How Toyota handled its recall crisis

Toyota manufactures vehicles, including motorcycles, and parts at 53 production sites in 27 countries around the world. In fiscal year 2009, Toyota sold about 7.5.million vehicles in 170 countries under the Toyota, Lexus, Daihatsu, and Hino brands. In 2008, it was ranked as the 5th largest company in the world. In 2005, Toyota ranked 8th on Forbes 2000 list of the world’s leading companies, and ranked #1 in global automotive sales in 2008. Due largely to the 2008 world financial crisis, the company was heavily in debt and borrowed $3 billion to stay afloat (Piotrowski & Guyette, 2010). The Toyota business philosophy (“The Toyota Way”) stresses teamwork, respect, problem-solving, and continuous improvement as shown in Figure .

Figure : The Toyota Way (Kurita, 2007)

Toyota recall crisis

Over the past 30 years, Toyota Motor Corp. has not only been the envy of the automotive industry but also been held in high esteem as a symbol of manufacturing and leadership excellence in the business world. In fact, the Toyota brand has been touted as the pinnacle of automotive excellence by rating agencies (e.g., Consumer Reports) and industry consultants alike, and this status has been reflected in a continuous stream of high marks in consumer confidence. At the same time, auto manufacturers have not been immune to major crises within the sector over time; that is, product recalls, production disruptions, supply-chain inefficiency, labor disputes, and perennial competitive pressures. Despite these onerous concerns, Toyota has maintained product superiority and consumer loyalty to its brand.

Since 2007, however, Toyota has experienced a series of car model recalls that have escalated into a major crisis where several of their top-selling models (e.g., Camry, Prius, Corolla) have been flagged with serious potential defects (unexpected acceleration problem, software glitches, steering malfunction, brake system defects).

To date, the 2010 recall crisis has affected about 8 million cars and repair costs are estimated to exceed $2 billion. Although there were some warning signs that Toyota had a potential manufacturing problem in 2007, it wasn’t until January of 2010 that the seriousness of the crisis was made public and caught the attention of the media and, more importantly, U.S. regulatory agencies (e.g., U.S. Highway Safety Administration). (Piotrowski & Guyette, 2010)

Using vivid anecdotes and opinions of experts, the business media has largely painted a pessimistic outlook for the Toyota brand. (Mital, Sambandam, & Dholakia, 2010).

A detailed timeline of the crisis is listed in (Car and Driver)Appendix A: Toyota recall timeline (Car and Driver).

The enormity and depth of the 2010 Toyota recall crisis are made evident by the results of a recent survey of Americans (N=500) conducted by Lightspeed Research (Steinberg, 2010). Based on poll data, nearly 60% of the respondents had a favorable view of Toyota brands pre-recall, whereas only 23% think so now. Estimates of product reliability ratings for Toyota brands have plunged from nearly 95% pre-recall to 72% presently. These findings point to a precipitous decline in the Toyota brand reputation with a concomitant boost to the brand quality of U.S. car model rivals. Undoubtedly, Toyota’s reputation has been somewhat tarnished, particularly from the perspective of current and former Toyota car owners. The 2010 recall is not Toyota’s first major image crisis. Toyota recalled almost a million 4Runner SUVs, 4WD trucks and pickup trucks from model year 1990-1998 for a power steering problem. In December 2008, Toyota reported its first annual loss in 70 years. This was followed by the closure of all Japanese plants for 11 days in early 2009, to reduce production output and deplete unsold vehicles.

Due to the current recall crisis, Toyota and its suppliers are facing extensive litigation from individual plaintiffs for specific accidents, while class-action lawsuits will likely claim economic recovery for consumers’ loss of resale value of affected Toyota car models (Ceniceros, 2010).

There was the loss of nearly $30 billion in market value and the potential long-term damages to the reputation of Toyota – fueled by the realization that, as Toyota chair Akio Toyoda said in an April 10 Guardian News & Media article, “Over the last few months, we really learnt that we were not close enough to the customers.” (Ebert, Natarajan, Newsom, & Qu, 2010)

How Toyota handled its recall crisis

The results indicate that public attitudes toward Toyota, and especially the leadership at Toyota, have been negatively impacted by the evolving 2010 recall crisis. Considering the literature about crisis management and international public relations, what could Toyota have done better to manage the crisis?

Timing and preparation

Conflict or crisis management often occurs when a business or industry contends with government regulators or activist groups that seem determined to curtail operations through what the industry considers excessive safety or environmental standards. Sometimes, an organization is able to catch a conflict at an early stage and reduce damage to the organization. (Wilcox & Cameron, 2009).However, in other cases, such as the Toyota case, an issue may become a major crisis if it is not addressed appropriately from the beginning. Anticipating and avoiding business disasters requires a number of steps, from recognizing the threat, to making it a priority in the organization, to actually mobilizing the resources required to stop it. (Watkins & Bazerman, 2003)

Figure : Crisis management relationship timeline (Janes, 2010)

As shown in Figure , there are three major stages in crisis management that need to be addressed appropriately.

Toyota’s behavior

Evaluation

Emergency Response

Toyota missed to address the recall crisis at its beginning in 2007 and thus the opportunity to reduce the damage.

Dealing with problems early on is not only more efficient, it is usually the morally right thing to do.

Crisis Management

Toyota focused on its customers but did not address the requirements of all stakeholders involved

Toyota’s communication and stakeholder management was lacking the right priorities.

Business Continuity

Toyota introduced the SMART business process to quickly address customer requirements.

Implementing a new process to handle the crisis problems was very efficient but was introduced late.

Communication

The influence of public relations on the course of a conflict can involve reducing conflict, as is often the case in crisis management. As Toyota recalled more than 8 million vehicles due to gas pedal and brake problems, it enlisted its internal communications team and firms to help stem the crisis that threatened its reputation. Brian Lyons, Toyotas environmental, safety and quality communications manager, was deployed to answer media questions. Toyota also beefed up its online newsroom, which logged about 150,000 unique visits per day at the height of the crisis. Social media supervisor Scott Deyager helped provide updates on Twitter and Facebook. The automaker tapped roster agencies like GolinHarris, Powell Täte, and Robinson Lerer & Montgomery to navigate the crisis. Glover Park Group and Quinn Gillespie Sc Associates in Washington were hired as it faced questions from Congress. Cindy Knight, public affairs manager at Toyota Motor Sales USA, said its Washington office “ramped up communications, government relations, and compliance efforts in order to get the most timely, transactional information to lawmakers.” Despite these efforts, a number of polls showed Toyota’s public perception falling. Some critics suggested that its leadership responded too slowly and wasn’t visible enough. “It took them more than 30 years to build that reputation of credibility,” said Gene Grabowski, SVP, Levick Strategic Communications. “It took about a week to cut it in half” “We did the right thing to stop sales and production,” countered Mike Michels, VP of communications, Toyota Motor Sales USA, via e-mail to PRfVeek. (Daniels, 2010)

As organizations face increasingly complex crisis situations, we must learn how to understand and manage them. The field of public relations is central to effective crisis management but it is often limited by a rationalistic and situationally bound perspective. Effective crisis management from a PR perspective includes:

Managing and distributing information,

Maintaining the organizational image,

Keeping control of media images and messages, and

Strategically handling relations with internal and external stakeholders.

While these activities make all the difference in the world when it comes to containing the dynamics and limiting the short- and long-term costs of the crisis, they contribute little to explaining the nature and causes of organizational crisis.(Kersten, 2005).

Leadership

Both company President Akio Toyoda and his father, honorary Chairman Shoichiro Toyoda, were curiously silent in January and February 2010 during the recall of about 8 million cars. Instead, an American-Toyota sales executive Jim Lentz-became the company’s public face during the recall, Toyota’s largest and potentially most damaging. Curiously, Lentz isn’t even Toyota’s top U.S. executive, nor is he an engineer, which makes him less than qualified to answer technical questions. Traditionally, the Toyoda family has played a strong role in upholding the company’s image of quality and reliability, which makes their silence all the more puzzling. Some people have even taken to calling Akio Toyoda “no-show Akio.” It remains to be seen how badly this recall will hurt Toyota’s standing. But the Toyodas’ apparent unwillingness to take the heat sets a poor example. (Taylor, 2010). This poor approach to leadership is also reflected in Appendix D: Views on Toyota’s Leadership and Ethics during the Recall.

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Culture

The culture of Toyota is what made them one of the best global companies in the world and will likely be what returns them to good standing with consumers in the future. But cultural distance and differences as shown in Figure : Hofstede Cultural Dimensions: USA vs. Japan between Toyota’s Japanese top management and the stakeholdrs in the U.S. might have made it even harder to mitigate the crisis.

Figure : Hofstede Cultural Dimensions: USA vs. Japan

Appendix C: Geert Hofstede Cultural Dimensions contains a detailed dimension description.