (units) Asia Auto Sales (units) Other Auto Sales (units) Total Auto Sales (units)

Japanese Auto Production (units) North America Auto Production (units) Europe Auto Production (units) Asia Auto Production (units) Other Auto Production (units) Total Auto Production (units)

3,721,351 1,338,294 371,528 1,343,719 394,829 7,169,721

52% 19% 5% 19% 6% 100%

3,956,996 1,041,833 432,626 1,021,019 356,966 6,809,440

58% 15% 6% 15% 5% 100%

4,254,984 919,125 481,512 946,806 448,605 7,051,032

60% 13% 7% 13% 6% 100%

5,160,293 1,267,639 710,895 961,207 447,166 8,547,200

60% 15% 8% 11% 5% 100%

5,100,823 1,204,676 709,263 754,960 411,229 8,180,951

62% 15% 9% 9% 5% 100%

Net Revenues Japan () Net Revenues North America () Net Revenues Europe () Net Revenues Asia () Net Revenues Other () Total Net Revenues ()

10,986,246.00 5,429,136.00 1,981,497.00 3,374,534.00 1,809,116.00 23,580,529.00

47% 23% 8% 14% 8% 100%

11,220,303.00 5,670,526.00 2,147,049.00 2,655,327.00 1,673,861.00 23,367,066.00

48% 24% 9% 11% 7% 100%

12,186,737.00 6,222,914.00 3,013,128.00 2,719,329.00 1,882,900.00 26,025,008.00

47% 24% 12% 10% 7% 100%

15,315,812.00 9,423,258.00 3,993,434.00 3,120,826.00 2,294,137.00 34,147,467.00

45% 28% 12% 9% 7% 100%

14,815,282.00 9,029,773.00 3,542,193.00 2,225,582.00 1,922,742.00 31,535,572.00

47% 29% 11% 7% 6% 100%

Operating Expenses Japan () Operating Expenses North America () Operating Expenses Europe () Operating Expenses Asia () Operating Expenses Other () Total Operating Expenses ()

11,348,642.00 5,089,633.00 1,968,349.00 3,061,557.00 1,648,987.00 23,117,168.00

49% 22% 9% 13% 7% 100%

11,445,545.00 5,585,036.00 2,180,004.00 2,451,800.00 1,558,287.00 23,220,672.00

49% 24% 9% 11% 7% 100%

12,424,268.00 6,613,106.00 3,156,361.00 2,543,269.00 1,795,252.00 26,532,256.00

47% 25% 12% 10% 7% 100%

13,875,526.00 9,117,906.00 3,851,863.00 2,864,470.00 2,150,159.00 31,859,924.00

44% 29% 12% 9% 7% 100%

13,358,036.00 8,580,140.00 3,404,810.00 2,107,933.00 1,839,245.00 29,290,164.00

46% 29% 12% 7% 6% 100%

Operating Income Japan () Operating Income North America () Operating Income Europe () Operating Income Asia () Operating Income Other () Total Operating Income ()

-362,396.00 339,503.00 13,148.00 312,977.00 160,129.00 463,361.00

-78% 73% 3% 68% 35% 100%

-225,242.00 85,490.00 -32,955.00 203,527.00 115,574.00 146,394.00

-154% 58% -23% 139% 79% 100%

-237,531.00 -390,192.00 -143,233.00 176,060.00 87,648.00 -507,248.00

47% 77% 28% -35% -17% 100%

1,440,286.00 305,352.00 141,571.00 256,356.00 143,978.00 2,287,543.00

63% 13% 6% 11% 6% 100%

1,457,246.00 449,633.00 137,383.00 117,595.00 83,497.00 2,245,354.00

65% 20% 6% 5% 4% 100%

Operating Income Return on Revenues (%) Return on Assets (%) Return on Equity (%) 2006 8.9% 5.2% 14.0% 2005 9.0% 5.1% 13.6% 2004 9.6% 5.5% 15.2% 2003 8.2% 3.8% 10.4% 2002 7.7% 3.1% 7.8%

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Figure 7:

Toyota Motor Company Global Operations Sales per Geographical Region (2007-2011)

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Figure 8:

Toyota Motor Company Global Operations Production per Geographical Region (2007-2011)

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Figure 9:

Toyota Motor Company Global Operations Net Revenue per Geographical Region (2007-2011)

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Figure 10:

Toyota Motor Company Global Operations Operating Expenses per Geographical Region (2007-2011)

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Figure 11:

Toyota Motor Company Global Operations Operating Income per Geographical Region (2007-2011)

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Figure 12:

Toyota 2011 Breakdown of Automotive Sales per Geographical Region

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Figure 13:

Toyota 2011 Breakdown of Automotive Production per Geographical Region

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Figure 14:

Toyota 2011 Breakdown of Automotive Net Revenue per Geographical Region

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Figure 15:

Toyota 2011 Breakdown of Automotive Operating Expenses per Geographical Region

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Figure 16:

Toyota 2011 Breakdown of Automotive Operating Income per Geographical Region

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II. Figure 17:

Appendix: Component Analysis & Overview Overview of Denso and CTS Pedal Assembly - Side by Side Comparison

Figure 18:

Internal Mechanisms of Denso Pedal Assembly

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Figure 19:

Internal Mechanism of CTS Pedal Assembly

Figure 20:

Friction Gear Mechanism of CTS Pedal Assembly

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III.

Appendix: Costing of Components for Pedal Assemblies, Manufacturing Processes, & Materials Used Component & Material Cost Breakdown of Denso Pedal Assembly
Quantity 5 1 1 1 1 1 1 1 Material Steel Steel Rubber PPS - 30% Glass Fibers PPS - 30% Glass Fibers PPS - 30% Glass Fibers Rubber Steel Dimension 5.0 mm 40 mm 20 mm 80 mm x 60 mm 80 mm x 60 mm 70 mm x 50 mm 10 mm $ $ $ $ $ $ $ Cost Approximate Manufacturing Process Inhouse/Outsource Outsource Outsource Outsource Inhouse Inhouse Inhouse Outsource Outsource

Table 4:
Number Component 1 Screws

0.05 Forming 1 0.20 Extrusion and Winding 2 0.02 Forming 3 7.32 Injection Molding 4 7.46 Injection Molding 5 6.69 Injection Molding 6 1.10 Heat Press Stamping 7 0.10 Stamping and Forming 2.00 Equivalent $40 USD/hour x 0.05 h 1.50 Equivalent $50 USD/hour x 0.03 h 0.25 26.69 0.93 Duty Percentage of 2.5%, Tax Rate 1% 7 1.25 Typical Freight Japan to US 8 28.87

2 Compression Spring 3 Rubber Sealing Ring 4 Injection Molded Casing Half 5 Injection Molded Casing Half - Pedal Side 6 Pedal Arm 7 Plastic Foot Grip 8 Metal Spacer for Spring

300 mm x 40 mm $

Assembly Costs $ Quality Control Costs $ Initial Shipping Costs to Plant $ Final Cost to Manufacturer $ Duties & Taxes $ Shipping Costs to North America $ Total Costs after Shipping, Duties, & Taxes $

Polyamide 46 (PA46) - High temperature polyamide, unmatched performance in automotive applications, highest temperature resistance, 30% filled with glass fibers. Is often used to replace metal in demanding, high temperature applications. Excellent mar and wear resistance. Mechanical and constant performance at high temperatures. High fatigue resitance. Good solution for complex shapes and parts with thin walls. "Polyamides Center". (2012). Omnexus.com. Retrieved from http://www.omnexus.com/tc/polyamides-center/index.aspx?id=pa46

Polyphenylene Sulfide (PPS) - Organic polymer, resists chemical and thermal attacks, engineering plastic, high performance thermoplastic. Molded, extruded, or machined to high tolerances and resistance to abrasion. In the presence of water, PPS can produce trace amount of sulphonic acid which can corrode metal surfaces at a very slow rate. "Polyphenylene Sulfide (PPS) Plastics". (2012). GoPolymers.com. Retrieved from http://www.gopolymers.com/plastic-types/polyphenylene-sulfide-pps-plastics.html

POM (Delrin) Acetal Resin - Bridges gap between metals and ordinary plastics with unique creep resistance, strength, stiffness, hardness, dimensional stability, abrasion resistance, low wear, and low friction. "DuPont Delrin Acetal Resin". (2012). DuPont.com. Retrieved from http://www2.dupont.com/Plastics/en_US/Products/Delrin/Delrin.html

1 2 3 4 5 6 7 8 9

http://order.optimumfixations.ca/?id=1&content=lppageEN&source=ppc Quote from Dezhou Runde Metal Products Co., Ltd., Shandong, China Quote from Yongsheng, YS-Rubber Ring, Zhejiang, China Injection Molding Estimate from http://www.custompartnet.com/estimate/injection-molding/ Injection Molding Estimate from http://www.custompartnet.com/estimate/injection-molding/ Injection Molding Estimate from http://www.custompartnet.com/estimate/injection-molding/ Quote from Ninghai Plastic & Mold Factory, Zhejiang, China http://www.carsdirect.com/car-buying/what-is-the-import-duty-to-import-cars-from-japan http://www.shipping-worldwide.com/japan.htm

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Table 5 :
Number Component 1 Screws

Component & Material Cost Breakdown of CTS Pedal Assembly

Quantity 3 2 1 1 1 1 1 1 1 1 Material Steel Steel Dimension 5.0 mm 40 mm $ $ $ $ $ $ $ $ $ Cost Approximate Manufacturing Process Inhouse/Outsource Outsource Outsource Inhouse Inhouse Inhouse Inhouse Outsource Outsource Outsource Outsource 0.03 Forming 1 0.40 Extrusion and Winding 2 0.41 Injection Molding 3 3.10 Injection Molding 4 3.56 Injection Molding 5 4.78 Injection Molding 6 1.10 Heat Press Stamping 0.10 Extrusion 0.10 Extrusion 0.10 Stamping and Forming 2.50 $50 USD/hour x 0.05 h 1.65 $55 USD/hour x 0.03 h 0.35 18.18 0.50 Typical Freight US 18.68

2 Compression Springs 3 Injection Molded Friction Lever 4 Injection Molded Casing Half 5 Injection Molded Casing Half - Pedal Side 6 Pedal Arm 7 Plastic Foot Grip 8 Steel Axle 9 Bearing Sleeve 10 Metal Spacer for Spring

PA46 - 30% Glass Fibers 40 mm x 2 mm PA46 - 30% Glass Fibers 80 mm x 60 mm PA46 - 30% Glass Fibers 80 mm x 60 mm Rubber Steel Brass Steel 70 mm x 50 mm 10 mm 10 mm 10 mm

PA46 - 30% Glass Fibers 300 mm x 40 mm $

Assembly Costs $ Quality Control Costs $ Initial Shipping Costs to Plant $ Final Cost to Manufacturer $ Shipping Costs within North America $ Total Costs after Shipping $
1 2 3 4 5 6

http://order.optimumfixations.ca/?id=1&content=lppageEN&source=ppc Quote from Dezhou Runde Metal Products Co., Ltd., Shandong, China Quote from http://www.custompartnet.com/estimate/injection-molding/ Quote from http://www.custompartnet.com/estimate/injection-molding/ Quote from http://www.custompartnet.com/estimate/injection-molding/ Quote from http://www.custompartnet.com/estimate/injection-molding/

Table 6:

Injection Molding Machine Approximate Specifications Required for Part Manufacture (both CTS & Denso Pedal Assemblies)
Specifications

Defect Rate (%) Run Quantity (units) Material Price (USD$) Part Weight (oz) Regrind Ratio (%) Additives Ratio (%) Material Markup (%) Machine Clamp Force (tons) Hourly Rate (USD$/hr) Machine Setup Time (hrs) Machine Uptime (%) Production Rate (parts/hr) Post-Processing Time (hrs) Production Markup (%) Number of Cavities (no.) Mold Making Rate (USD$/hr)

5 100000 10 8.01 0 0 25 150 35 8 95 197 0 10 2 65

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Table 7:

Sensitivity Analysis of Material Costs due to Change of Materials in the Injection Molding Production Process (Typical part Representative of both CTS & Denso Pedal Assemblies)
Material: PA46 30% Glass Filled Material: PPS 30% Glass Filled 100000 3.15 2.36 2.36 0.2 7.43 1 10.52 0.005 RA < 16 $ $ $ $ $ $ 10.00 839,781.00 20,352.00 41,641.00 901,774.00 9.02 $ $ $ $ $ $ Material: POM + PPA 100000 3.15 2.36 2.36 0.2 7.43 1 10.52 0.005 RA < 16 3.50 215,199.00 20,035.00 41,641.00 312,874.00 3.13

Run Quantity (units) Part Dimensions L (in) Part Dimensions W (in) Part Dimensions H (in) Wall Thickness (in) Projected Area (in2) Number of Holes (no.) Volume (in3) Tolerance Roughness Material Price ($/lb) Material Costs ($) Production ($) Tooling ($) Total ($) Total per Part ($) $ $ $ $ $ $

100000 3.15 2.36 2.36 0.2 7.43 1 10.52 0.005 RA < 16 2.10 150,719.00 17,237.00 41,641.00 209,597.00 2.10

Table 8:

Advantages & Disadvantages of Various Engineering Plastics used in Injection Molding Production Process (Typical part Representative of both CTS & Denso Pedal Assemblies)
Material: PA46 - 30% Glass Filled - High temperature polyamide, unmatched performance in automotive applications, highest temperature resistance, 30% filled with glass fibers. Is often used to replace metal in demanding, high temperature applications. Excellent mar and wear resistance. Mechanical and constant performance at high temperatures. High fatigue resitance. Good solution for complex Material: PPS - 30% Glass Filled - High material costs, organic polymer, resists chemical and thermal attacks, engineering plastic, high performance thermoplastic. Molded, extruded, or machined to high tolerances and resistance to abrasion.
3

Material: POM + PPA - Bridges gap between metals and ordinary plastics with unique creep resistance, strength, stiffness, hardness, dimensional stability, abrasion resistance, low wear, and low friction. 5

Advantages

Disadvantages

shapes and parts with thin walls. 2 - Major disadvantage is high moisture uptake. - In presence of water, PPS produces trace - High density when compared to other plastics. However it is well suited for automotive industry, amounts of sulphonic acid which can corrode metal Used in auto industry. 5 surfaces at very slow rate. Minimal moisture "under the hood" applications. 1 absorption, very low coefficient of thermal expansion. 4

1 2 3 4 5

Transreactions in Condensation Polymers, Stoyko Fakirov Polyamides Center. (2012). Omnexus.com. Retrieved from http://www.omnexus.com/tc/polyamides-center/index.aspx?id=pa46 Polyphenylene Sulfide (PPS) Plastics. (2012). GoPolymers.com. Retrieved from http://www.gopolymers.com/plastic-types/polyphenylene-sulfide-pps-plastics.html Niedermeyer, P. (2010). "Toyota". Retrieved from www.thetruthaboutcars.com/2010/02/why-toyota-must-replace-flawed-cts-gas-pedal DuPont Delrin Acetal Resin. (2012). DuPont.com. Retrieved from http://www2.dupont.com/Plastics/en_US/Products/Delrin/Delrin.html

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Figure 21:

Overview of Shipping Pathway of Denso Pedal Assembly

Figure 22:

Overview of Shipping Pathway of CTS Pedal Assembly

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IV. Table 9:

Appendix: Chronology of Events Leading to Automotive Recalls Brief Chronology of Events at Toyota
Description of Event Toyota receives 4 Field Technical Reports, accelerator pedals in Toyota Tundra were slow to return to unengaged position After initial investigation, Toyota confirmed that pedals operated correctly via the recovered parts from the FTRs under normal environmental Under high temperature and humidity testing, the acceleration pedals were slow to return to the unengaged position as confirmed by Toyota. These parts contained a friction lever that was made out of PA46. CTS Supplier has also confirmed that the accelerator pedals for the Toyota Tundra vehicle were slow to return in conditions of high humidity and temperature. Toyota makes material composition change from PA46 to PPS for the material of the friction lever in the accelerator pedal design. Toyota and CTS implements this design change issued on January 25 in mass production on all vehicles. Toyota confirmed that even if the Toyota Tundra vehicle accelerator pedal was slow to return to the unengaged position, the vehicle could still be stopped via braking. Dealer Product Report came in concerning a Toyota Camry with a sticky accelerator pedal complaint. Toyota makes presentation to NHTSA (US) about the issue of pedal acceleration. Toyota files Defect Information Report regarding pedals containing PA46 friction levers and changeover to PPS friction levers.

Approximate Date March - December 2007 December 14, 2007 January 7, 2008

January 18, 2008 January 25, 2008 February 14, 2008 March 21, 2008 August - September 2009 January 19, 2010 January 21, 2010

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Table 10:
Approximate Date July 2006

Detailed Chronology of Events at Toyota

Description of Event Toyota Motor Company receives FTR from US market regarding sticking of accelerator pedal on Avalon. Toyota decides to monitor the situation and not to take action. Toyota receives 4 FTRs from European market regarding sticking of accelerator pedal. Toyota conducts parts recovery in EU market. Toyota conducts investigation from recovered EU accelerator pedals and confirms correct operation in normal environmental conditions. Customer Quality Engineering Japan (business unit within Toyota) analyses likely cause of pedal malfunction. Condensation along the wear of the friction lever assembly likely caused accelerator pedal sticking and heater ducts blowing hot air in that location causing condensation. Material change from PPS to POM and then extension of the length of friction lever. Personnel at Customer Quality Engineering Europe inform Customer Quality Engineering Los Angeles about the sticky accelerator pedal problem complaint received in Ireland. Engineering change request made in regards of extension of the friction lever arm and changing material from PPS to a combination of PPA and POM. Toyota issues a Technical Information to Toyota Distributors in the UK and Ireland identifying field fix by replacing CTS pedal assemblies with Denso pedal assemblies. Toyota makes the design change for pedal assemblies made by CTS for the European market on a rolling basis and then plans to implement in the US market. Toyota Matrix was subject of an accelerator pedal complaint. Vehicle with a sticky pedal will stop in same distance and without any problems. Toyota issues a Technical Information to Toyota Distributors in all of Europe identifying aCompany Communication was repair procedure to address Toyota Intra production improvement and issued and copied to Customer Quality Engineering Japan about Toyota Corolla and sticky accelerator pedal complaint. Pedal was taken to Customer Quality Engineering Los Angeles for further testing. Three Field Technical Reviews were issues concerning sticky accelerator pedals in Toyota Corollas sold in the US and parts recovery was conducted. Toyota receives additional FTRs about problem. Toyota notifies NHTSA (US) about 3 FTRs. Toyota engineers at the Reliability Testing group confirm that the problem in the US is a replication of the earlier problems that were identified in the European market. Various internal meetings to discuss status of production and changes and to prepare meetings with NHTSA. Toyota makes presentation to NHTSA officials in Washington about the sticky accelerator pedal phenomenon in Europe and the United States. Toyota announced that it would recall 2.3 million vehicles in the United States regarding this issue. Toyota issues stop sale order for vehicles at dealerships containing CTS pedals. Toyota annouces recall to address the sticky accelerator pedal issue and that fix would consist of inserting a metal plate in the accelerator assembly to prevent the pedal from sticking.

January 2008 - December 2008 December 2008 - March 2009

February 2009 - June 2009

April 27, 2009

May 2009

June 15, 2009

July 2009 August - September 2009 September 2009 September 29, 2009 October 13, 2009

October 22-28, 2009 October 2009 - January 2010 November 2009 November - December 2009 January 15-18, 2010 January 19, 2010 January 21, 2010 January 26, 2010 February 1, 2010

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Figure 23:

Graphical Overview of Toyota Recalls

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Figure 24:

Inter-Relationships between Stakeholders & Information Flow in regards to Recalls

V.

Appendix: Previous Background Research

Toyota Background Research:

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Denso Background Research: The differences in design could also be due to the fact that Denso holds a patent on the design of the part instead of Toyota. [http://answers.yahoo.com/question/index?qid=20100315175340AAU9ep7] Densos parent company is Toyota therefore there is a closer relationship in regards to the engineering of the parts. It is a member of the Toyota Group of Companies. [http://en.wikipedia.org/wiki/Denso] Denso currently supplies to both Toyota and Honda in regards to their pedal assemblies. Drive by wire systems allow for greater fuel efficiency and engine performance. [http://www.thetruthaboutcars.com/2010/01/whats-wrong-with-this-picture-cts-versus-densotoyota-pedal-assembly-edition/] Toyota has a 24.74% + 8.61% stake of Denso in 2009. Daihatsu in which Toyota has a 51% stake also recalled 275,000 cars due to concerns about sticking accelerator pedals. [http://books.google.ca/books?id=iDyoSoeoDusC&pg=PT450&lpg=PT450&dq=denso+pedal+as semblies+toyota+honda&source=bl&ots=VZSTUn7rm2&sig=G0tZSeydMKkSwWAc5sVifJGhUB g&hl=en&sa=X&ei=p_WBT53UOqXo0QHe7Kn2Bw&ved=0CHwQ6AEwCQ#v=onepage&q=den so%20pedal%20assemblies%20toyota%20honda&f=false] CTS Background Research: Chrysler sends out recall notices for 25,000 Dodge Calibers and Jeeps in regards to accelerator pedals could become stuck and cause unintended acceleration. Pedals were manufactured by CTS. [http://www.reuters.com/article/2010/01/28/chrysler-cts-idUSN2824976120100128] Honda confirms that it also uses CTS as a parts supplier for pedal assemblies, but confirmed that its assemblies were different from the recalled Toyota ones. [http://wheels.blogs.nytimes.com/2010/01/28/accelerator-pedal-supplier-in-toyotas-recall-hasmany-customers/] Toyota represents only 3% of CTSs annual sales therefore other North American automobile manufacturers are also greatly using CTS parts as well. [http://wheels.blogs.nytimes.com/2010/01/28/accelerator-pedal-supplier-in-toyotas-recall-hasmany-customers/] Ford halts production of full-size commercial vans in China while investigating the CTS pedal acceleration issue. [http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a59tuhYYoCqk] CTS supplies to Toyota, Honda, Nissan, and Ford. [http://www.ft86club.com/forums/showthread.php?t=360] Overall CTS has the capacity in order to produce approximately 2 million pedal assemblies per year the Toyota recall affects 2.3 million vehicles [http://www.autoblog.com/2010/01/27/thefix-is-in-toyota-reportedly-has-replacement-pedals-ready-to/] First awarded Toyota contract around approximately 2005 [http://www.toyotanation.com/forum/149-10th-gen-general-discussion-forum/311831-10th-gencorolla-recall-thread-34.html]

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January 21, 2010 Toyota announces voluntary recall to address the issue of unintended acceleration on 2.3 million North American vehicles. This is in addition to the 4.2 million Toyota and Lexus vehicles that are being recalled in order to fix issues in regards to the floor mats interfering with the function of the accelerator pedal. [http://www.businessweek.com/autos/autobeat/archives/2010/01/toyota_to_recal.html] CTS Chief Executive Officer Vinod M. Khilnani said the flaw in the pedals was a slow release after being depressed, and that there have been fewer than a dozen such occurrences in the U.S. The trouble probably was caused by condensation resulting from extreme environmental conditions that go beyond CTSs original specifications from Toyota, Khilnani said on a Jan. 28 conference call. Toyota came back to CTS with a more stronger, robust specification, Khilnani said. CTS said it has liability insurance with a $1 million deductible. Once Toyota approved the specification CTS delivered and used on its products, they cant blame CTS, said Koji Endo, managing director of Advanced Research Japan. [http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1ey94qdkcuc] CTS supplies to Honda Motor Company, Nissan Motor Company, Chrysler Group LLC, Mitsubishi Motor Company, and Ford Motor Company. [http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1ey94qdkcuc]

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Figure 25:

Toyota Globalization-Localization Strategy

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Figure 26:

Comparison of CTS Pedal Assembly with the Reinforcement Bar Solution

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Figure 27:

Overview of Denso and CTS Suppliers

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