TOYOTA UNDER FIRE

You have to be living under a rock not to have heard about the stir that the media has been making about Toyota. Toyota’s recall problem has been blown out into a full crisis story that will either damage the company’s strong reputation in the car business or if acted upon correctly will turn this into an opportunity.

A research analyst in the automotive group at IHS Global Insight says: “It’s stunning to hear this news about Toyota, which has built its reputation not on the driving experience or styling, but on its promise of unquestionable reliability. Now to see that that’s no longer the case, it’s shaken a lot of people’s opinions”.

In Part 1 of this analysis I want to look at the issue, what the company has been doing to fix the problem, customer reactions and what the future holds for Toyota. In Part 2, I will examine the strategic and financial side of the problem.

THE PROBLEM

The company has been under scrutiny since last fall due to unintended acceleration problems in numerous models.

President of USA Toyota Motor Sales, James Lentz said that the cause for unintended acceleration are loose floor mats that entrap accelerator pedals, and pedals that stick because of wear. Also, he confirmed that the electronic controls have been tested and retested, and no problems have been found. “We have done extensive testing of this system and have never found a malfunction that caused unintended acceleration”. He also mentioned that in the event of system failure the “fail-safe mechanisms” in cars would shut off or reduce engine power.

However, critics raise a different issue. Energy and Commerce Committee’s chairman Henry Waxman said that Toyota should have investigated the electronics issue more thoroughly. “Toyota failed its customers, and the government neglected its responsibilities,” he said. People with Toyotas have complained of their vehicles speeding out of control in their efforts to slow down, sometimes resulting in deadly crashes.

Rep. Bart Stupak (D-MI), chairman of the House Energy and Commerce Committee’s accused the company of putting profits ahead of customers and misleading drivers about safety. “Toyota all but ignored pleas from consumers to examine sudden, unintended acceleration events,” Stupak said. “They boast in a briefing of saving Toyota $100 million by negotiating a limited recall.”

According to various marketing studies one of the worse things any company can do is put their profits, growth and shareholders value ahead of their customer satisfaction. Customer satisfaction creation is a major creator of capital.

Toyota dealers are concerned that lawmakers will drive down sales and scare customers away. They point out that other car manufacturers have had problems and complaints about unintended acceleration. For example, Audi issued a recall of their 5000 models in the late ‘80s when drivers experienced sudden acceleration when shifting from park, which almost drove Audi out of the market. It was discovered by the National Highway Traffic Safety Administration that the problem originated by drivers hitting the wrong pedal.  The brand did recover and came back strong.

Back to the issue at hand, if we had more educated and experienced drivers then this situation wouldn’t have blown out into media frenzy. Toyota dealerships are offering practical advice to drivers by telling them “to put their driver-side floor mat in the trunk so the pedal doesn’t get caught on it. And in the unlikely event that the pedal does stick: Just put your break on, and then put the car in neutral”. But not a lot of people know what to do in similar situations and how to respond quickly.

WHAT HAS BEEN DONE

It’s been said that it’s better to be proactive than reactive but sometimes that is not always the case. And when things like Toyota or Maple Leaf recalls happen to good companies its important to take action and to realize your mistakes and work towards fixing them. In the case of Toyota, the brand would have to restore back their customers loyalty and commitment to the brand. Let’s look at what the company has done so far.

Akio Toyoda, the President of Toyota issued a statement taking full responsibility for the company’s failures. Japanese manufacturers have a really good reputation for making reliable and safe cars like Acuras, Hondas vs. their German competition. The Japanese automaker is convincing customers that they are on top of the problem. Toyota took out advertisements in newspapers around the country and sent a top executive out for a round of television interviews.

Jim Lentz who is Toyota’s U.S. sales chief said “We deeply regret the concern that our recalls have caused for our customers, and we are doing everything we can — as fast as we can — to make things right”.  “In recent months, we have not lived up to the high standards our customers and the public have come to expect from Toyota,” he said. “Put simply, it has taken us too long to come to grips with a rare but serious set of safety issues, despite all of our good-faith efforts.”

Toyota announced it has “developed and rigorously tested” an upgrade for the sticky accelerators on millions of cars and trucks it has recalled. “I’m excited about the details that we got today because it seems to be an effective and simple fix to the problem,” says Robert Boch, owner of Boston’s Expressway Toyota. “So that is good news. And now we’re going to be able to move forward and fix the cars.” Dealership would remain open 24 hours a day to fix the problem.

CUSTOMER REACTIONS

If you listen to your customers you win, and if you don’t you loose. Current technology provides lots of channels to get feedback from customers (Twitter). Organizations can leverage on good feedback and if it’s negative then they should act on it. Bad feedback never goes away but technology can help fix that. Social media is a way to create conversations.

Toyota has been offering incentives and special deals to get customers back to the showrooms. A lease for a new Prius now costs $179/month vs. previous $299/month. The sales have been rising sharply with a 70% increase in sales over the last month. According to Edmunds.com Toyota has regained the same market share of sales that it had before the gas pedal recall.

Robert Boch who runs a Toyota dealership in Boston seems very optimistic about the recall problem and thinks that the company can deal with whatever else comes its way. He says: “If something does emerge, they’re going to fix it. They’re going to stand behind their products. They’ve demonstrated that”.

He also says that most customers have been supportive, “You ask 10 people who own a Toyota — even with this recall, nine of them will say, ‘Fix the car. I want it back. I love my Toyota’ “.

Carol Brown, an owner of Toyota says that every other car has problems, “If Toyota is so bad, why are all these people still coming in to shop, you know?” Another Toyota owner has traded in 2009 Corolla for a different model that wasn’t part of the recall.

“They’re very loyal,” Robert Boch says. “Toyota’s worked very hard to develop that loyalty and maintain that loyalty. They’re going to set the standard on a recall now.”

However, not all customers continue to remain loyal to Toyota, there are those who feel scared and disappointed by the situation in which case they switch car brands. Advertisements from GM that ask customers to trade in their Toyota don’t help either. But you have to read Part 2 of the analysis to find out where I stand on this.

THE FUTURE

Toyota has been known for having a good reputation when it came to quality and reliability of cars. But could this incident mean that the company has grown too quickly and taken its eye off the ball?  Promotions tend to work well at first but what about the long term goals? There is still a lot of work to be done ahead to gain back that loyalty of existing Toyota owners and reassure potential car buyers.

One of the worst things that can happen is that if it becomes known that Toyota had ignored this problem in the past then it would be next to impossible to regain that loyalty. Toyota has been criticized for taking too long to act on the recall and for hiding information from Government officials.

Aaron Bragman, a research analyst in the automotive group at IHS Global Insight comments: “If Toyota is seen in any way of having stonewalled the process in finding out there was an issue or having covered anything up, that would be devastating for them”.

The recalls could also take a toll on Toyota’s used car values, another traditional selling point for the carmaker. Because sales of these used models have also been suspended, the impact on their prices remains unknown.

Another thing to keep in mind is the impact this can have on potential young buyers. Analysts worry that Toyota simply won’t be able to build the kind of loyalty with younger customers that it has long enjoyed with the baby boomer generation. “Younger buyers were still not totally sold on Toyota, and now this comes along,” says Aaron Bragman. Furthermore, I think that Toyota’s strong sales over the past years have threatened other competitors like GM. I wouldn’t be surprised if the competition is not taking advantage of this momentary weakness to drive Toyota out of the game.  But you have to stick around for Part 2 of Toyota Under Fire.

A brand that has build a reputation on providing reliable and safe cars, can Toyota turn this into an opportunity and come out stronger in the end? You be the judge.

Sources: NPR.org,  CBC.ca

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5 thoughts on “TOYOTA UNDER FIRE

  1. I think most of Toyota’s problems could have been averted if there was better driver education.
    Ex1: Toyota is not at fault if a driver does think that a floor mat may be too thick and could get stuck under the gas pedal. A driver should use their logic to cut the mat to fit OK, and be safe.
    Ex2: Better education of emergency stopping techniques could have averted some fatalities( Handbrake pumping, Hazard lights, Neutral, , and most importantly NEUTRAL (if not blocked by software, dont think it was) )

    Now for Toyota them selves, well as long as there is no solid evidence of them hiding anything, they will be fine in customer eyes.

    GM,Ford, Honda will obviously try to hurt Toyota sales, will they win, who knows.

    I personally want Toyota to get back to exciting cars: Celica, MR2, SUPRA. So i hope recent news does not cancel the AE 86 concept:
    http://images.google.com/images?q=ae86+concept&um=1&ie=UTF-8&ei=14atS-6QOYWclgfXm_yRAQ&sa=X&oi=image_result_group&ct=title&resnum=1&ved=0CBQQsAQwAA

  2. I agree with u about there being better driver education. From personal observation of the ppl who drive Toyotas (not everyone but the majority) and how they drive them (clutching at the wheel of the car) doesnt look like they would know anything about cars. For them its just a reliable car to get them from point A to point B.

    The concept looks very promising…and I can see it attracting younger target market. Reminds me of Hondas recent designs.

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