Crisis of Carmaker Number One: Toyota Case Study

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Crisis of Carmaker Number One: Toyota Case Study

According to the study purpose and the research questions placed, this research is conducted from two perspectives: Toyota itself and the vehicle consumers in specific market. In order to elaborate on the Toyota crisis, secondary data associated with Toyota crisis on global level is examined and collected initially through different sources, such as media coverage, official releases from government regulatory bodies and Toyota’s official websites. This will provide an overview of what exactly happened in Toyota which lead to this crisis.

Toyota Annual Revenue (Millions of US $)

2019 $272,031

2018 $264,416

2017 $256,654

2016 $235,746

2015 $247,834

2014 $256,919

2013 $234,601

2012 $226,106

2011 $228,427

2010 $203,687

2009 $208,995

2008 $262,394

2007 $202,864

2006 $173,083

One of the main reasons of Toyota crisis is massive recall of sold vehicles. Almost 9 million Toyota vehicles around the world had to be recalled within a few months. And the main reason to recall such a massive amount was potentially defective quality which focused on unintended acceleration problems, which were closely related to the most important thing for customers – safety driving. The massive recalls were indeed a disaster for Toyota, which means not only they had to suffer extensive financial losses involving repairing, market and stocks dropping down, production suspension, civil penalty and other relevant expenses for dealing with the troublesome issues; but it also heavily hit Toyota’s intangible assets- its brand image and reputation of quality, which have been shaped over time. The headline-hungry media rumoured negative news about Toyota which made a direct impact on company’s brand image. Not only the external factors, the internal system of Toyota was a major reason why Toyota went on such a crisis. In Global market Toyota’s after sale team was not that stable to handle premium cars they made. The spare parts were not available in many service stations which made them costly. Many dealers charged extra money from customers to give service to their vehicles which made customers dissatisfied. To retrieve their reputation, Toyota has to take effective and appropriate action to the deal. It is more important to recognize what are the issues generating the reputational threats and figure out who is/are involved and how to respond to the crisis. When recalls happen, it is always embarrassing for auto makers because it reveals shortcomings in the vehicles for getting potential risks at hand. Toyota has built their reputation on quality and reliability for years, as a result, any quality problems with its cars were threatening for them. However, Toyota’s denial of the problems and less than reassuring response made things worse. The most effective crisis management takes place before the problem escalates out of control.

Timeline of Events:

Aug. 28th, 2009

A fatal crash of a Lexus car in USA due to the gas pedal was stuck was highly publicized that brought “unintended acceleration” problems of Toyota cars to the light with increasing investigations by NHTSA in USA

Late of Sep. 2009

Toyota attributed the problem in the Lexus to the incompatible floor mat, but their explanation couldn’t convince NHTSA and public in USA

Sep. 29th, 2009

Toyota issued a public safety advisory suggesting owners of specific model about the ill-fitting floor mat issues in North America.

Nov. 25th, 2009

1st large Recall for potential accelerator pedal entrapment problems (ill-fitting floor mat), U.S. market, 4.2 million vehicles.

Jan. 21st, 2010

2nd large Recall for sticking accelerator pedal problems, U.S. market, 2.3 million vehicles covering 8 models.

Jan. 26th, 2010

Toyota Temporarily suspends production and sales of selected vehicles in the U.S. market.

Jan. 29th, 2010

3rd large Recall for potential accelerator pedal issues, European markets; 1.8 million vehicles

Late Jan. 2010

Toyota began issuing apologies and breaking silence with response to the crisis under the tense pressures from public media and governments in America

Feb. 5th, 2010

Toyota’s CEO Akio Toyoda made public apology for the recalls and announced global quality task force for focus on quality issues.

Feb. 9th, 2010

4th Recall for antilock brake system (ABS) software problems on 2010 model-year Toyota Prius and Lexus HS 250, Japan and U.S. markets.

Feb 12th, 2010

5th Recall for inspecting the front drive shaft on 2010 model year Tacoma 4WD trucks, U.S. market.

Late Feb. to Mar. 2010

Three times testimonies to the Congressional Hearing in USA.

Apr. 19th, 2010

Toyota agree to pay $16.4 million civil penalty imposed by NHTSA in USA related to Toyota’s recall for slow-to-return and sticky accelerator pedals, but Toyota denies NHTSA’s allegation that it violated the Safety Act or its implementing regulations

Source: Toyota Website (2010)

Brand Image and Reputation

A strong brand is considered to have high brand awareness and good brand images. To gain customer-based brand equity the consumers must be aware of, and familiar with, the offering and hold brand associations that are strong, favourable and unique in comparison with other brands offered in the same category. “Economical”, “Fuel-efficient” and “Innovative” are the most frequent words used by any consumers to express their overall impression about Toyota brand. This is consistent with the value offering that Toyota has attempted to deliver through its brand image built over the years. While in more specific ways, consumers’ preferences are various, depending on their different backgrounds, self-interests, acquired information, and past experiences with brand. In the first consumer group-Toyota customers, consists of Toyota owners who have Toyota cars, and new customers who visit Toyota dealership with buying intention. As observed, the Toyota customers are seldom those businessmen or freeway drivers; instead, a majority of Toyota customers are middle-aged and elderly people, who tend to care more about economical and practicality characteristics with cars and most likely drive their cars at relatively lower speeds running within the cities. Most Toyota owners actually have good experiences with Toyota. In their mind, Toyota brand is considered to be, for example, “reliable”, “my favourite”, “very good quality”, and “good service”. These customers’ experience-based beliefs are powerful, it reinforces and strengthens the brand meaning with existing customers, generate positive word-of-mouth and stimulate new customer trials. Most customers have acknowledged Toyota’s favourable prior reputation in building quality cars in the industry. Their prior attitudes and expectations towards Toyota would definitely influence their assessment of the crisis. The evaluation of a crisis of a situation and its reputational threat to a company is largely a function of stakeholders’ attributions of crisis responsibility, which implies how much stakeholders believe organizational actions caused the crisis, and whether the crisis was accidental or intentional actions by the organization. With the increased bad news around Toyota being exposed and framed, such as quality complaints, violating industrial regulations, long-delayed and less-than reassuring response, American people had blamed Toyota with greater attributed responsibility for its errors happening before and during the crisis. There were few reports relating to similar acceleration problems involved in Toyota cars. Accordingly, in the eyes of Toyota customers as well as other brand’s drivers, the Toyota crisis is more like accidental events that are unintentional or uncontrollable by the company. Even comment from a car engineer reveals something tricky and uncontrollable that is puzzling most automakers not only Toyota when encountering consumers’ complaints about acceleration problems: “ It is always customer complaining accelerate pedal get stuck, but they[actually] press the accelerator pedal as the brake pedal,…So it’s hard to handle those issues, and no one trusts the technical specialist from the car manufacturer.” When a crisis emerges at a familiar brand, consumers’ direct or indirect experiences with the brand will allow them to easily retrieve the pro-attitudinal information, which in turn reduces the influence of the crisis information. Toyota’s favourable prior reputation has been perceived by consumers through their direct or indirect experiences with Toyota. For Toyota owners, even though they are the affected parties getting involved in the recalls, most of them actually have directly good experiences with the brand before. So, it generates good on positive aspects and ignores the recent negative information created by the crisis. Toyota’s good prior reputation perceived by consumers in these ways acts as Halo effect that has the potential to reduce its attributed crisis responsibility and dismiss the impact of the crisis on the brand. Crisis responsibility requires the company to effectively deal with the crisis problems with accountability. Due to assigning lower responsibility to Toyota, little attention is paid to Toyota’s crisis handling from some satisfied and loyal customers whose Toyota cars are not involved in recalls, as well as some of the other brands’ consumers who are not concerned about the whole issues. Being different from those loyal customers, some affected Toyota owners who care more about self-benefits, do blamed Toyota’s ineffective crisis management at the beginning. These different attitudes about the crisis handling between those satisfied customers and confused consumers imply that customers differentially weight aspects of the crisis information, such as the dangers of the product and the firm’s responsiveness, depending on their prior expectations and benefit associations. In Toyota, effective crisis communication from the company with timely, reliable and open information is critical when customers are facing unexpected problems related to affected products. Toyota is expected to cope with the crisis in an even better way to reassure customers from uncertainty and psychological threat from the crisis.

Regaining Trust: Still a long way to go

Based on consumer attitudes toward the Toyota brand derived from GfK MRI’s Starch Advertising Research Brand Disposition, Toyota has many miles to travel before it can regain its pre-recall popularity.

Prior to Toyota’s historic recall in November 2009, Starch found that over three-quarters (83%) of U.S. adults surveyed were positive about the brand while fewer than 1 in 5 (17%) were negative. These data clearly show the majority of consumers had tremendous confidence in the Toyota brand.

On November 2 of 2009, Toyota recalled 3.8 million vehicles because of floor mats that trapped accelerator pedals, followed by an additional 400,000-vehicle recall four weeks later. These recalls were triggered by a car collision in August 2009 that took the lives of four people. Subsequently, consumer attitudes toward Toyota began to change. Positive brand disposition fell five points to 78%. Negative brand disposition rose five points to 22%.

On January 21, 2010, after receiving customer complaints, Toyota recalled millions more vehicles (followed by another million or so three weeks later) for problems with accelerator pedals sticking in cars without floor mats. Then, from February through April 2010, Toyota recalled other car models for an array of problems, among them: Camrys for potential brake problems; Tacoma trucks for defective front propeller shafts; and Sienna minivans for corrosion of spare-tire carriers.

Following this second major recall in January 2010 and subsequent recalls through April 2010, Starch data showed that consumers’ positive feelings toward the Toyota brand dropped even farther—19 points to 59%. Consumers’ negative feelings rose 19 points to 41%.

Since these painful recalls, Toyota’s new motto is “Moving Forward!”—an attempt to communicate to consumers the company’s desire to start afresh and look toward a better future. But are consumers buying it? Starch data show they are…but gradually. From May 2010-December 2011, consumers’ positive disposition toward Toyota recovered 11 points (to 70%) from the second and subsequent recalls. Those consumers negatively disposed fell 11 points to 30%. Good news indeed! But the percent of consumers who are positively disposed to the Toyota brand is still lower than pre-recall scores. Stats show that only after 2018, has Toyota been able to match its pre-crisis revenue in 2008.

Conclusion/ result:

Andrew Gilman, an award-winning journalist and a lawyer said – “ The secret of crisis management is not good versus bad, it’s preventing the bad from getting worse ”.

Since the late 2009, Toyota has suffered a severe crisis due to unintended quality problems in its cars, resulting in Toyota’s largest official recalls of nearly 9 million vehicles all over the world. This crisis has threatened the company’s earlier reputation of building good quality and reliable cars as well as damaging its brand image built up over time. The decisions taken by the executives of Toyota to deal with the crisis is considered as a key issue in retrieving it’s lost reputation and to recover the trust and image held by it’s existing as well as potential customers. This study aims to elaborate on the Toyota crisis in order to understand why Toyota faced this crisis and how it aimed to rectify the situation at hand.

As discussed in the paper, this crisis was a perfect example of shift of focus from delivering the best quality product to increasing profits via large scale production. Although Toyota themselves acknowledged the crisis under immense pressure from mass media and the US Government, initially, they tried to separate themselves from the issue and blamed non-responsible factors for the accident that triggered the crisis. With accumulative troubles, Toyota then later on took to active crisis communication strategies to control the situation and tried to rebuild its reputation and enhance consumer trust, with increased emphasis on the customer and quality assured parts and products. However, this long-delay and a merely acceptable response initially took a heavy toll on the company’s reputation. The late response infused a sense of ignorance and denial of the problem on Toyota’s part among the public and made it look as if the company was forced to take action under pressure from various avenues. This public perception further damaged Toyota’s reputation and sales, especially in North America, aggravating the crisis situation.

Also, an interesting aspect to note was the difference in response to this crisis situation in different parts of the world although the situation affected all stakeholders equally. Outside America, the public opinion was not as serious regarding the impact of the crisis. It was perceived as just an accidental event that was unintentional and uncontrollable on the part of Toyota. Here, consumers have remained loyal and satisfied by Toyota and its products and have not been swayed by the massive negative publicity that Toyota received. This has helped Toyota in its post-crisis recovery period. Most consumers outside America have readily forgiven Toyota’s flaws as long as Toyota remediates its mistakes. This implies that a favourable prior reputation can serve as a mediator when an organization is suffering a crisis.

Whether the Toyota corporate leaders have successfully addressed the crisis will not be known for some time. But what is now obvious is that crisis management was not a part of Toyota’s strategy. Unfortunately such corporate responses, as that of Toyota in the initial period of the crisis are very familiar. A slow initial pre-crisis response, minimizing the acute crisis through foot-dragging on product recall, poor public communication about the problem in the chronic crisis stage and little or no compassion for the consumer adversely affected by the product during crisis resolutional is a very typical case.

Presently, Toyota is working on processes to engage the consumer world-wide to inform corporate leaders about any problem directly and in a timely manner with sales regions being given more authority. The corporate leadership has created an Automotive Center of Quality Excellence (ACQE) and a new corporate structure and position for product safety. However, the 2 billion dollars lost during this recall crisis would not have been a burden on Toyota had such measures been adopted well in time and by maintaining a certain standard and quality of products rather than trying to sell more products in the ever competitive era of globalisation.

Toyota recall crisis has proved that failure to focus on quality would result in serious consequences in terms of economic losses and reputational risks. Also a favourable prior reputation can offset some negative impact of crises and can also help in the post-crisis recovery period. Consumers might be willing to forgive the company if it takes takes trustful measures to deal with the problem. Lastly, though crises are unexpected and sudden, one must always be prepared for their effective management. It is important for the company to effectively communicate with consumers and build a good relationship with them, especially when unexpected threats strikes their business. This helps to retain customer loyalty and in turn help reduce the impact of the crisis.

Bibliography:

Forbes: https://www.forbes.com/sites/annemariekelly/2012/03/05/has-toyotas-image-recovered-from-the-brands-recall-crisis/#2582208a324d
The curse of the #1 carmaker: Toyota’s crisis http://www.emeraldinsight.com/1742-2043.htm
Wikipedia page: 2009-11 Toyota vehicle recalls https://en.wikipedia.org/wiki/2009%E2%80%9311_Toyota_vehicle_recalls
Toyota Crisis: Management Ignorance? – A Swedish Case of Consumers Perceptions http://www.diva-portal.org/smash/get/diva2:349746/fulltext02
Toyota in crisis: denial and mismanagement Victor L. Heller and John R. Darling
The Toyota crisis: an economic, operational and strategic analysis of the massive recall http://www.emeraldinsight.com/2040-8269.htm
Toyota Website: https://www.toyota.com/
GfK MRI Starch Advertising Research
Preparation for Crisis Management: A Proposed Model and Empirical Evidence https://www.researchgate.net/publication/227779702_Preparation_for_Crisis_Management_A_Proposed_Model_and_Empirical_Evidence
Managing supply chains in times of crisis: A review of literature and insights https://www.researchgate.net/publication/235322383_Managing_supply_chains_in_times_of_crisis_A_review_of_literature_and_insights
Toyota Revenue 2006-19 https://www.macrotrends.net/stocks/charts/TM/toyota/revenue

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