Is The US Overreacting To Toyota's Recalls? (TM, HMC)

Ray Lahood, the U.S Transportation Secretary, is very concerned about the technical problems in cars manufactured by Toyota Motors. According to his department, the throttle system used in Japanese cars is interfering with electromagnetic waves.

Six million vehicles of Toyota Motors Corp,(NYSE: TM), including its Lexus, were recalled from dealers because of this apparent problem. Mr. Lahood has asked the National Highway Traffic Safety Administration department to investigate further on the possibility of this electromagnetic interference. He wants to know the possibility of malfunctioning of the electronic throttle system installed in Toyota vehicles due to interference with the electromagnetic waves.

This electronic throttle system was designed by the Japanese car maker to replace mechanical links between the gas pedal and the throttle with electronic relays. This system reduces vehicle weight and fuel waste. Bob Waltz, Toyota’s vice president of product quality and service support, dismisses this whole issue and says that they have done extensive electromagnetic radiation testing and have never encountered such a failure before. Toyota has said that the vehicles were recalled because of minor faults like out of position floor mats and sticky accelerator pedals.

Henry Kowalski, a professor of mechanical engineering at Kettering University in Flint, Michigan, also thinks that this electromagnetic interference is a farfetched concept. However, Japanese car makers like Mitsubishi and Honda Motor Corp (NASDAQ: HMC) are worried that such investigations will spoil the image of the entire automobile industry of Japan and hence hurt their global business.

There is a yet another probe going on by the U.S highway safety officials along with the Japanese transport ministry on the complaints about the brakes used in Toyota’s Prius hybrid model.

All this drama about the Japanese car maker comes in the midst of an ailing US automotive industry. During the financial crisis, the largest US carmakers like General Motors and Chrysler had to be bailed out by the government and they have not recovered yet. Actually the US automobile industry has been facing a huge competition from the Japanese counterparts since their entry into the US automobile market. Japanese vehicles are very fuel-efficient and are technologically much ahead with their various hybrid models.

Is this attack on Toyota, Japan’s largest carmaker, a roundabout way to revive the ailing US automobile industry by vilifying its advanced competition? Mere speculations about the faulty technology used by Toyota have caused a downfall in its shares at the Tokyo Stock Exchange. This damage even cascaded to some of its main dealers. As someone has said, find out who benefits, and you have found the perpetrator.

In this case, it is very obvious who benefits from this.