Mattel (NYSE: MAT) actually apologized to the Chinese government for making it appear that poor quality control by the country's manufacturers caused defects in its toys. The Associated Press reported that Thomas A. Debrowski, Mattel's EVP of global operations, said this at a meeting in China yesterday: "Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people, and all of our customers who received the toys."
The press and investors have not heard this kind of talk from the toy company before, and it was assumed that the factories that make toys for Mattel were at fault for using lead paint in several products.
Mattel's CEO was dragged before Congress earlier this week and beaten like a red-headed mule. Congress wants to know why the company did not catch problems earlier and had to recall over one million units.
The AP says that a large part of Mattel's profits result from outsourcing manufacturing to Chinese factories. With low labor costs in the country that is probably true. Moving production to another country could take a great deal of time and would pressure Mattel gross margins.
It would not be beyond the realm of possibility to think that the Chinese pressured Mattel into its statement. The US company may have given in rather than be forced out of relationships with its current suppliers.
If Mattel's new statement is accurate, and the company is at fault for all of the problems that caused the recalls, it is hard to imagine how all of the senior executives at the company still have their jobs.
Something about the incident does not make sense.
Douglas A. McIntyre is a partner at 247wallst.com.