Why I will never buy a Toyota product

Much has been written in the last 90 days about Toyotas, recalls, unintended acceleration, and safety and quality. The Los Angeles Times, for example, has an excellent series of stories they've called "Road to Recall" going over the calamity that is Toyota. Toyota's problems are particularly discomforting for owners given Toyota's previously stellar reputation for quality and reliability, a reputation that Toyota had no qualms charging extra for.

Like anything manufactured by humans, Toyota vehicles are susceptible to flaws. However, while it is inevitable that every product can be brought down by mistakes, it is not inevitable that these mistakes lead to the same train wreck that is now befalling Toyota and its vehicles.

There is most definitely a right way and a wrong way to respond to a crisis and at every turn, Toyota has picked the wrong one.

That said, I now present to you the reasons why I will never buy a Toyota, Lexus, or Scion product

1. PIECEMEAL RECALLS: Various Toyota models are sold in nearly identical form in multiple countries. One would expect then that if a model is recalled, it would be in all countries. Sadly, evidence indicates that Toyota did not do so and instead waited weeks or even years between recalling nearly identical models in separate countries.
   
2. UNDERESTIMATING/TRIVIALIZING THE PROBLEM: Evidence indicates that reports of unintended acceleration came to Toyota's attention as early as 2004. By late 2009, Toyota had enough reports of unintended acceleration to know it was a problem, but it was apparently not enough to warrant a full-fledged recall (1). In other words, Toyota was pulling a Pinto. Lastly, throughout the entire recall mess, Toyota has steadfastly insisted that the unintended acceleration problem is "rare", completely ignoring the fact that it is anything but rare if it happens to you.
   
3. FOCUSING ON PROFIT: On February 21, 2010, an internal Toyota document (dated July 6, 2009) was released in which the company boasted it saved "$100 million" by negotiating with federal regulators to limit the scope of an upcoming recall over unintended acceleration.
4. OBSTRUCTION OF JUSTICE: Perhaps this is just political posturing, but Henry Waxman (chair of the Congressional committee giving Toyota the screws) accused Toyota of withholding information and relying on flawed studies to dismiss consumer complaints of unintended acceleration. Separately, Congressman Edolphus Towns, head of the House Oversight and Government Reform Committee, said that Toyota "deliberately withheld" evidence in lawsuits related to vehicle safety, exhibiting a "systematic disregard for the law." When read in conjunction with Toyota's handling of the recall thus far -- including an absentee CEO, piecemeal recalls, memos boasting of $100M savings, stuck floormats and gas pedals, and stubborn insistence that the car's electronics are fine -- goes to show you that Toyota really has no fucking idea what it's doing.
   
5. OVERESTIMATING THEIR ABILITY TO SOLVE THE PROBLEM: In the US, the first Toyota recall due to unintended acceleration was in or about October 2009 for -- allegedly -- defective floormats that would cause the gas pedal to jam. Does that make sense from a sheer logic perspective? No. First, it seems that a floormat that moves (much less jam the gas pedal) would be very easy to spot. Second, lots of cars have floormats and being low tech devices, it seems to me that there's nothing unusual about Toyota floormats that would cause them to stick/move more than Honda or Ford floormats. Third, the recall was by-country -- meaning, for example, that Camrys made in the US were affected but Camrys made in Japan were not. I'm not an expert in how Toyota makes cars, but it stands to reason that Camrys sold in the US are the same (i.e. same parts), regardless of where they are made. The second recall in mid-January 2010 was over gas pedals that were slow to return after being depressed. On the surface, this seems slightly more logical, except for one small thing: fixing the gas pedal doesn't solve the problem.
   
6. BLATANT STUBBORNNESS AND AN INABILITY TO SOLVE THE PROBLEM: Toyota first said that sticking floormats (somehow) caused the unintended acceleration. Three months later, it was sticking accelerator pedals that were the cause (except now it seems like they weren't). During Congressional testimony in late February 2010, Toyota executives even admitted that the recalls would not totally fix the unintended acceleration problem, (to which I would respond "You built the fucking car you imbecile! If you can't fix it, who the fuck else can?"). Despite all this, the one thing Toyota is absolutely sure about is that the unintended acceleration problem is not (emphasize NOT) due to the electronic throttle system that Toyota introduced in many models in or about model year 2002. (By a strange coincidence, reports of unintended acceleration shot up in Toyota models shot up after mechanical throttles were replaced by electronic ones.) Toyota's insisted this even though an automotive professor was able to reproduce the problem by fiddling with the electronic throttle system in a Toyota Avalon.
   
7. RELUCTANCE TO ACCEPT RESPONSIBILITY: In February 2010, as the problems with Toyota vehicles increased, Congress decided to hold a public hearing. If you saw the hearings, you know that Toyota CEO Akio Toyoda was there and gave testimony with the help of interpreters. It wasn't always this way, though: Up until the last minute, CEO Toyoda was not going to appear before Congress, insisting instead that US-based Toyota executives could handle it. Toyoda's hands-off approach to this entire recall matter (including his grammatically-challenged apology) is also telling (i.e. it tells Toyota's customers that the company doesn't give a rat's ass), but it is possible at least some of Toyoda's reluctance may be due to cultural issues.

As in any endeavor (life, law, business ,etc) a judgment that is based on the totality of the circumstance is likely to be more representative of the truth than one based on a singularity. What does the Toyota mess (so far) tell us? The vehicles themselves are well-engineered and reliable 95% of the time. If Toyota would pull its head of its proverbial corporate ass and be open and honest to the same degree they've been stubborn and shifty, then the remaining 5% would have been dealt with long ago.

As a start, for example, here are several things Toyota could have done to handle this recall, but did not as far as I know.

1. Setup a 1(800) number where consumers could get information on whether their car was recalled.
   
2. Create a website with videos detailing the problem and what work has been done on a day-by-day basis to solve the problem. This strikes me as a much better way to handle any recall than to leave your customers high and dry with nothing but "We are working hard to solve the problem" to comfort them.
   

Good to hear that the other auto companies capitalized on Toyota's misfortune by offering customers a whopping $1,000 to trade in a recalled Toyota model. And so exemplifies rule 2 of business: kick your opponent when he's down.

Why health insurance premiums will always go up

Several weeks ago, the San Jose Mercury News did this story comparing the cost involved in driving a car versus taking public transportation. (Because the Mercury News is a very uncool paper that doesn't make their stories available on the web indefinitely for free, the story I'm referring to is called "Running on Empty: Bay Area transit in crisis" and was written by Mike Rosenberg. The story ran on January 9, 2010 on what I believe was the front page of the main section of the Merc).

Anyway, the conclusion of the story was that -- surprise, surprise -- in almost all circumstances, taking public transportation around the Bay Area is an all-around loser. It takes longer to get where you're going -- sometimes 2 or 3 times longer -- and you don't save enough money to make the extra time spent worth it. On top of that, depending on the agency, you risk being beat up or stabbed. The only way public transit makes sense is if parking a car is either very expensive or very difficult. When I go into downtown San Francisco, for instance, I always take public transit because parking is so expensive.

The reason for the Mercury News' article originally was that the imploding economy is causing many public transportation agencies in the Bay Area to lose money as income falls but expenses don't. To plug their deficits, these agencies are raising fares.

The problem with raising fares, as the Mercury News discovered, is that it actually makes the deficit worse. As fares get more expensive, people with cars decide that it's actually more convenient (and possibly cheaper too) to drive instead. As a result, fewer people take public transit which means the agency still gets fewer fares. The only result of higher fares is that people who have no choice but to take public transit (the elderly, the poor, the young, etc) are forced to fork over ever increasing amounts of money to get where they're going.

This same phenomenon is quite common in other arenas. When newspaper or magazine circulation decreases -- perhaps because the subscriber views the paper online, people think the reporting sucks, etc -- the publication itself gets less subscription revenue. It may be tempting to simply raise subscription rates on the remaining subscribers to make up the difference, but what does that do? Right. It causes more people to cancel their subscriptions which means even less revenue. When you factor in advertising, the problem gets even worse. Fewer subscribers means lower advertising rates since advertisers don't want to pay a lot to advertise in a paper few people read. If you raise advertising rates to make up the difference, you merely accelerate the rate at which advertisers leave.

The other arena (or at least the other arena that comes to mind right now) in which this occurs is health insurance. Recently, Anthem Blue Cross made headlines in California because it wanted to increase health insurance premiums for some customers by 39%. The reason? A variety of factors, including the poor economy, the higher cost of treatment, etc.

Like most people, I've noticed for the longest while that the cost of health insurance just keeps going up -- often much faster than the rate of inflation. I struggled for the longest time to understand where all that money was going, but now I think I understand.

Because health insurance is not mandatory, healthy people who are unlikely to need health insurance -- for example, healthy 23 to 26 year olds -- often get rid of it to save money when the economy gets bad. The underlying idea of any type of insurance is that the premiums paid by those who are unlikely to need it subsidize the expense of providing benefit to those who are likely to need it. In other words, healthy people help pay for the cost of treating the unhealthy. As more and more healthy people drop their health insurance, poor people necessarily have to pick up more of the true cost of their treatment.

By raising premiums on the unhealthy, however, you simply cause more people to drop their insurance. For example, maybe it was the healthy 23 to 26 year old customers who dropped their insurance when the economy went south. This caused premiums for everyone else to go up in order to provide the same coverage for those who remained. The new higher rate, however, will cause the healthy 28 to 31 year old customers -- people who likely don't need health insurance also, but who have less price elasticity than the healthy 23 to 26 year old customers -- to drop their coverage. This in turn causes premiums to go up even more for the people who remain.

At this new higher rate, maybe the healthy 32 to 36 year old customers will be incentivized to drop their coverage, thereby causing rates for those who remain to go up further still, which then causes the health 37 to 40 year old customers to drop their coverage... and the cycle keeps going.

Thus, it's not so much the cost of health care is increasing rather than there are simply fewer people remaining to cover that cost.

What goes down, doesn't always come back up

People often say in various forms that Silicon Valley is the bed of technological innovation and a huge driver of economic prosperity. I've lived here my entire life and would agree that our past history does support that in some respects, but I'm also aware of one simple truism: past performance is no guarantee of future success.

A report that was issued today by some pundits agrees with me: Silicon Valley still has a lot of fancy and cutting edge tech shit going on, but there are serious problems afoot as well. At a minimum:

• Venture capital investments are down
• Patent filings are down as well
• The number of mid-level jobs has also gone down (cough, outsourcing of jobs, cough)

Additionally, there's the usual plethora of shit to blame on the California state government -- high taxes, crumbling infrastructure, crappy schools, etc. On top of that, the last decade or two has also seen the rise of other tech centers around the world, including Austin, TX, Bangalore, India, and various tech hubs on the US East Coast like Boston and Research Triangle Park.

This brings me to my point and it's that what goes down does not necessarily go up. In more specific terms, the economy will not simply "get better" again because it's gotten better in the past. As Andy Grove said in Only the Paranoid Survive, there are strategic inflection points in business (but also in life generally) in which the old way of things is lost forever. Case in point:

1. In the late 1990s, Napster came out which facilitated wholesale copyright infringement of music. The record companies, of course, sued Napster out of existence, but then popped up a whole slough of similar services. The ones I can think of off hand include Kazaa and Morpheus, but I'm sure there are tons more. Before Napster, the record companies forced consumers to buy songs by the album. Now that Napster is gone, are consumers back to doing that or have you been living in a damn cave for the last decade and never heard of iTunes?
2. Years ago, the US still relied on Pony Express riders to deliver mail and other packages around the country. Then the telegraph was invented which allowed messages to be sent long distances without the need for someone to actually hop on a horse and hand deliver the message. When the first Pony Express riders found themselves without work, I'm sure someone must have thought 'Don't worry, this telegraph stuff is just a fad -- we'll be back to hand delivering messages in no time.' And they were right, if you ignore telephone and email.
3. When the first automobiles started appearing on US roads in the early part of the 20th century, they replaced horse drawn carriages. Did carriage drivers get displaced? Sure. Did some of them think that cars were just a passing fad? I do. Were they just a passing fad or did they represent an inflection point in which technology changed forever?
4. When the first manufacturing jobs in the Midwestern US started going overseas to China, Mexico, and the like, do you think those manufacturing workers stood around and said 'Don't worry, those jobs will come right back in a jiffy -- no one's ever going to buy something made in China anyway.' When outsourcing of engineering jobs first started in Silicon Valley in or around 2001, that was the sentiment a lot of people here echoed -- that the jobs would come right back to the US once the economy picked up. Some jobs did come back -- most notably Dell's executive level telephone customer service -- but for the most part, I'd say they haven't. And unemployment (currently 11%) in Silicon Valley has languished for the better part of this decade. Older tech workers find themselves increasingly having to start over again in their 50s and 60s. Coincidence?
   
5. And, finally, something more recent: when Google, Yahoo, and others first started putting maps on the Internet, I'm sure the paper map makers weren't worried -- 'A map on a computer screen? Ridiculous. You can't take a computer screen into the car with you. You'll always need paper maps.' Can you still get a paper map? Sure, but it's a lot harder as more and more people use Internet maps instead.

Lastly, from a general logic perspective, the idea that the good times will always return is silly -- if they did always return, then nothing permanently bad would ever happen.