Toyota's accelerator recall crisis

Toyota Recall

Summary

This report provides an overview of the Toyota accelerator recall crisis, from a crisis management perspective. The framework used by Heller and Darling (2012) will be used to analyze the crisis, and in particular Toyota’s handling of the crisis, during the critical stages of pre-crisis, acute crisis, chronic crisis and crisis resolution.

At each step along the way, Toyota management made mistakes. They had a chance first to avert the crisis. After years of inaction, the crisis occurred. However, it was still in the acute stage, and here Toyota failed to follow best practices in crisis management. The lack of transparency and culpability on the part of Toyota management only exacerbated the crisis, allowing it to bloom into a full-fledged chronic crisis. Even here, the company’s management performed poorly.

It took Toyota years to recover from the crisis, and it only did so once it got past the crisis resolution point. In this case, the fine and long-belated mea culpa were the point at which the resolution occurred, years after the crisis began. Toyota has had its brand permanently damaged from the effects of the crisis, reflecting that even during the crisis resolution stage, the company made critical errors. The result is that what was a preventable crisis turned into a catastrophic one, in terms of brand reputation and brand value, for Toyota.

Introduction

On August 28, 2009, an accident occurs with an off-duty California police officer, as the Lexus he was driving suddenly accelerated, hit another car, careened off the road and burst into flames, killing all four people in the car (Motor Trend, 2010). Toyota, makers of Lexus, issued a recall in October regarding floor mats that it blamed for the issue, and only in January did it recall 2.3 million vehicles specifically for issues with the gas pedal, and subsequently another 2 million vehicles in Europe. What unfolded in the months between that crash and the January recalls was a public relations disaster for the company, one that would eventually cost it a $1.2 billion fine, so say nothing of reputation and market share loss (Ross, et al, 2014).

Wasserman (2014) reports that the company would later admit that it lied about the issue, twice. Toyota officials first made misleading statements to consumers, wherein they blamed the issue on the installation of a particular type of floor mat – and issued a recall pertaining to floor mats. The second instance was that Toyota officials lied to Congress when asked to appear and explain the company’s handling of the case.

Crisis Management

Crises occur frequently in business, and how a company handles a crisis is not necessarily a negative thing. As Heller and Darling (2012) rightly point out, if Toyota had undertaken the best practices approach to handling this particular crisis, it could actually have earned itself some goodwill among consumers and regulators for its transparency and accountability. Mistakes sometimes occur, especially with complex products like automobiles. Even when those mistakes prove tragic, effective handling of the crisis provides an opportunity for the company to showcase how it values its customers. Toyota, in attempting to sweep this particular crisis under the rug, ended up having more consumers killed in preventable accidents, something that highlighted a clear lack of concern for its customers, and lying to regulators only compounded the public relations disaster for the company.

Heller and Darling (2012) break out four stages of crisis management as their framework with which to analyze the Toyota acceleration crisis. The first stage is the pre-crisis stage. At this point, the issue is known to management, but is not yet a publicly known crisis. There were issues dating back to 2001 with Toyota and Lexus models, based on a fourfold increase in consumer complaints regarding a new electronic throttle control feature (AutoSafety.org, 2014). The relevant regulatory body in the US, the NHTSA, conducted multiple investigations into the complaints, but did not order a recall from Toyota. Nor did Toyota issue a recall voluntarily. The Center for Auto Safety (2014) attributes this both to weaknesses in the NHTSA regulatory framework, and to Toyota specifically exploiting those weaknesses to avoid recalls.

Thus, during the pre-crisis stage, Toyota had several opportunities to manage this situation, so that it never reached the crisis stage. In particular, when the technology was new, Toyota had the ability to issue a recall to handle the defect, but refused to do so. From a public relations perspective, a new feature is known by consumers to be more likely to have issues, and thus that would have been the perfect time to address the problem, because the market would have been entirely forgiving of the company having to recall a new technology because of a previously unknown safety issue. The fact that Toyota’s pre-crisis window was eight years long and it did nothing positive to handle the problem is one of the reasons this particular crisis became so infamous (Heller & Darling, 2012).

Crisis Stage: Acute Crisis

An acute crisis is one where there is a singular incident. The acute nature of the crisis means that when the crisis has been resolved, the matter is in the past. This differs from a chronic crisis situation, where the crisis is ongoing in nature, and in all likelihood more difficult to address. An acute crisis situation may also be difficult, but with a singular triggering incident it might be dealt with very quickly with just one or two key actions. At the acute crisis stage, Toyota has the ability to deflect the crisis. It would still be a crisis, but maybe not of the type that ends up being taught in public relations classes in universities.

The acute stage was following the accident in California. At that point, Ledingham and Bruning (2000) provide insight into crisis management as a form of relationship management. Automobile buyers often have loyalty to either brands or at least the type of car. This is particularly true of luxury brand buyers – so Lexus buyers more so than Toyota buyers. Toyota management, in seeking to blame the mats, and thus failing to take responsibility for the acceleration problem, ultimately was lying to its customers, and in doing so putting those customers’ lives at risk. On both fronts, this is a bad strategy.

The relationship that automobile owners have with their cars is one that a savvy automaker can milk for decades. For example, today’s 20-something buying a Corolla might be a Lexus buyer 20 or 30 years down the road. Or a minivan buyer before that. The value of an automaker’s brand is therefore important, and the brand’s value derives in part of its ability to foster and nurture relationships with its consumers. Interbrand, in its study of the most valuable brands, noted that the value of Toyota’s brand declined 8% in 2009, declined a further 16% in 2010, and did not rebound until the company paid the fine and put the entire acceleration problem behind it. Had Toyota’s management addressed this problem during the acute crisis stage, it would have reduced the decline in brand value both in monetary terms and in terms of time – it could have recovered brand value by late 2010, instead of by 2014.

Crisis Stage: Chronic Crisis

By the time the crisis has escalated to the chronic stage, the crisis is unfolding on multiple fronts over a much larger period of time. Toyota’s inaction during the pre-crisis and acute crisis stages resulted in a situation that dragged out over the course of years. Not only did the brand not recover its value until 2014, but the incident is still being taught, keeping it in people’s memories. Any time Toyota faces a recall or public relations disaster, the news story will mention the 2009 acceleration issue, supporting a narrative that Toyota has issues where consumer safety and public relations are concerned.

At the chronic crisis stage, the company has to take several steps. First, it has to handle the acute elements of the crisis. But then, it needs to embark on a complex, multiple stage repair of the damage that it has done to its reputation. This involves not just public relations, but usually marketing, organizational culture change and new leadership voices. The public relations component of this is not just a short-term thing, either, but rather a long-tailed campaign to change the prevailing narrative about the company. All told, this can be much more challenging than management of an acute crisis.

Crisis Resolution

The final stage of the crisis framework is the crisis resolution stage. At this stage, what matters is how the crisis is brought to resolution. During the acute stage of this crisis, regulators in the US publicly admonished Toyota and called out the company for lying about the accelerator problem. This was catastrophic to the company’s reputation. After the acute stage passed, Toyota faced further humiliation and degradation of its brand when it was found guilty and fined $1.2 billion for its action. This fine brought the crisis to a resolution. The best way to bring a crisis to a resolution is, obviously, not by getting fined, publicly shamed by regulators and the performance of a full mea culpa by the leadership of the company.

The ideal situation is that the company controls the narrative of the crisis resolution. The reason that controlling the narrative is especially critical at the resolution stage is that is where the lingering impacts of the crisis are defined. Had Toyota effectively controlled the narrative during this stage, this would not be a landmark case of terrible public relations, to be endlessly cited, nor would it be a permanent stain on the company’s public record.