Posted: 31 Jan 2010 08:25 AM PST

News of the automaker's massive vehicle recalls over faulty gas pedals in the U.S. came just days after Japan Airlines, a once proud flag carrier, filed for bankruptcy, saddled with billions in debt.

Sony has lost its lead in consumer gadgets to the likes of Apple Inc. and has suffered its own quality mishaps. Honda, Japan's No. 2 automaker, is recalling 646,000 cars worldwide because of a faulty window switch.

Taken together, Japan Inc.'s stellar reputation for quality has taken a hit — just as China is about to overtake it as the world's No. 2 economy and rising South Korean companies compete ever more aggressively.

What went wrong with the economic giant that arose from the ashes of World War II?

The problems that confront Toyota, Sony and JAL differ, but experts say their struggles have some common themes: the perils of global expansion, a tendency to embrace the status quo, and smugness bred from success or a too-big-to-fail mentality.

"Arrogance and some complacency came into play, driven by the idea that their ranking as No. 1 producer of quality goods wasn't at risk," said Kirby Daley, a veteran Tokyo trader who is now chief strategist at Newedge Group, a financial services firm in Hong Kong.

The global economic crisis helped to expose weaknesses, he said. "There was nowhere to hide."

Added to the mix for Toyota and Sony is intense competition from upstarts in South Korea, China and elsewhere in Asia.

"They can offer products as good as Japanese at much lower cost, even though quality of Japanese products is on the decline," said Shinichi Ichikawa, chief strategist at investment bank Credit Suisse.

Some new Asian rivals, particularly in electronics, learned their techniques from Japanese operations set up around the region.

Cutting costs to stay competitive while meeting growing demand, Toyota, Sony and others compromised on quality control as they tried to reach ever-larger sales targets, analysts say.

Toyota adopted the practice of using the same part across a range of models — saving vast sums of money but exposing itself to the risk that even a small defect could cause global mayhem for the company.

It also faced difficulties ensuring quality as its global sales expanded rapidly, reaching 8.9 million vehicles in 2008, when it displaced General Motors as the world's biggest automaker. Experts say its growth outpaced management's ability to anticipate looming problems.

The result: recalls of more than 7 million vehicles in the U.S., Europe and China for problems with their accelerators and floor mats, and the suspension last week of U.S. sales and production of eight models including the Camry, America's top-selling car.

It's a "terrible blow" for Toyota because its identity is so closely linked to quality and the company seemed slow to recognize the problems, said Kenneth Grossberg, a marketing professor at Waseda University who has lived in Japan for 16 years.

"This is the company of zero defects," he said. "How could such a major fault get past them? It violates their operating principle."

As far back as March 2007, Toyota started getting reports of gas pedals being slow to rise after being stepped on. Engineers fixed the problem in the Tundra pickup early in 2008, but troubles persisted in other models, eventually leading Toyota to announce massive recalls for the accelerator and floor mats that could trap the gas pedal.

Grossberg said a common problem at Japanese companies is "group think" that makes it hard for an individual to raise a troublesome issue.

"It either falls flat and people ignore it, or it creates a problem for the individual who brings it up," he said.

Sony started facing problems after it misjudged several critical market trends.

It was slow to predict the switch to LCD televisions and fell behind South Korea's Samsung Electronics Co., which zoomed ahead to become a market leader.

Content with the success of the Walkman, the portable music player that became a global hit in the 1980s. Sony was slow to jump into digital players. It has been hammered by Apple's iPod, as well as by cheaper gadgets and consumer electronics from other Asian competitors.

With Sony's empire sprawling into finance, movies and other businesses, some analysts said the corporation was losing its focus. In 2006, it recalled nearly 10 million laptop batteries after some caught on fire.

The company is still losing money even as CEO Howard Stringer wins praise for taking it back to basics.

At Japan Airlines, problems had festered for decades but were repeatedly papered over because of Japan's reluctance to let major companies go under.

It became the victim of its own ambitions when risky investments in foreign resorts and hotels went bad after Japan's property and stock bubble burst in the early 1990s. Bloated pension and payroll costs, as well as a network of unprofitable but politically necessary domestic routes, led to government bailouts.

JAL had a good reputation for comfortable travel, but its lavish running costs had "generally been something of an industry joke," said Peter Harbison of the Sydney-based Centre for Asia Pacific Aviation.

Quality, too, eventually proved problematic: A spate of safety lapses tarnished JAL's image, and its rival, All Nippon Airways Co., benefited.

And while filing for bankruptcy with $25.6 billion in debt was an embarrassment, analysts expect JAL to slim down and emerge healthier.

Toyota, too, will bounce back, they say.

"Toyota expanded too rapidly, and that's always a risk," said Martin Schulz, an economist at Fujitsu Research Institute. "But they will get this quality problem under control."

In Japan, reaction to Toyota news has been more muted because the recall doesn't affect models in the domestic market. Japanese are proud of Toyota's leading role on the roads, including its move into hybrid and other green vehicles.

So far, the automaker's sterling reputation is holding up at home, partly because Japanese often assume that Japan-made products are better than those made abroad. Toyota's Japanese models use a different parts supplier than CTS Corp., the American parts maker rushing to fix the faulty gas pedals.

Still, the blaze of bad publicity has struck at the idea of Japan as a technology powerhouse where companies can be world leaders despite the nation's deeper problems of an aging population, mounting debt and anemic economic growth.

Toyota must take "urgent measures" to regain consumers' confidence, the Yomiuri newspaper said in an editorial Sunday.

"For other Japanese automakers and manufacturers, it's not somebody else's problem. They should keep in mind that safety and quality make the foundation of public trust in the Japanese way of manufacturing."

___

Associated Press writer Mari Yamaguchi contributed to this report.

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Stocks: New month, same worries - CNN Money

Posted: 31 Jan 2010 08:11 AM PST

By Alexandra Twin, senior writerJanuary 31, 2010: 11:14 AM ET

NEW YORK (CNNMoney.com) -- The worst month on Wall Street in nearly a year has left market pros and retail investors wondering if the long-in-the-works correction is finally here.

"It remains to be seen, but it feels like this could be the correction that people have been talking about forever," said Hank Smith, chief investment officer at Haverford Investments. "You just can't run as long as much as we have off the bottom without seeing a pullback of maybe 10% on the S&P 500."

Better-than-expected quarterly results from marquee names such as Intel, Apple and Ford Motor had little impact on the individual stocks or the broad market last week. Friday's fourth-quarter GDP report -- showing the fastest economic growth in six years -- coincided with a stock selloff.

That weakness looks to remain in place this week, the first week of February, as investors sort through more corporate profit reports and readings on the consumer, housing and the labor market.

"The market has had an opportunity to rally on some good earnings and economic news, and it hasn't grasped that opportunity," said John Wilson, chief technical strategist at Morgan Keegan. "It's starting to look like we could be in need of a correction, or at least some more sideways action."

Rally hits reverse. January started off well, with the Dow and S&P 500 hitting 15-month highs and the Nasdaq rising to levels not seen since before the collapse of Lehman Bros. in September of 2008.

But the last two weeks of the month were a bust, with the major gauges stumbling on bets that the stock market rally has run way ahead of the still slowly developing economic recovery.

The selling was driven by bank lending curbs in China, the White House's plan to restrict trading by big banks, ratings agency warnings about Japanese and British debt, and questions about whether Fed Chairman Ben Bernanke's term would be renewed. Bernanke was ultimately confirmed for a second term, but the other issues remain in play.

For the month, the Dow tumbled 3.5%, the S&P 500 lost 3.7% and the Nasdaq composite lost 5.4%. It was the worst month on Wall Street since February 2009. (For more on why some investor worry that a down January is a bad omen for the year, click here.)

And February 2010 is shaping up to be pretty tumultuous as well.

"We've had a number of mini-corrections since the market bottom in March, and each time the market comes back like gangbusters," said Paul Mendelsohn, president and CIS at Windham Financial Services. "This time it feels different."

He said that good news is being ignored because the market is looking past the first quarter to the second quarter and second half of the year, when economic conditions get tougher.

Earnings growth is expected to slow as the year wears on, and some of the recent housing market data have shown that the slight improvement seen late last year could be temporary. The White House's proposal to restrict trading by big banks, the ballooning deficit and China's plan to limit bank lending have all raised worries.

However, the analysts said that a pullback of 10% or even 15% would likely draw in new buyers. Between the 15-month highs made on of Jan. 19 and Friday's close, the S&P 500 lost 6.6%.

Earnings: Next week brings quarterly results from 95 companies, or 19% of the S&P 500. Standouts include Exxon Mobil on Monday; CNNMoney.com parent Time Warner, Pfizer and Cisco Systems on Wednesday; and Toyota on Thursday.

With 220 companies, or 44% of the S&P 500, having already reported results, earnings are currently set to have grown 206% from a year earlier, according to the latest estimates from earnings tracker Thomson Reuters. Revenue is set to rise about 7% year over year.

Cost-cutting continues to fuel earnings, while companies are also benefiting from easy comparisons to a wretched fourth quarter of 2008 -- the worst in Thomson's 15-year history.

Much of the growth is concentrated in the financial sector, which reported a loss in 2008 and is on track to report big profits for 2009. Strip out financials and S&P 500 earnings are just 15%, while revenue growth is just 2%.

Monday: Government reports on personal income and spending and the manufacturing sector are the highlights of a busy day for economic news.

Personal income is expected to have risen 0.3% in December, according to a consensus of economists surveyed by Briefing.com. Income rose 0.4% in the previous month. Spending is expected to have risen 0.2% after rising 0.5% in November. The Commerce Department report is due before the start of trading.

Construction spending is expected to have fallen 0.5% in December after falling 0.6% in the previous month.

The Institute for Supply Manufacturing's manufacturing index for January is expected to have risen to 56.1 from 55.9 in the previous month. Any reading above 50 indicates growth.

Tuesday: The National Association of Realtors' pending home sales index is due in the morning, while the nation's automakers will be releasing their January sales figures through the day.

In Washington, the Senate Budget Committee holds a hearing on the new budget in the morning. Former Federal Reserve Chairman and current economic advisor Paul Volcker testifies on financial reform before the Senate Banking Committee later in the day.

Wednesday: A heavy week for labor market news kicks off Wednesday. A report from payrolls-services firm ADP is expected to show that private-sector employment fell 40,000 in January after falling 84,000 in December. Outplacement firm Challenger Gray & Christmas reports on announced job cuts in January.

The Institute for Supply Management's January reading on the services sector of the economy is due in the morning, as is the government's latest report on crude inventories.

Thursday: January sales from the nation's retailers will be released through the morning.

The weekly jobless claims from the Labor Department and the Commerce Department reading on factory orders are also due.

Friday: The big report of the day is the January jobs report from the Labor Department. Employers are expected to have added 13,000 jobs to their payrolls in the month after cutting 85,000 in the previous month.

The unemployment rate, generated by a separate survey, is expected to hold steady at 10%.

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5-Day Davos Forum Ends on Note of Humility - ABC News

Posted: 31 Jan 2010 07:42 AM PST

The world's foremost gathering of business and government leaders wrapped up a five-day meeting Sunday with widespread agreement that a fragile recovery is under way but no consensus on what's going to spur job growth and prevent another global economic meltdown.

In a group of big egos and many power players attending the annual World Economic Forum, there was even some humility and a realization that overcoming the first global financial crisis is uncharted territory.

The gathering of some 2,500 VIPs in this Swiss alpine resort saw much spirited debate on whether more regulation is needed for the financial industry, how to boost sagging global unemployment, and finding ways to ensure the nascent recovery is kept on course through 2010.

The atmosphere of doom and gloom that pervaded last year's forum, which took place at the height of the economic crisis, was replaced this year by a feeling of some satisfaction that a modest recovery is under way but uncertainty about the way forward and how banks should respond.

Deutsche Bank chief Executive Josef Ackermann told an AP-sponsored closing panel that the worst of the financial and economic crisis had been managed "quite successfully" but decision-makers now had a tough choice: "Should we take more risk, be a creative force for growth, or should we focus on security?"

Peter Sands, the CEO of Britain's Standard Chartered Bank, said at the panel that the right balance must be struck "between making a safer banking system and a financial system that can support the sort of dynamism and growth in job creation."

"Get it wrong one way and we risk a new crisis; get it wrong the other way and we'll take the steam out of the recovery and reduce the chances of creating new jobs," he said.

At the same time, Sands said, everyone must have "a degree of humility about what we actually know, and how confident we can be, that the ideas we're going to put in place are going to have the consequences that we thought they were going to have."

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The blue and red that make up the Evergreen State - Olympian

Posted: 31 Jan 2010 08:25 AM PST

THE OLYMPIAN | • Published January 31, 2010

SEN. PATTY MURRAY, D

First elected: 1992

Lay of the land: Washington has emerged as a reliably blue state in which Democrats dominate. President Barack Obama won the state by 18 percentage points. As Murray seeks a fourth term, she is far from the neophyte "mom in tennis shoes" who was first elected. Senate Democrats elected her to the fourth-highest leadership post in the chamber in 2006, and she holds key committee positions. She won her last race by 12 percentage points after raising $11.5 million.

Challengers: The race has already drawn six Republican challengers, including Chris Widener, the founder of a personal development company; Clint Didier, a Pasco farmer and former NFL player; Sean Salazar, a Mountlake Terrace chiropractor; Arthur Cody Jr., a Shoreline physician; Rodney Reiger, a small-business owner from Marysville; and Craig Williams, a Vancouver energy trader and real estate agent.

Financing: Murray had $4.6 million in the bank as of Sept. 30. Her opponents had less than $40,000 combined.

Prospects: It's considered a safe Democratic seat, especially because Republicans have yet to attract a high-profile candidate. The GOP is trying to recruit Rep. Dave Reichert, and there has been some interest in former TV anchor Susan Hutchinson. Neither has indicated an interest.

House

1st DISTRICT

JAY INSLEE, D-BAINBRIDGE ISLAND

First elected: 1998

Lay of the land: The 1st District includes Seattle's northern and part of its east-side suburbs along with Bainbridge Island. Inslee has a mostly liberal voting record and has emerged as a House leader on energy issues. Inslee won with 68 percent of the vote in 2008. Obama won the district with 63 percent.

Challengers: Republicans Mathew Burke and James Watkins.

Financing: Inslee had $1 million in the bank as of Sept. 30. His two opponents: zero.

Prospects: Should be a safe Democratic seat, though things could change. Republicans are keeping an eye on it.

2nd DISTRICT

RICK LARSEN, D-LAKE STEVENS

First elected: 2000

Lay of the land: This district stretches north from Everett with its Boeing 747, 777 and 787 plants through the tulip fields of the Skagit Valley to Bellingham and the raspberry fields along the Canadian border. It also includes the San Juan Islands. The 2nd is a swing district, but Larsen won with 62 percent of the vote in 2008 and Obama carried it with 56 percent. Larsen is another centrist. He voted for the Bush 2001 tax cuts and against the Iraq War. He helped push a bill through creating the first wilderness area in Washington state in 20 years.

Financing: Larsen had $439,000 in the bank as of Sept. 30.

Challenger: Republican Snohomish County Councilman John Koster.

Prospects: It's generally considered a safe Democratic seat, but Republicans say it may be their best opportunity to steal a seat if things break their way. They already are making robot calls.

3rd DISTRICT

OPEN

Lay of the land: This district covers southwestern Washington, from Olympia to Vancouver and from the Pacific to the Cascades. Though it has been represented by Democrat Brian Baird since 1998, the district is considered a toss-up now that Baird has decided not to seek re-election. Obama carried the district with 53 percent, and Baird was elected with 64 percent of the vote in 2008. Generally conservative Clark County has the highest unemployment rate in the state.

Candidates: Nine so far. Democrats include state Rep. Deb Wallace of Vancouver; state Sen. Craig Pridemore of Vancouver; Denny Heck, TVW co-founder and former chief of staff to former Gov. Booth Gardner; Cheryl Crist, an Olympia peace candidate; and Maria Rodriguez Salazar, a Hispanic activist from the Vancouver area. Republicans include state Rep. Jamie Herrera of Camas; David Castillo, an Olympia financial adviser; Washougal City Councilman Jon Russell; and David Hedrick, a former Marine from Camas.

Financing: Castillo has the most, $42,000 as of Sept. 30. Others had far less, but it's still early in the season.

Prospects: This is the battleground, with both Republicans and Democrats willing to pour money and resources into the district. The crowded field, for now, is hard to handicap.

6th DISTRICT

NORM DICKS, D-BELFAIR

First elected: 1976

Lay of the land: Stretching from the Olympic Peninsula's rain forests to Tacoma, the 6th is considered solidly Democratic with pockets of conservatism. Obama won 57 percent of the vote, and Dicks took 67 percent in the 2008 election. Dicks is a senior member of the House Appropriations Committee. His voting record is mostly liberal, but he has strong national security credentials.

Challengers: No one has officially filed with the Federal Election Commission.

Financing: Dicks had $635,000 in the bank as of Sept. 30.

Prospects: It would take a Republican tidal wave or a scandal to oust Dicks. Given the economy, Dicks' "He Works For Jobs" yard signs should be going up soon.

7th District

JIM MCDERMOTT, D-SEATTLE

First elected: 1988

Lay of the land: It's the "People's Republic of Seattle," and there probably couldn't be a safer Democratic seat. A true-blue liberal, McDermott is one of the most partisan Democrats in the House, which is just fine with voters. McDermott won re-election in 2008 with 84 percent of the vote.

Challengers: One Democrat, William Hoffman III.

Financing: McDermott has $22,000 in the bank as of Sept. 30.

Prospects: Will the Republicans even field a candidate?

8th DISTRICT

DAVE REICHERT, R-AUBURN

First elected: 2004

Lay of the land: Stretching from the high-tech east side of Seattle to rural eastern Pierce County, the 8th has always been represented by a Republican. But Obama won the district with 57 percent of the vote, and Democratic presidential candidates Al Gore and John Kerry also carried the district. Analysts think it leans Republican, but barely if at all. Reichert, a former King County sheriff, has survived several hard-fought and well-funded challenges. Reichert is a usually reliable Republican vote, but he was one of a handful of GOP members who voted for the Democratic cap and trade bill.

Challengers: Two Democrats are in the race: former Microsoft vice president Suzan DelBene and Thomas Cramer.

Financing: DelBene had more money in the bank than Reichert as of Sept. 30: $615,000 versus $330,000. But nearly $500,000 of her total was her own money.

Prospects: Democrats remain focused on beating Reichert, but their best opportunity might have been in 2008, when Reichert beat another well-funded former Microsoft executive, Darcy Burner, for the second time. The wild card could be whether Republicans persuade Reichert to run for the Senate against Murray.

9th DISTRICT

ADAM SMITH, D-TACOMA

First elected: 1996

Lay of the land: The state's newest congressional district, it stretches from south King County through parts of Tacoma and includes Fort Lewis and McChord Air Force Base. The 9th leans Democratic, but barely. Obama carried the district with 58 percent of the vote, and Smith won by 65 percent in 2008. A moderate, Smith is a usually reliable Democratic vote who shows an independent streak, especially on deficit-related issues. He is a member of the House Intelligence Committee and the House Armed Services Committee, where he chairs the air and land forces subcommittee.

Challengers: Republicans who have filed include Pierce County Councilman Dick Muri and businessman James Postma.

Financing: Smith had $551,000 in his campaign coffers as of Sept. 30. Postma, who has been self-financing his campaign, had $135,000 in the bank as of Sept. 30.

Prospects: Though Smith appears safe, some analysts say a Republican tidal wave could make this race interesting.

Les Blumenthal, staff writer

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