Toyota Is Changing How It Develops Cars
By MIKE RAMSEY And NORIHIKO SHIROUZU
JULY 5, 2010

DETROIT—Toyota Motor Corp. is stretching out how long its new models are tested before they go into production and reducing the number of outside engineers it uses in a bid to overcome a spate of quality problems.

Randy Stephens, a senior Toyota engineer based in Ann Arbor, Mich., said company executives recognize that there were quality issues with the last generation of vehicles, which were developed while the company was in a global-growth mode. Executives began talking about making changes nearly a year ago, he said, but the recent recall problems have spurred the company to act.

"As we looked at this past generation of vehicles it did seem to be all about the growth of the company, and there were lapses," said Mr. Stephens, who works at the Toyota Technical Center near Ann Arbor and is currently in charge of the Toyota Avalon, a large sedan. "We are definitely reforming the processes to be ultracareful."

The changes in development follow Toyota's announcement that it will recall up to 270,000 Lexus models globally because of an engine problem that could cause stalling. The auto maker has been ravaged by quality and safety concerns in the past six months. It has recalled more than 8.5 million vehicles globally for problems related to unintended acceleration and tens of thousands more for steering, braking and gas-tank flaws in vehicles across its lineup.

Executive Vice President Takeshi Uchiyamada, Toyota's chief engineer globally, is spearheading the effort, which is similar to an effort in 2006 after Toyota had a spike in quality problems. Product-development times may be extended by two to six months, said a senior Beijing-based Toyota sales and marketing executive.

In addition to extending product-development lead times, Mr. Uchiyamada and his engineering team have decided to cut the number of engine and other key-feature variants and options to simplify and narrow the scope of engineering work, allowing engineers to focus more on quality.

Toyota may also further reduce the use of virtual engineering and begin using more vehicle prototypes. Doing so extends development time and increases costs.

In the case of the Avalon, which is developed and engineered in the U.S., Mr. Stephens said he is adding four weeks of additional testing to his development schedule. The testing will include using consumers and independent engineers to put "fresh eyeballs" on the models before they go into production. He said the company will use prototypes when necessary.

Toyota is trying not to lengthen the overall development time for a vehicle, which is 21 or 48 months depending on when you start counting, Mr. Stephens said. The idea is that other parts of the process could be shortened to allow more testing time.

"I think taking a step back and making sure that they have all of their processes in mind is probably a prudent move," said Michael Robinet, an automotive analyst with IHS Automotive. "I don't think they are going to go backwards from an efficiency standpoint, but what they may do is put more checks and balances in."

The company is also working to bring development work that had been sourced to outside engineers back inside. Some outside engineers actually work side by side with Toyota's engineers inside Toyota research and development centers. But using contractors has led to a breakdown in communication and potential misunderstandings, Mr. Stephens said.

A senior Toyota engineer said the company uses outside engineers to do about 30% of its development work globally and seeks to reduce the ratio to 10%. Toyota spokeswoman Cynthia Mahalak, of the Toyota Technical Center, said she couldn't confirm the ratios.

"We're definitely trying to do that," Mr. Stephens said. "We are trying to do as much in-house as we can. It makes more sense for us. It is easier to control and understand the process."

Toyota had long held the U.S. crown for top quality and reliability among car makers. But last month, researcher J.D. Power & Associates said the Toyota brand fell to 21st from 7th overall in its annual Initial Quality Survey of new vehicles.

Meanwhile, Toyota's U.S. market share has declined to 14.3% in June from 15.3% a year earlier, according to Autodata Corp. Even more telling, Toyota's market share through the first six months of 2010 is 15.1%, down from 17% at the end of 2009.

In a study released last week, researcherEdmunds.com found that used car prices have risen by an unprecedented amount in the past year for nearly all brands except Toyota.

"Our daily job is as intense and thorough as it has ever been," Mr. Stephens said. "These issues that have come up were really a surprise for us—but a wakeup call because things can slip by."

Write to Norihiko Shirouzu at norihiko.shirouzu@wsj.com

Toyota to extend development time to ensure quality
Wed Jul 7, 2010 1:54am EDT

* Product development time to be extended by 4 weeks
* About 1,000 engineers assigned for quality efforts - exec
* Created new team of 100 engineers to audit vehicle quality
* Development cost per car to rise slightly in short term

By Kevin Krolicki

TOYOTA CITY, Japan, July 7 (Reuters) - Toyota Motor Corp (7203.T) will extend the time it takes to develop its vehicles by an average of four weeks in a bid to ensure quality following a string of high-profile recalls, a top executive said.

"The fast growth of the past decade has been too much in some areas for the company to keep up with," Executive Vice President Takeshi Uchiyamada told a small group of U.S.-based reporters at Toyota headquarters on Wednesday.

Uchiyamada, in charge of research and development, said Toyota had assigned about 1,000 engineers to deal specifically with quality issues, out of the 14,000-strong R&D staff.

The quality of Toyota's cars -- once a benchmark for the industry -- has come under scrutiny after the world's top automaker recalled more than 10 million vehicles globally since late last year, mostly for problems of unintended acceleration.

Criticised by regulators for being too slow to act and out of touch with consumers' needs, Toyota has also set up a new team of 100 engineers independent of development to audit vehicle quality from the perspective of drivers, Uchiyamada said.

"It's important for our engineers to look at a vehicle and see how customers might use it in ways that haven't been reflected in our testing," he said, adding that doing so could help identify problems like the issue of stacked or loose floormats before they hit the market.

"We want them to be a little mean."

Toyota announced a number of steps earlier this year to reverse a quality slide and win back consumer confidence, including setting up a 50-member committee, chaired by President Akio Toyoda, aimed at giving more autonomy to regional operations to speed up decisions on quality issues. [ID:nTOE62T07S]

The various initiatives to boost vehicle quality would likely result in a slight rise in development costs per vehicle in the short term, Uchiyamada said. The average lead time for vehicle development in Japan has so far been about 24 months, he said.

"Our personnel costs are fixed. We're not hiring new engineers, so over the long term if our quality stabilises, I expect our costs should fall," he said. "But in the short term -- over the next year or so -- our costs per vehicle may rise a bit."

Uchiyamada said Toyota had added a new layer of management in engineering, appointing assistant managers to create smaller work teams and focus more on developing skills among workers and driving home the "Customer First" philosophy.

Still, in a sign that such efforts could take time to bear fruit, recalls have not let up at Toyota, leaving consumers wondering whether quality fixes are working.

This week, Toyota recalled 270,000 cars -- mostly in the United States under the high-end Lexus brand -- to fix a potential problem of engines stalling. That came less than two weeks after a separate recall of a hybrid Lexus sedan to repair a potential fuel leak. [ID:nN01142537]

Uchiyamada said Toyota needed to do more to address consumers' concerns about safety in North America and develop "more attractive products" to win back consumers. (Writing by Chang-Ran Kim; Editing by Chris Gallagher)