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Is Toyota on the Road to Ruin or Recovery?

Feb 5, 2010 – 11:40 AM
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Tamara Lytle Contributor

ANALYSIS

(Feb. 5) -- Crisis management experts are watching to see whether Toyota, under siege yet again, will follow the skid marks of Audi, Exxon and Union Carbide onto the list of corporate crisis crashes or whether the automaker can return to the high road.

Thursday, the U.S. Department of Transportation opened its investigation of braking troubles with the Toyota Prius 2010 model. That comes after the company issued a recall of 9 million cars of various models because of worries about sudden acceleration. And after Transportation Secretary Ray LaHood advised Toyota owners to stop driving their cars -- a statement he backed off from later.
Toyota Prius
Kazuhiro Nogi, AFP / Getty Images
Toyota's quality problems have pounded its sales and its stock price.

Late Friday in Japan, the company finally apologized for the problems. Whether it's too late remains to be seen.

"This is a nightmare for Toyota," said Steven Fink, president of Lexicon Communications Corp., a crisis management firm in Los Angeles. "It speaks to quality control, engineering, the reputation of the company, consumer confidence."

Toyota's woes have hit both its stock price, which had been rebounding, and its sales. The company is the country's second-largest seller of cars. It built much of its reputation on its reliability.

Fink gives Toyota a failing grade in handling the crisis so far. The company has drawn criticism for not acting months ago on reports of problems with the acceleration pedal, which the company had blamed on floor mats.

"Whoever is controlling their crisis ought to be replaced by somebody competent," Fink said.

Toyota violated basic rules of crisis management, he said, by not revealing its problems earlier on its own while laying out a solution. "At the heart of the matter you have engineering and design flaws and poor quality-control issues. This is a recipe for disaster. That's what they really need to address first: putting the safety of the consumers ahead of profit or anything else."

Toyota spokesmen declined to comment for this story and would not even provide their last names.

Eric Dezenhall, head of Dezenhall Resources, a crisis management firm in Washington, said he's impressed with how Toyota has found a mechanical solution to the problem. That's the first step, followed by getting the repairs made and then improving public relations.

"Everyone thinks if you just hire the right guy and press control-alt-delete, the problem will go away. If you just apologize, the problem will go away," said Dezenhall, who stressed that finding a mechanical solution to a problem is crucial.

Foreign companies like Toyota sometimes don't understand that America has an "emotional market," Dezenhall said. The public wants to be walked through what happened and how it will be addressed. The appearance of a Toyota executive in a surgical mask for an early news conference didn't exactly instill confidence, he said.

Johnson & Johnson's handling of the Tylenol tampering case, when seven people died from cyanide-laced medicine, is often cited as the gold standard of crisis management. The company pulled the medicine off the shelves and developed new tamper-proof packaging.

But the badly handled cases are better known. Exxon suffered a public relations blow after its Valdez oil spill in 1989. Union Carbide got low marks for the handling of a toxic leak from its Bhopal, India, chemical plant. And billionaire golfer Tiger Woods has been roundly criticized for stonewalling police and saying little to the public about his traffic accident outside his home, which created a feeding frenzy of allegations of a black book full of mistresses.

Companies need to put protecting the public at the top of their list, said Mike Rozembajgier of ExpertRECALL, which helps manufacturers and retailers after recalls. He said companies like Peanut Corporation of America are remembered because they didn't react quickly to threats to consumer safety. The Food and Drug Administration said the company knowingly shipped salmonella-tainted products. Eight people died, and about 500 were injured.

Fink said he sees parallels between Toyota and an acceleration problem Audi had in 1987. The German-owned company said drivers were to blame. Federal safety officials eventually ruled in Audi's favor, Fink said, but by then a huge swath of the company's market share had been washed out.

The auto industry tends to be weak in crisis management, Fink said. Because vehicles are expensive, repairing problems tends to be expensive. Fink said he doesn't know whether this applies to Toyota, but sometimes auto industry firms decide that fixing a problem is more expensive than paying for the lawsuits it will generate.

It's still too early to know whether Toyota will become a case study for bad or good crisis management.

"What it all comes back to is: were you able to get back to business," Dezenhall said.
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