Toyota Case Study – Crisis and reputation management
Using and applying information from the case study, wider secondary information and academic theoretical/ empirical research, you need to answer all the following questions. It is anticipated that all answers will be roughly equal in word count (3000 words in total). Answer each question like a mini-essay.
- Who were the key stakeholders for Toyota in terms of PR communication?
- How should Toyota have prepared for a crisis and comment on how this could have mitigated the negative effects of the crisis.
- Evaluate the role of the ‘leader’ in a crisis situation and how it might impact PR coverage.
- Critically assess the role of broadcast, digital and social media play in such a situation and what steps could have been adopted by Toyota to improve media relations?
- To what extent does a corporate crisis impact on the long term reputation of a company – and does it matter? Annual production of domestic cars is £70 million units and in 2002 when Toyota’s global market share stood at little more than 10% the Toyota president at the time, Fujio Cho, outlined a plan to reach 15% market share by 2010 to become the world’s biggest car manufacturer.With endorsements from loyal customers and a growing reputation, Toyota seemed destined to sustain its position of market leadership (Loney, 2007). It developed a range of brands including Daihatsu, Hino, Scion and Lexus. This luxury brand, Lexus, was rated best made car in the industry influential ‘JD Power’s 2009 Initial Quality Study’ which documents faults per vehicle. Toyota itself achieved seventh place, which remained well above the industry average. *(Ensure you follow all the links posted in the case study)As with any market leader, corporate failures are scrutinised and the last 18 months might damage the reputation Toyota has built up over the decades.It is with some irony that barely a month after Toyoda’s press conference confirming a new refocused company, that the fiasco of the extensive product recalls began.With Toyota being a market leader every failure is reported in considerable detail. In addition, the scale of recalls was unprecedented for Toyota.
- A brief summary of the recalls were:
- First signs of unrest emerged in March 2009 when the former president, Katsuaki Watanabe was ousted in a humiliating ritual in front of 400 Toyota employees amidst concerns about company development and performance. In the fiscal year to March 2009 the company reported a 436.9bn yen (£2.9bn at the time) operating loss, attributed to the financial crisis. The incoming president, Akio Toyoda, grandson of the founder, was critical of previous executives. In a speech to the Japanese National Press Club on 2 October 2009, he claimed Toyota was on the verge of “capitulation to irrelevance or death” and criticised previous executives for their “undisciplined pursuit of more” and for their arrogance, which he referred to as “hubris born of success“. He claimed that “Toyota has become too big and distant from its customers” and hoped suppliers, dealers and customers would be reassured that under his new presidency, Toyota would refocus on its strengths of manufacturing reliable and efficient cars and remain a Japanese icon.
- Seddon (2005) commented that “Toyota is an exemplar, an economic legend in its own lifetime and a fundamental challenge to accepted beliefs. It doesn’t separate management from work, as most companies do.”
- The impressive growth and reliability scores have been attributed to its unique management style, called Toyota Production System (TPS), which released employees from the traditional ‘command and control’ approach to management and instead armed each employee with the skills and ability to solve problems as and when they arose. This was the basis of ‘kaizen’ – the process of continuous improvement.
- In advance of these strategic goals in 2007, Toyota overtook General Motors (GM) to become market leader and although for only one quarter, it was the first time GM had slipped into second place. In 2008, Toyota further consolidated its lead when it made 9.2 million cars, to respond to a growing customer base that was impressed by the reliability and safety of the products. In the same time, GM (General Motors) produced 8.3 million cars, clearly reflecting Toyota’s hold of the market.
- From the humble beginnings of a family owned machine-powered loom business, Sakichi Toyoda went on to build what is now the world’s biggest car maker; Toyota. With a reputation for innovation and reliability, the Toyota brand has consistently increased its customer base to become the market leader.
- Toyota: A crisis in waiting?*
- 2007, US: Floor mats in 55,000 Camry and Lexus cars were recalled
- 2009, US: Floor mat recall increased to 4.2m vehicles
- 2010, US: 2.3m cars recalled due to accelerator pedal problems
- 2010, US: 1.1m additional Toyotas in floor mat recall
- 2010, Europe: 1.8m Toyotas in pedal recall
- 2010, Japan, US: 200 brake fault reports in new Prius. None recalledThe first stage large scale recall, of over 4.2 million cars in the US was due to unsecured floor mats, which could cause accelerator pedals to stick as they slid forward in the drivers’ foot well. The company advised customers to remove the mats, place them in their boot and make sure that they weren’t replaced. At the same time the NHTSA (National Highway Traffic Safety Administration) in the US had recorded a total of 100 incidents, involving 17 crashes and five deaths related to Toyota vehicles and were raising questions in the press about the quality of Toyota vehicles. However, it was only following one particularly high profile product fault that a crisis began to emerge. The case involved an off-duty Californian policeman and three members of his family who were killed when their Lexus E350 crashed in the San Diego area. Before the crash, one of the passengers called 911 to report that the accelerator was stuck and the car had reached 120 miles per hour (193km per hour) (http://www.youtube.com/watch?v=eMEytyS_4KY). Within hours the recorded message was broadcast via social media and the broadcast media and public awareness and criticisms became extensive.In a statement, US Toyota spokesman Irv Miller, offered no reason or solution for the problem, or even and insight into the extent of the problem commenting that “Obviously the tragic accident in San Diego was certainly an eye opener for all of us and we’ve paid very, very diligent attention to moving forward to try to make sure none of us will be reliving that kind of very tragic situation”.
- The day after the crash, one of the Toyota US executives, Robert S.Carter, tried to downplay the situation saying that the mats were the only safety issue, and denied questions posed by the NHTSA, who claimed there was more to the problem, given that other investigations and accidents had taken place. (Tabuchi and Vlasic, 2010).
- Then, in January 2010, just as Toyota were trying to emerge from criticisms about product quality, a number of car accidents were reported with a more serious problem – that of sticking accelerator pedals, even with the floor mats removed. Toyota announced a further recall of 4.4 million cars globally, including 2.2 million in the US and 1.5 million in Europe. Company spokesman Brian Lyons said the move was due to the vehicles’ pedal mechanism becoming worn and, in some cases, getting stuck. (http://www.guardian.co.uk/business/interactive/2010/feb/09/prius-braking-system-graphic).
- (See Appendix A for full details)
US Transportation Secretary Ray LaHood warned: ‘Stop driving it. Take it to a Toyota dealer because they believe they have a fix for it.’ The words were quickly adapted by the Daily Mail and The Times, who on 4th February ran the headline ‘Don’t drive your Toyota!’. Although Mr LaHood later branded his outspoken words a ‘mis-statement’ but it was too late to stop the effects spreading around the world. The lack of information coming out of Toyota meant that journalists were copying from each other without checking with the Toyota company, leading to more customer confusion as cars not mentioned as part of the recall were being mentioned as faulty in the UK press.
Media speculation continued and on Friday 5th February a hastily-arranged press conference was given in Nagoya, Japan (the headquarters of Toyota in Japan), which was the first time Toyoda had commented on the company’s situation.
“The customer comes first,” Toyoda insisted, “and I must apologise to all our customers,” but he left the details of what they were doing to his vice-president and refused to answer all the questions posed by the media. He also failed to specify the exact fault with the brakes – simply assuring customers it was safe, as long as they pushed the pedal a bit harder! He tried to reassure stakeholders of the product with a promise that if the company felt a recall was necessary, that customers would be contacted. This left customers feeling concerned that perhaps they should be contacted to have their cars recalled and it was simply a matter of waiting. The media began asking questions and lambasting the company for not letting customers know the whole truth. In February Tokyo spokeswoman Ririko Takeuchi said: “We’re trying to be proactive. Even if the information doesn’t rise to the level of a recall, we are taking this step to restore the company’s credibility. They might be minor problems but drivers may need this information.” caused even more confusion amongst customers over which cars were due to be recalled.
In the UK a day later Toyota UK Managing Director Miguel Fonseca gave radio and TV interviews straight off a flight from Japan but focused on technical details which did not offer listeners and therefore customers, the reassurance they needed.
Meanwhile, Mr Toyoda began to understand the emerging corporate crisis by announcing “Let me assure everyone that we will redouble our commitment to quality as a lifeline of our company … With myself taking the lead, and by keeping to the ‘genchi genbutsu’ principle – [which means to go and see for yourself and find out about the problem] – all of us at Toyota will tackle the issue in close co-operation with dealers and with suppliers together.”
Mr Toyoda said he was not claiming that Toyota was infallible and never makes mistakes, but “…when we do make omissions or mistakes, we always make repairs, correct matters and replace the faulty parts, as we have done in the past and will continue to do with confidence in the future”.
“The first thing we have to do is to recall these cars, have them repaired or modified and ensure customers that the car that they have, that they own, is totally OK,” explained Etienne Plas, spokesman for Toyota Europe. “Then in a second step, of course, we will have to work further on rebuilding the trust and the confidence of the customers in our brand.” Madslien (2010)
Confronted with negative press coverage, Toyota initially reacted defensively, denying the claims and ignoring responsibility. The company seemed to believe the press coverage was an exaggeration of the truth and did not think the faults would significantly impact on the company. However, in terms of customer relations, communication was limited, inconsistent and unclear, leaving customers unsure as to the extent or seriousness of the problem. For example, the first customer recall letter sent to Toyota customers stated that anyone who “experiences any issues with their accelerator pedal” should contact their dealership. This relied on customers making their own judgements about whether or not their car was safe.
Public criticism was threatening the very core of the Toyota brand. John Wormald of Autopolis, the automotive consultancy, said: “People don’t buy Toyotas for sexy design or great performance. They buy because they won’t let them down. If that is now in question, it takes away one of the main reasons for purchasing a Toyota. In the UK, Toyota’s PR chief Scott Brownlee called in the marketing team to help focus on counteracting the negative coverage on social media and correcting adverse online chat. (Murphy, 2010)
Professional commentators started to become aware of the emerging crisis and the impact this might have. “The wave of media and government attention will not subside quickly, with lasting damage now looking unavoidable,” Paul Newton, an analyst with HIS Global Insight, told Reuters. “The effects in the coming months will depend on how quickly Toyota can get a fix into production,” he added. “The longer-term effects from lost sales to younger buyers could be much more serious, however.”
On 9th February 2010, Mr Toyoda gave a second news conference, offering a deeper bow, conveying sincerity and contrition aimed at stemming the increasing criticism from the US, where Congressional hearings were about to begin to investigate whether or not his company knew about the potential faults and had not reacted quickly enough. Initially he had declined to attend the hearings but this was retracted a few days later following a public outcry that he was not taking the recalls seriously.
The news continued to get worse. The negative media coverage continued unabated, particularly in the US, where most of the problem cars were exported so the Japanese customers and media were largely removed from the news stories. Then the Toyota crisis finally hit home when slipping brakes on the environmentally-friendly Prius led to over 223,000 vehicles being recalled in Japan– the very cars that the Japanese government subsidised. (http://www.guardian.co.uk/business/audio/2010/feb/10/toyota-car-recall-hybrid
Finally, on 23th February the reclusive, publicity-shy CEO was forced to appear a US Congressional hearing to investigate the car faults on behalf of the US Government. http://www.youtube.com/watch?v=O6tXq6YF8SQ
The hearing demanded to see a memo sent to the previous CEO Katsuaki Watanabe in October 2006 from Toyota employees who were concerned about cost reduction methods, poor management and working conditions which might lead to safety issues for the vehicles. Toyoda apologised for the recall of the cars saying he was “deeply sorry” for accidents and injuries involving its cars. He said Toyota had lost its way during a period of fast growth but vowed to steer it back to the values that made it a watchword for quality.
The statement was given at the start of his US Congress appearance before Toyoda went on to face questions over the firm’s handling of the crisis and whether he knew of the product faults but failed to act earlier. http://news.bbc.co.uk/1/hi/business/8535573.stm (approximately 10 minute video clip).
Adding fuel to the media fire, an internal memo was leaked to the press showing that the carmaker’s executives boasted of saving £65m through a limited recall of floor mats connected to the accelerator problem in September 2009. The memo showed Toyota had slashed costs by persuading US regulators to agree to an “equipment recall” to fix defective floor mats in about 55,000 Camry and Lexus ES350 models rather than a full product recall.
The Congressional hearings were hostile, with evidence from families who had been injured or lost loved ones as a result of the faulty cars.
Shortly after the hearings, the company announced the suspension of sales of eight of its most popular US models. “This action is necessary until a remedy is finalised,” it explained “Toyota has and will continue to thoroughly investigate and take appropriate measures to address any defect trends that are identified.” This was a separate, additional issue to the problem of loose floor mats, where cars were still being recalled. (http://www.youtube.com/watch?v=49gj9OcJ-p0)
To respond to media speculation in the US and to quell customers concerns, Jim Lentz (Toyota’s President of US sales) appeared on the Today Show, but in the eyes of the media this was too little action, too late. (Philips, 2010)
Jessica Caldwell at Edmunds.com said: “In this highly competitive market, no automaker, not even Toyota, can afford to stop selling its cars and trucks for long, but perhaps Toyota is banking on the idea that customers will appreciate the priority of their safety in this decision.”
Toyota shares fell 4.3% on Japan’s Nikkei index after the announcement, to reflect concerns over the long term impact and costs of the recall, estimated at 177.5bn yen (£1.3bn).
In early March 2010, Toyoda transmitted a live conference across Toyota’s domestic dealership network and in front its 2,000 workers at its Nagoya headquarters where he called on the company to “cast aside” the company’s past successes and review the “value of existence”, in other words, not taking for granted its reputation and looking at how it could be restored. (http://www.youtube.com/watch?v=CoQyUO4ymC4&feature=relmfu)
And where would a good crisis be without getting political? Suggestions have been made in the White House that all Japanese car imports should be banned until the problems with Toyota’s models had been fixed.
Japan’s transport minister Seiji Maehara showed concern that the Toyota crisis could become the start of a bigger trade row; “Each country needs to consider how to prevent this from becoming a diplomatic problem” he said adding that Toyota’s tarnished image could damage both the reputation of other Japanese companies and products abroad. He publicly criticised Toyoda, stating that the response was too late and with too little information, particularly in relation to the problems with the firm’s flagship Prius models. It is difficult to say whether Mr Maehara has himself, in making such statements, made the recalls a diplomatic issue, or whether his involvement could help to calm the waters. With over 7 per cent of Japans’ GDP attributed to car manufacturing (not including all the components suppliers), there is considerable concern in the country about the long term impact of this fiasco.
“We’re not talking about the pure recall-related business situation here,” says Koji Endo, managing director of Advanced Research Japan, “We’re probably talking about something else, and that’s not necessarily friendly political consideration against Toyota,” (Madslien, 2010)
Meanwhile, Kazutaka Oshima, president of Rakuten Investment Management, seems convinced the US authorities are using Toyota’s problems to bolster support in the US for US carmakers General Motors (GM), Ford and Chrysler. Both GM and Ford took advantage of Toyota’s crisis by offering additional $1,000 (£640) discounts for Toyota or Lexus drivers who buy one of their cars.
While Toyota may have damaged their quality reputation, their rivals also know that any insistence that they themselves are immune from problems could backfire. Indeed, many other manufacturers had experienced similar large scale product recalls including:
- Ford carried out a 14 million vehicle recall in October 2009, for a potentially faulty cruise control deactivation switch.
- GM recalled some 850,000 vehicles in August 2008, with potentially faulty windshield wiper systems.
- Chrysler recalled some 575,000 vehicles in December 2007, with potential gear problems.
Evidence that the crisis has damaged product sales came in March 2010 when it was announced that Toyota’s sales in Europe slipped 20 percent from February 2010 to the same time a year ago, to EU car makers’ sales figures. The company sold 42,234 cars in the 27-nation bloc in February 2010, down from 53,233 for the same month a year ago. This contrasted with a 3 percent sales increase for the whole European Union car market,
According to PR Week’s Reputation Survey (26/02/2010) out of 3,000 respondents, 41% would be put off buying a Toyota car in the future, 40% said their confidence in Toyota had been dented by the car maker’s problems and 40% believed that Toyota had handled the situation well (Sudhaman, 2010), so the indications were that the corporate reputation had been damaged. Launching their new Influence Based Tracking Model, TNS Global reported that as a result of Toyotas’ troubles 50% of consumers have a less favourable opinion of the company than they did three months previously, and of that 90 percent claimed that they were influenced by all the negative press the company has received (PR Newswire, 2010).
The lack of contrition and openness on behalf of the CEO and other senior Toyota staff from around the world were identified as fuelling the media circus. The global communications teams were criticised over the shortage of information, which was later attributed in part be due to Toyota’s corporate culture, reflecting a Japanese approach of secrecy, especially when it concerns bad news
Since the crisis, Toyota has set up a new office in Japan to improve information disclosure and co-ordinate communication between consumers, suppliers, dealers, shareholders, media and Government. It has also launched a branded channel on TweetMeme called ‘Toyota Conversations’ to promote transparency and help repair and improve its image. The site includes news stories, tweets and videos about Toyota. A recent campaign, Ideas for Good, was launched to engage the public to invent ways to use and apply Toyota’s technology to help ‘make the world a better place’. Clearly the aim is to connect with Toyota consumers.
In December 2010 Toyota paid $10m to the family of the Californian state trooper and three relatives whose fatal car crash led to the wide-ranging product recalls. It also paid a fine of $16.4 million and a further $32.4m in fines to settle the investigation to the US Government. (Reuters, 2010)
Yet, a year later and Toyota remains the market leader, selling 8.82m vehicles globally (in 2010) compared to its biggest competitor General Motors Co at 8.39m vehicles, although they were the only car manufacturer to see a sales drop in North America of around 2% on 2009. Its biggest growth markets were its home country Japan with 10% sales increase, China 19% increase and other Asian countries with 24% growth. (Associated Press, 2011)
January 2009: Toyota says it will recall 1.3m vehicles worldwide because of seatbelt and exhaust system problems.
May 2009: Toyota reports the worst results in its history as it struggles with the global economic crisis.
August 2009: Toyota recalls almost 690,000 cars made in China because of faulty window switches – its biggest recall in the country.
September 2009: Toyota announces the biggest recall in its history over fears involving almost 4m vehicles in the US that accelerator pedals could become trapped in floormats and “may result in very high vehicle speeds and make it difficult to stop the vehicle, which could cause a crash, serious injury or death”.
21 January 2010: Toyota says it will recall around 2.3m vehicles in the US to fix potentially faulty accelerator pedals. The action comes on top of the ongoing recall of some 4.2m vehicles over “pedal entrapment” risks.
26 January 2010: Toyota says it is suspending US sales and halting North American production of eight models involved in accelerator pedal recall, including the country’s best-selling Camry.
28 January 2010: Toyota says it will widen the net to include Europe – potentially involving Britain – and China in its recall scheme. US congressional investigators launch probe into accelerator problems.
US Congressional investigators request information from Toyota and US safety regulators on the recall ahead of a hearing on 25 February.
29 January 2010: Toyota says recalls in Europe could reach 1.8m vehicles and affects eight models including Yaris and Auris.
1 February 2010: It emerges that Toyota drivers will have to wait at least three weeks before finding out if they own one of the estimated quarter of a million cars in the UK suspected of having “sticking” accelerator pedals.
2 February 2010: Toyota’s executive in charge of quality control, Shinichi Sasaki, says the “unprecedented” operation is likely to have a bigger effect on sales than previous recalls and had already hit sales in January.
3 February 2010: Toyota owners in the UK and US are advised by lawyers to stop driving their cars immediately amid growing concern over the potentially lethal accelerator fault.
A new defect is reported in Toyota’s Prius hybrid model that could result in yet another recall. US authorities say they are investigating 100 complaints, with Prius owners reporting momentary loss of braking ability at low speeds on bumpy roads.
Toyota in the UK says it has sent details of the 180,865 affected UK vehicles to the DVLA and is working with the DVLA to identify and contact owners “as quickly as possible”. It tells affected drivers that a 30-minute repair will be carried out at Toyota-approved service centres.
4 February 2010: Toyota admits it will suffer $2bn (£1.26bn) in extra costs as a result of the global safety recall affecting millions of cars.
The Japanese government urges Toyota to look into 77 reported cases of braking problems among new Prius models sold in Japan.
5 February 2010: It emerges Toyota treated the accelerator fault as a quality issue rather than a safety issue when it first became aware of the problem in the winter of 2008/09. It failed to inform the UK’s Vehicle and Operator Services Agency (Vosa), which registers recalls on cars, about the fault until 22 January 2010, after the government demanded information.
Toyota’s president, Akio Toyoda, finally emerges to apologise for the sticky accelerator problem. “We are in the midst of a big crisis and face big challenges ahead,” Toyoda says.
9 February 2010: Toyota confirms a global recall of all third-generation Prius cars manufactured before 27 January 2010. It affects 8,500 cars in the UK, where the latest Prius model went on sale last August.
“This recall will consist of a software upgrade in the anti-lock braking system. In the meantime, the cars are safe to drive. At no time are drivers without brakes,” Toyota GB insists.
17 February: Toyota announces it will install a brake-override system in all future models worldwide. It is considering a recall of the Corolla because of possible power-steering problems. The US government demands that Toyota hand over documents to show whether it acted promptly with the safety issues in its cars. Toyoda says he will not attend congressional hearings.
19 February: Akio Toyoda bows to US pressure and agrees to appear before a congressional hearing into the crisis. The company also confirms it will suspend production at its plant in Burnaston, Derbyshire, for two weeks.
22 February: Leaked emails show that Toyota staff boasted about how they had saved the company $100m by persuading American regulators that they did not need to implement a full recall over problems with its floor mats.
23 February: Toyota faces the prospect of criminal charges after a US grand jury issues a subpoena, demanding more evidence relating to the recalls. And a man jailed after crashing his Toyota, killing three people, demands a retrial – and relatives of the victims say they support him.
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