Toyota just agreed to pay $1.1 billion to settle a class-action lawsuit related to complaints of unintended acceleration. When added to pending litigation and amounts already paid out for recalls, some estimate that the costs could easily top $3.1 billion. How could this happen to a company that created and maintained a quality reputation for so many years?
Some say that Toyota grew too fast, and its quality slid. On the other hand, quality experts say that in spite of Toyota’s rapid growth, quality has remained at better than industry average levels. In fact, Lexus, a Toyota luxury brand, often leads the industry in quality. There is one clear answer. Toyota proved itself inept at crisis management and marketing.
Toyota accelerates the confusion
When complaints of self-acceleration were first reported, Toyota did not know how to handle them. Rather than say that they are investigating the complaints and will issue a complete report at the conclusion of their investigation, Toyota representatives reacted to the complaints in ways that confounded marketing and crisis management experts. They confused everyone by jumping to conclusions and suggesting different causes in rapid succession. First, they attributed the problem to operator error, which is the most frequent cause of self-acceleration problems in automobiles (the issue that nearly triggered demise of Audi in the US market during the mid-1980s).
Then, Toyota suggested the cause of the problem was floor mats that trapped the gas pedal. Some engineers blamed “sticky” gas pedals. This was followed by the suggestion that faulty electronics caused the unintended acceleration. Instead of reassuring the marketplace, Toyota acted in a way that caused owners to fear for their safety and prospective buyers to look for other makes and models. For example, Jim Lentz, president and chief executive officer of Toyota Motor Sales, USA, went on the Today Show and looked like a “deer in headlights” in response to Matt Lauer’s cross-examination. In a poll taken before Lentz spoke, 37% said they were less likely buy Toyota cars. The negative numbers jumped to 56% after he spoke. The uncertainty created by Toyota representatives triggered a series of costly recalls, lawsuits, and lost business – causing Toyota and their dealership network to incur further losses from hefty discounts and implementing the recalls.
Were there serious quality issues with Toyota?
All makes and models of automobiles are found to have issues from time to time. The only way that these issues can be put in perspective, however, is to compare them to competitive makes and models. As the media fuelled the notion that Toyota automobiles had serious defects, the actual data did not support this notion. A definitive joint study by the National Highway Safety Administration and NASA found no electronic flaws in Toyota vehicles that would cause dangerous self-acceleration issues. In a 2010 post for Business Week, Jeffrey Liker, an expert that has followed Toyota for over 27 years, debunked the issues with the floor mats and sticky gas pedals. For 2012, Toyota topped the Insurance Institute of Highway Safety‘s list with 15 models in 2012. The National Highway Traffic Safety Administration gave the 2012 Toyota Camry a 5-star rating. This is not to say that individual vehicles did not have flaws that caused problems. Any electro-mechanical device made by man can malfunction. There seems to be no definitive data that shows that there was a systematic problem with Toyota vehicles.
What should Toyota have done?
When complaints first arose about unintended acceleration, Toyota should have enlisted the very best marketing talent they could find to address the issues while their engineers and outside experts investigated the causes. Until definitive causes were found, their marketing team should have “publicized” the investigation – showing that the company was listening to the complaints and in complete control of the situation. As it was, they acted out of control. If the complaints were found to be rumours, they should have implemented the rumour procedure:
- Do not publicize the rumour (any more than the media already had).
- Promote the opposite of what the rumour said (using qualified marketing executives).
- Provide proof to support the notion that Toyota vehicles are amongst the safest on the market (quoting the IIHS and NHTSA data above).
If the complaints were found to be factually correct, the marketing team should have employed the fact procedure, which involves the following steps:
- Admit and apologise for the error(s).
- Limit the scope (point out the fact that Toyota has more models on the road than any other automobile maker).
- Proposed a solution so the defects are unlikely to reoccur, such a new Quality Control Procedure.
Easier said than done
I know what some are thinking. The suggestions above are “easier said than done” in the moment when Toyota was inundated with negative publicity from just about everywhere. While that may be true, the fact still remains that Toyota did not take the right approach, and as a result, incurred billions of unnecessary costs because of its inept handling of the crisis.
Needs to communicate better
In addition to following the appropriate procedures, Toyota should have created an ad that boldly made the point that there is no better time to buy a Toyota than right now. The ad should back up historic quality and safety claims with (1) sufficient independent credible data and (2) an extended warranty that would ally the fears of Toyota buyers. This would have cost far less than Toyota eventually spent and is likely to have avoided the serious damage to its previously untarnished image.
The one good outcome from Toyota’s mishandling of this crisis is that it forced the company to make the fixes it needed to reclaim the number one spot from General Motors. Hopefully, it also learned that to keep the top spot, making a better car is not enough. The company also has to communicate better.