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Toyota a perfect case study in poor crisis management

Toyota Prius at a holding lot in Port of Long Beach, California. The company faces an estimated bill of $2 billion from the costs of the recalls as well as lost sales. Photo/REUTERS
Toyota Prius at a holding lot in Port of Long Beach, California. The company faces an estimated bill of $2 billion from the costs of the recalls as well as lost sales. Photo/REUTERS 

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.

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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.

True, it bit the bullet quickly and recalled cars and halted production lines.

Those things are necessary, but they are not sufficient.

Far more serious than the financial cost is the emotional cost suffered by the brand.

Toyota’s brand promise was simple: quality and reliability, coupled with an affordable price.

It has been true to that promise for decades, and has used it to drive its phenomenal rise to becoming the world’s number one automaker.

But now that promise lies in tatters, and Toyota is thus far failing a vital test: message management.

Its chief executive, Akio Toyoda, has been conspicuously absent, leaving it to underlings to pass on the bad news.

Serious job

The company has never come clean and revealed the full extent of the damage, instead allowing bad news to build up.

Those are real no-nos, and can partly be explained by a very Japanese reticence to air bad news in public, instead getting on with the more serious job of putting the problem right.

I’m afraid that just doesn’t fly these days. Managing your brand and your message is as important as managing your production lines.

I have little doubt Toyota will weather this storm, but it has things to learn about brand promise.

www.sunwords.com

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