Toyota a perfect case study in poor crisis management

This column highlighted the recent woes of Toyota a few weeks ago, and since then the company has spiralled even further down.

It subsequently announced the recall of eight million cars in the US and Europe, and halted production and sales of certain models until its quality issues are sorted out.

Toyota now faces an estimated bill of $2 billion from the costs of the recalls as well as lost sales. $30 billion has been wiped off its market value.

It may even lose its prized number one status in the US.

As John Reed pointed out in the FT last week, no one doubts that Toyota is handling this recall in a technically correct manner.

What is dubious is how it is communicating the news to the world.

Toyota has engaged in drip-drip revelations for several weeks now, seemingly playing a cat-and-mouse game rather than coming completely clean on the matter.

Reputational issues

It is giving the very unfortunate impression that it is either still in the dark itself about the extent of its quality problem - or is keeping its customers in the dark. Neither is acceptable.

The technical side of Toyota’s damage-control exercise cannot be faulted.

Modern corporates have learned the hard way how to handle company crises and product recalls.

Companies from Firestone to BP to Cadbury have had to deal with very serious reputational issues in recent years.

Even motor vehicle manufacturers, like Audi and Mitsubishi, have had to make very uncomfortable revelations.

These things happen, and they can happen to the best, as Toyota has discovered.

But the point is to learn from history, not to repeat it. In this sense Toyota has been a very bad student.