Monday, March 15, 2010

Toyota Needs to Find Communications “Throttle”

By Richard E. Nicolazzo

Remember that old Toyota corporate advertising theme: “Oh, What a Feeling?” I’ve got a new theme for the company: “Oh, What a Fiasco!”

There must have been long faces in Toyota’s executive suites when a California man held a press conference to tell the world that his Prius accelerated out of control on a freeway. From the air, it looked like a bad “OJ” moment.

To make matters worse, the California “runaway” occurred only 12 miles from where a deadly crash last year sparked the initial scrutiny into Toyotas. That incident, which keeps finding its way into the national media along with the 911 call, resulted in the death of a former California highway patrol officer and three members of his family.

Just a day later, the crash of another Toyota Prius in New York caught the attention of federal regulators after the driver said the car accelerated on its own, lurched down a driveway, across a road and into a stone wall. Ouch.

When you add it all up, with more than 50 deaths apparently linked to deadly accidents, the Toyota situation has turned into the tsunami of all product recalls.

The numbers prove it: 745,000 Priuses built from 2004 to 2009 recalled; six million other Toyotas in the U.S. and some eight million worldwide recalled; 85,000 lost sales over the past two months.

On top of that, a report in the Wall Street Journal said that the financial impact on Toyota from the global recall could total more than $5 billion over the next year because of increased incentive campaigns, litigation costs and big marketing dollars.

One could certainly make the case that Toyota took its time addressing the issue. In the past decade, at least 3,306 Toyota and Lexus drivers nationwide have reported instances of sudden acceleration, according to the latest numbers from Safety Research & Strategies, Inc., a Rehoboth, Mass. company that monitors safety issues for attorneys and plaintiffs in civil complaints, government agencies, and other clients.

To put it bluntly: The smoking gun was there for a long time.

Catch 22 Situation

What makes the Toyota crisis particularly challenging is the never-ending onslaught of bad news.

When you look at the crisis playbook, what Toyota has done deserves general praise: The company stood up and took responsibility for the vehicle defects.

First, Toyota took the extraordinary step of suspending the manufacture and sale of eight of its most popular models because of the unresolved mechanical flaw in the gas pedal assembly. The lines were not restarted until all the defective parts were destroyed and more testing took place. Additionally, dealers could not sell these models on lots until repairs were made.

To Toyota’s credit, this was a big step in beginning to align itself with consumers rather than protecting its corporate image.

In rapid order, Toyota issued official recalls, brought its senior executives to testify before Congress, placed full-page ads in major metro newspapers, made its top U.S. executive available for interviews, communicated with its dealers, gave those dealers cash to repair vehicles as soon as possible, and even staged a press conference in California to refute an ABC story that showed a tachometer near its red-line when the car was in “Park.”

On the sales side, the company has been aggressive in supporting its dealer network. New Camrys are on sale for as little as $179 a month; the Lexus brand is promoting discounted lease offers; and zero-percent loans are commonplace.

The real Catch 22 is how Toyota moves on from what can only be described as a product and reputational nightmare.

With its long-term credibility and brand at stake, I believe the company needs to continually assess its “communications throttle.”

For example, on the same day the Prius went out of control in California, Toyota was running customer testimonial ads in major markets that talked about the “safety and reliability” of the brand.

In my view, this is pushing the throttle too hard at a time when it remains unclear if Toyota truly has the fix for defective vehicles. Here in the Boston market, I saw a video news clip of the runaway Prius on the California highway followed by a commercial about Toyota’s reliability. The juxtaposition does not work for Toyota.

For the time being, the company should provide customers with relevant information about how to deal with an unexpected event or acceleration of a vehicle they manufactured. They should also consider providing customers with hands-on training about how to deal with a problem when it surfaces. For example, they should consider conducting seminars and distributing instructional videos depicting how a consumer should manage these related problems when they surface.

If Toyota wants to address safety and reliability, it might be better off sending a letter directly to the homes of vehicle owners. This would avoid the clutter on TV, radio and the Internet that continues to sting the company.

Adding to its operational and communications woes, Toyota is now being victimized by people who crash their cars and blame it on unintended acceleration. Although expensive and time consuming, Toyota should inspect every vehicle involved in a crash and extract data from the “black box” installed in vehicles to record the condition of the engine, brakes, accelerator and other components at the time of an accident. Otherwise, it risks being blamed for hundreds of accidents that likely have nothing to do with gas pedal or floor mat problems.

Some Brands Come Back

What happens to a brand in a crisis is always hard to predict. Audi, the last major car company to deal with unintended acceleration, was moribund in the U.S. for nearly a decade, but has made a great comeback. Better engineering and slick marketing have rejuvenated the brand, and it’s now stronger than ever.

About a year ago, Domino’s Pizza was the target of a disgusting video prank that looked like it would seriously damage the brand. But the company recently announced solid 2009 results and an increase in same store sales for the 64th consecutive quarter.

In other cases, such as Arthur Anderson, Lehman Brothers and Bear Stearns, the enterprises collapsed.

Despite negative media coverage since late January, there may be some early signs that Toyota can weather the storm. In February, the company’s U.S. market share slipped to 12.7% from just above 14% the previous month. All-in-all, not that significant a drop. Despite the equally negative press about the Lexus brand, sales are up 5% so far in 2010.

Analysts have predicted Toyota will report a profit of more than $800 million when it announces year-end results at the end of March, reversing a loss for 2008.

What next year holds is anybody’s guess.

In the final analysis, the pressure to get this issue behind the company falls on Toyota’s engineers. It doesn’t take a rocket scientist to see that, despite the floor mat and pedal recalls, there is likely something else wrong with the inner workings of Toyota vehicles.

If the problem is in the electronics, Toyota has backed itself into a corner by publicly announcing that either the floor mats or pedal assembly are defective. Admitting an electronics problem is probably unthinkable because it could mean replacing the entire car…a scenario that could create a major financial crisis for even a company this size.

Like most major recalls, the problem seems to emanate from poor product design, engineering flaws, sloppy manufacturing, problems in distribution, or a host of other factors unrelated to strategic communications.

At Toyota, the crisis management team is left to deal with the fallout, somehow rebuild brand integrity and loyalty, and continue to drive sales for its massive dealer network. This is a Herculean task.

Meanwhile, anybody driving one of these vehicles would be well served to take it slow, learn how to put the vehicle in neutral at highway speeds, and shut the engine off in sequence.

It could save their lives.

Joe Grillo, partner, contributed to this blog.

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