Tell Me Straight, Toyota – Bloomberg

Posted: Thursday, June 30, 2016

Grow too big, and everything starts to look small. Toyota’s annual revenues are larger than Apple’s or Exxon Mobil’s, and about equivalent to Goldman Sachs, JPMorgan, UBS, Credit Suisse and Barclays put together.

That might help explain the company’s patchwork approach to disclosing some of the problems inherent in running the world’s biggest carmaker. It doesn’t excuse it, though.

Shortly before Japanese markets opened on Wednesday, Toyota’s U.S. unit sent out a recall notice for 482,000 Prius and Lexus CT models fitted with faulty airbags. You might think that’s not a huge deal for a business that sells more than 10 million cars a year — but if you called the company, you’d find it was the tip of the iceberg. Add in non-U.S. recalls due to the same defect, and 1.43 million vehicles will need to be repaired.

But wait, there’s more: Just as Japanese traders were getting back from lunch, the country’s transport ministry announced a separate recall of 1.55 million cars with fuel-tank problems. You’d need to get on the phone to Toyota’s investor relations department to find the full global tally for this fault: 2.87 million vehicles.

In total, Toyota recalled 3.4 million vehicles worldwide on Wednesday, Craig Trudell of Bloomberg News wrote. Kind of a big deal, but you won’t find a hint of it on the company’s investor relations site, or its global corporate newsroom or SEC filings.

Part of the explanation is that most automotive regulation is done at the level of nation-states, whereas carmakers are global. Toyota is doing right by its customers by telling them when it has a problem with its vehicles. But it’s letting its shareholders down by making that information so difficult to quantify at a company level.

This isn’t the first time Toyota’s disclosure has fallen short. At its annual results presentation last month, one of the major swing factors in the company’s profit forecast missing estimates was a 300 billion yen ($2.9 billion) item defined only as “Expenses, etc”. A telephone call revealed half that amount was an expectation of increased costs for quality issues — in other words, more recalls and warranty repairs.

Toyota’s not the only big company that skimps on detailed disclosure. Different countries have different standards about what counts as material information, and you could drive a Tacoma truck through all the loopholes. In the U.S., most regulators defer to a 1976 Supreme Court judgment that skirts cut-and-dried rules in favor of invoking that rarer-than-the-unicorn creature, the “reasonable shareholder”. With that sort of standard, and sales numbering in the hundreds of billions of dollars, there aren’t a lot of events that can move Toyota’s profit needle conclusively enough to demand disclosure.

Nor is the company the most egregious offender. The bill for recalling about 100 million Takata airbags, including many fitted to Toyota models, may well exceed every yen of Takata’s assets. The first recalls relating to the defect started in 2008, but Takata is yet to even release official estimates of how much the whole process will eventually cost.

Recalls may be only indirectly connected to profits, but they’re worth watching. Toyota’s payments for under-warranty repairs and other quality issues over the past five years totaled 2.1 trillion yen, a large sum even for a business of its size. Annual changes to the provisioning charges from which Toyota makes those payments average out at about 43 percent of the movement in its net income over the period, according to Gadfly’s calculations.

The current environment isn’t a forgiving one for automakers that don’t make a clean breast of their quality issues. Toyota’s long-time rival, Volkswagen, is doing its utmost to draw a line under its diesel problems with a $15.3 billion settlement. If Toyota President Akio Toyoda and his legendarily quality-obsessed managers are looking for new methods to ensure the Toyota Way is being applied company-wide, they need to have a long, hard think about how they release information.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at

To contact the editor responsible for this story:
Katrina Nicholas at


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