Professor: Recalls leave major dent in Toyota's brand identity

Terry Kosdrosky, University of Michigan - Ross School of Business

Japanese automaker Toyota is navigating uncharted territory these days. The Japanese company – the world's largest by sales – recently recalled about 8.5 million vehicles globally in three separate actions and briefly halted sales and production of some models in the United States. Toyota is an industry leader in quality and safety. Books have been written about its production system. Now the company faces Congressional hearings as repairs to the vehicles – and the company's image – get under way. Martin Zimmerman, the Ford Motor Company Clinical Professor of Business Administration at Ross, says Toyota’s well-earned reputation for quality and safety hinges on management's response to the current crisis.

With three recalls covering so many popular cars and trucks, what is the management challenge for Toyota here?

Zimmerman: For Toyota, having all these things coming at the same time is leading to uncertainty in the mind of the consumer. One question Toyota has to ask itself is, “Did we respond to all the information that we had?” That would be a key item. They may well ask if they need some centralized information center where worldwide safety and field information comes in and somebody is charged with acting on it. And they have to decide how to extend that across borders. For example, the Prius brake issue apparently started in Europe a while ago. So they have to be thinking about that overall process.

Given how far this situation has gone, their first step is to correct the problems, find out exactly what they are. That is not easy and it takes time. Then they have to fix them and, just as importantly, fix the process so something like this doesn't happen again. Finally, they have to communicate to the public that the process has been improved and communicate that well. Right now, they are in the “fix it” phase. Then they'll begin the recovery.

The longer-term issue really is about the process they use. Toyota is justifiably famous for their quality processes – kaizen, or continuous improvement, and a culture where factory workers can stop the line if there's a problem. All these things led to high quality and built their reputation. They have to convince customers that although there was a slip-up somewhere, they're on top of it, they know what went wrong, they will correct it, and they will prevent it from happening in the future.

What's at stake for Toyota?

Zimmerman: Toyota's reputation is built on quality and safety, hallmarks that go to the very characteristics of the brand for Toyota. Because these recalls came one after another – the floor mats, the accelerator and the Prius brakes – they raise issues of systemic failure, and that's their basic management problem right now. The advantage they have is their history of satisfying customers and a loyal customer base. It's a customer base that will be willing to give them the benefit of the doubt. Toyota has to convince them, though, that they will solve the problems and be on top of future problems.

Are they under extra scrutiny in the U.S. because they are a foreign-owned company?

Zimmerman: I think it's getting attention because the problems go to the characteristics that have been reasons for their success. When you're on the inside, you tend to develop this sense you're being picked on. I was at Ford during the Firestone recall and you do have the feeling everyone is piling on. An article in the New York Times recently indicated that some companies are happy Toyota's getting some heat. There's a little schadenfreude, maybe. But these are serious issues, serious questions, and I don't think Toyota's being picked on.

Overall, how has Toyota handled the situation, especially with President Akio Toyoda's public apology?

Zimmerman: It could have come sooner, but I understand the tension. The higher you go up in a corporation to take charge of a problem, the bigger the problem you're saying it is. This is also complicated by the fact that the top management is in Japan and the problem is mostly here in North America. But you have to demonstrate to consumers that you take the problem seriously. Given the potential damage to the brand capital, it is fitting that the top guy got up and said, “We are going to fix this, we'll get on top of it, and I'm sorry that it happened.”

As for the response to the problems themselves, I think they were slow getting out of the starting gate in terms of communications with the public, but I think they're catching up. It was slow in the sense that the key item is to communicate to consumers what the nature of the problem is, the fix, and what we're going to do in the future to ensure these vehicles are safe. Having said that, when it's a complicated issue like this, it does take time to know the source of the problem and the solution.

Given the publicity and the fact that Toyota halted sales and production for a time, is there going to be market share to take and who is poised to take it?

Zimmerman: In the short term, this is certainly going to affect Toyota's sales. It's likely to lead some Toyota consumers to at least consider alternative brands. I think the longer-term issue is whether Toyota is successful in establishing and solidifying the long-held reputation for quality. That'll be the test. If they do, then any market share loss will be short term.

But in the short term, I think competitors will benefit. This is a very competitive market. A number of analysts suggest Ford and Honda are poised to benefit. General Motors, Hyundai, and others could take some share as well. But, again, the longer-term issue is whether Toyota can protect its reputation for quality. That is the risk to them right now. They certainly recognize the issue. The first step is to make sure the repairs go as smoothly as possible, then deal with the Congressional hearings, fix the process, and communicate with their customers.

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