GM-biased Congress taking Toyota to town?

Politicians have placed themselves at the center of the Toyota recall crisis -- and not because they're so concerned over faulty gas pedals.

By InvestorPlace Feb 18, 2010 7:11PM

By Jim Woods, InvestorPlace.com

 

By now, nearly everyone is acutely aware of just how big Toyota's (TM) recall problems have become. But the Japanese automaker's woes aren't just confined to throttle pedals and steering wheels. Nor are its problems purely the province of product liability lawsuits.


Now, Toyota's troubles have become political.

 

Congress, as it's always zealous to do with any crisis, has pushed itself into the center of the Toyota turmoil. A House committee has asked Akio Toyoda, the chief executive of Toyota, to testify at a hearing in Washington next week on the recalls of millions of faulty vehicles. 

 

I suspect that many in Congress are champing at the bit to grill Toyoda and other executives over the company's problems -- and here's why.

 

This makes sense from a political perspective, as congressional outrage over harm done to U.S. citizens by a foreign company is usually a great way to win voter approbation. But the Toyota situation is a double-edged sword for many lawmakers, as well as many high-profile state politicians.

 

One reason why the Toyota case is likely to become a very interesting political hot potato is due partly to the fact that the government -- via its majority ownership of rival General Motors -- is basically in the car business. I fear that über-enthusiastic Representatives from domestic-heavy automaker states will take Toyota execs to task in a blatant political attempt to vilify Toyota and thereby bolster GM.

 

Is Toyota the New Yugo?

 

Another reason why the Toyota case is so politically charged has to do with the large number of politicians who support the Japanese carmaker. Toyota has many production facilities in the U.S., including assembly and engine plants in Indiana, Kentucky, Alabama, Texas and West Virginia.


Together, these plants account for nearly 18,000 jobs -- and that means a whole lot of lost jobs and lost tax revenue if things were to get really ugly for Toyota. So it's no surprise to me that politicos from these states are scrambling to come to Toyota's defense.

 

According to a report in The Wall Street Journal, the governors of Indiana, Mississippi, Alabama and Kentucky wrote a letter last week to the heads of two house committees, and "described Toyota as a victim of an overly aggressive press and said the company had responded to its safety problems in a more 'emphatic manner" than any other car company under scrutiny by the Department of Transportation."

 

Here's the money quote from The Wall Street Journal piece: "The governors then questioned whether federal regulators could be fair toward Toyota, considering the government's 'obvious conflict of interest because of its huge financial stakes' in GM and Chrysler."

 

Yes, you can be sure that the Toyota situation will become a big political circus next week as the congressional hearings get under way. This dog-and-pony show will be a huge opportunity for some politicians to flex their outraged muscles over the Japanese automaker's faulty products. It will also likely feature supportive politicians singing the praises of the automaker for the "emphatic manner" in which they've addressed their difficulties.

 

I think this whole episode illustrates how absurd it is for the government to own majority stakes in any company, as any perception of choosing sides can justly be viewed as a conflict of interest. It also demonstrates how quick politicians are to defend a company based on the fact that the company means a lot to their particular state's economic well-being. 

 

Heaven forbid we just allow Toyota to deal directly with its customers, and to suffer the consequences of their faulty products via reduced sales and plunging share price. But hey, this is America, and as such we have to let the congressional attack dogs battle the congressional guard dogs in the ring that is Capitol Hill. Well, at least it makes for entertaining cable news.

 

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