Toyota Recalls and PR Management CrisisSeptember 17, 2010For decades Toyota Motor Corporation (TMC) has been one of the most praised automakers in the UnitedStates particularly for their unwavering reputation for producing reliable, dependable and safe vehicles. Thisreputation in the US has been enjoyed by Toyota since the mid sixties, when the first really popular car soldby Toyota, Corona, and later Corolla, was introduced to the American customers[i].Since that time Toyota has been building up its business success based on three main pillars: • Focus on quality of their product in both design and implementation phases • Toyota Production System (TPS) that has been widely recognized and admired by other auto- manufacturers and businesses from other industries for its built-in processes of running efficient production, eliminating waste, and identifying and correcting problems promptly[ii] • Design and build the vehicles based on most innovative and advanced technologyAll these foundational principles have been serving Toyota well over the years and allowed it to achieve thestatus of not only the biggest auto manufacturer in the world, surpassing the long-standing position of GM inthat capacity, but also the most profitable carmaker.However the end of 2009 and the beginning of 2010 have been marked as one of the darkest periods in theautomaker’s history, when not only the safety of their vehicles, but also the business reputation, integrity, andtrustworthiness of the company had been called into question.It all started with the horrifying crash on August 28, 2009 when a family of four died in a 2009 Lexus ES 350which accelerated out of control to the estimated speeds in excess of 100 mph. The phone call placed by oneof the occupants in the vehicle indicated that the car “had no brakes”.This event eventually gave a rise to prolonged investigation by National Highway Traffic SafetyAdministration (NHTSA)[iii]; excessive coverage in the media, with Los Angeles Times and ABC TVnetwork at the helm of the investigative, often biased, reporting; heightened scrutiny from the lawmakersculminating in Congressional Hearings at the end of February 2010, where the top Toyota executives,including its President Akio Toyoda, were summoned to testify on the issue of handling the safety problemsof unintended acceleration; and rise to allegations of possible cover up of the problem by the company. Andthis safety recall debacle is not over for Toyota even up to this day.In addition to the moral impact of the ongoing investigations and recalls that was mentioned above, there arevery tangible financial consequences for the company resulting from: • Loss of revenue due to the production and sales halt in January 2010 –estimated $895 Million in lost sales over recall[iv] • Loss in paid civil fines mandated by the government for “failing to report known safety problems as it is required to do under the law” – $16.375 Milliion[v] • Loss through the exuberant legal fees paid to the hired defense attorneys – undisclosed • Loss through the decline in the stock prices of the company – 1 year change of about 9%-$11 Billion • Loss in sales from the customers who turned away from Toyota products because of the improperly handled safety concerns – unidentified
• Yet to be quantified losses that may result from the settlements in civil and criminal cases brought up against the company in the wake of the recalls- by some estimates could be above $10 Billion[vi]We don’t include the actual cost of the pedal repairs and floor mats replacements in the above list becausethese costs are a part of the normal expenses associated with safety recalls and would have to be paid in orderto remedy the problems anyways. However by Toyota estimate it warranty payments to fix the recallproblems could be around $1.12 Billion.[vii]What we are trying to convey is that improper handling of the problem has caused significant extra costs tothe company, and could have been minimized, if not completely avoided, if the company had taken moreopen, cooperative, and proactive approach to the situation.There are still many factors that would not allow us to give comprehensive analysis of the company’smistakes in handling the unintended acceleration safety issue at this point. Mainly because some of thedocuments requested by the government and courts have not been presented for review yet or have not beenmade public for the reasons of containing proprietary information. However we can analyze already some of the major missteps by Toyota which can be deduced from the openinformation presented by Toyota and other parties involved.The very first and most obvious flaw in Toyota’s response to the situation was virtual absence of anycommunication from the company in the weeks following the report of the fatal accident on August 28, 2010.The first news release regarding the accident investigation was published only on September 14, 2010 – morethan two weeks after the accident. The news release had expression of sympathy to the family and friends ofthe victims, and preliminary information from the law enforcement investigators about the improperlyinstalled all-weather floor mat as a possible cause of the stuck accelerator pedal. In the public eye it definitelylooked like a “too little, too late” response. Arguably, this non-responsiveness by Toyota Motor Corporationat the onset set the stage for the ensuing suspicious and even hostile perception of the company by the media,the government, Toyota owners, and the public at large. Given lack of information and even simpleacknowledgement from the company, it was a wide open field for speculations of all kinds. As we can see inthe retrospect, this lack of leadership in managing public relations and perception backfired and was heldagainst the company later on, when the situation got under the scrutiny from all possible angles.From this response we may infer at least two problems that existed in the company at the time: • Lack of understanding by the company top executives of the potential gravity of the situation and its negative repercussions • Absence of the clearly developed policy and procedures for managing public relations in situations involving high-profile issues of consumer safetyThe second grave mistake by the company was rooted in the aforementioned lack of openness in theircommunications once the communication channels had been established under the pressure of media inquiresand government investigations. The Toyota’s position could be rationalized by the fact that they really did nothave conclusive evidence about the causes of unintended acceleration even when the investigation wasunderway. They might have had some complaints from the customers, but due to the complicated multi-faceted technical nature of the problem they did not have sufficient data and properly conducted tests toconclusively isolate the root of the problem. Especially that now it is evident that there were at least twopossible causes for the unintended acceleration: improperly installed floor mats, and mechanical design flawin the accelerator pedal itself.
Nevertheless, even under these circumstances the company should have acted in more open, straightforwardmanner by providing all the information, even if inconclusive, they might have on the issue from theirinternally collected data. By trying to withhold some pieces of the evidence from the public Toyota has givenrise to the attitude of distrust and has blown a significant damage to its public image.Having discussed the causes of the Toyota public relations management crisis in the initial phases of thesituation, we now want to move to the present situation and how the company eventually stepped up in theirattempts to do damage control and restore the goodwill of their customers, investigators, and the public atlarge.On February 5, 2010 Toyota Motor Corporation President Akio Toyoda spoke at a press conference in Japanand announced that he “would personally take a lead toward improving the quality around the world byestablishing a global quality task force”[viii] The highlights of his plan were as follows: • Improve Quality Inspection Process • Enhance Customer Research • Establish an “Automotive Center of Quality Excellence” • Support from Outside • Increased Communication • Improve regional autonomyOther initiatives of Toyota include SMART Business Process for Quick Evaluation of UnintendedAcceleration Reports as was announced on April 8, 2010[ix] And as part of this process Toyota alsoestablished rapid-response Swift Market Analysis Response Team (SMART) to respond quickly tocustomer reports of unintended acceleration in the U.S.”[x]It is remarkable to notice that one of the bullets in Toyota’s plan for global quality task force is IncreasedCommunication. As has been stated all throughout this analysis, the lack of communication has initially beenthe cause of the situation getting out of control in the first place. And the latest update in this continuing issue is the written testimony of James Lentz, President and COO ofToyota Motor Sales, U.S.A., Inc, submitted to the Committee on Energy & Commerce, Subcommittee onOversight & Investigations on May 20, 2010.[xi] In the testimony that gives progress report on steps taken byToyota to become a more responsive, safety-focused organization since the Congressional hearing at the endof February 2010 Mr. Lentz mentions that “Toyota has appointed a new Chief Quality Officer for NorthAmerica… to act as the “voice of the customer” in this region. North America now has a greater say onrecalls and other safety related issues that affect vehicles sold here in the United States. In fact, our ChiefQuality Officer has a direct line to Mr. Toyoda when it comes to ensuring our customers’ safety.”All these steps demonstrate that Toyota has been significantly improving not only technical aspects of dealingwith the safety issues, but, no less importantly, the public relations management processes within theorganization. This instills the hope that Toyota has learned from its past mistakes and will be better preparedto effectively handle crisis situation in the future whether it is concerned with the technical aspects of businessor the company’s public image in any other situation.As additional recommendation based on the findings of this analysis we would suggest that Toyota adopt andimplement the best practices for effective crisis management suggested by the experts in the field of publicrelations:
• Develop formal policy and internal communication procedures that can be activated the moment the crisis occurs • Communicate quickly and as accurate as possible under the circumstances. Do not delay initial communication until all fact-finding is complete. Give immediate acknowledgment of the issue and reassurance that the company is working on the solution • Establish direct and candid relationship with the media through issuance of timely news releases, answering media inquiries, conducting live press conferences, utilizing internet communications for frequent updates • Adopt the policy of honest of and full disclosure of the company’s findings • Always follow up and, where appropriate, make amends to those affected xiiiAs a matter of fact, we have reasonable assurance that Toyota will be able to take advantage and benefit fromthese recommendations as we read Bloomberg-Businessweek quote Toyota Motor Corp. President AkioToyoda saying that “scrutiny from inside and outside the company has been a “good lesson” and he expectsthe carmaker to emerge stronger after recalling millions of vehicles worldwide.”[xii][i] Toyota History in the UShttp://www.toyota.com/about/our_business/our_history/u.s._history/1950s_&_1960s.html[ii] Toyota Vision and Philosophy. Toyota Production Systemhttp://www2.toyota.co.jp/en/vision/production_system/[iii] National Highway Traffic Safety Administration (NHTSA), Information on Toyota Safety Recalls andInvestigationhttp://www.nhtsa.gov/Vehicle+Safety/Additional+Information+on+Toyota+Recalls+and+Investigations[iv] Bloomberg-Businessweek, February 9, 2010http://www.businessweek.com/news/2010-02-09/toyota-recall-cost-to-exceed-2-billion-lawyers-say-update2-.html[v] Information on Toyota Recalls and Investigation at NHTSA sitehttp://www.nhtsa.gov/Vehicle+Safety/Additional+Information+on+Toyota+Recalls+and+Investigations[vi] Fox News Onlinehttp://www.q13fox.com/news/kcpq-031510-priuslawsuit,0,2383406.story[vii] Bloomberg-Businessweek, February 9, 2010http://www.businessweek.com/news/2010-02-09/toyota-recall-cost-to-exceed-2-billion-lawyers-say-update2-.html[viii] Toyota Corporate News Release, February 5, 2010http://pressroom.toyota.com/pr/tms/toyota-motor-corporation-president-153566.aspx?ncid=12036[ix] Toyota Corporate News Release, April 8, 2010http://pressroom.toyota.com/pr/tms/toyota-announces-smart-business-156380.aspx[x] Toyota Corporate News Release, April 16, 2010http://pressroom.toyota.com/pr/tms/toyota/electronic.aspx?fid=99485&id=E3C18559[xi]Written testimony of James Lentz, President and Chief Operating Officer Toyota Motor Sales, U.S.A.,Inc, submitted to the Committee on Energy & Commerce, Subcommittee on Oversight & Investigations http://pressroom.toyota.com/pr/tms/written-testimony-of-james-lentz-158931.aspx[xii] Adapted from Anne Lawrence, James Weber, “Business and Society. Stakeholders, Ethics, PublicPolicy” 13-th edition, page 447[xiii]Bloomberg-Businessweek, May 21, 2010http://www.businessweek.com/news/2010-05-21/toyota-chief-executive-considers-recall-crisis-good-lesson-.htmlSource: http://parttimembadegree.com/business-school-cases/toyota-recalls-pr-management-crisis/