Can Toyota Repair the Damage?

Can the embattled Toyota Motor Corporation rescue its tarnished image? In the throes of one recall of more than 4 million vehicles for defective floor mats that cause jammed gas pedals and an additional recall of 2.3 million vehicles for sticking gas pedals unrelated to floor mats, the leading automaker has drawn criticism from the National Highway Traffic Safety Administration (NHTSA) and a shake of the finger from Ray LaHood, U.S. secretary of transportation. The defects have been linked to several fatalities, but Toyota has yet to admit negligence, or even laxity, initially describing the most recently reported, and unrelated, defect — a braking delay in 2010 Prius hybrids — as a software glitch that is not dangerous enough to warrant a massive recall of the world’s bestselling hybrid. According to reports from unnamed sources, Toyota is expected to reverse that stance sometime this week and issue a limited recall of at least 311,000 of the 2010 Prius models.

Even before the last week in January, when Toyota was forced to suspend sales of some models, including its popular Lexus line, company sales had fallen 16 percent from the previous year, while Ford, General Motors, Nissan, and Hyundai sales improved.

To get a sense of Toyota’s corporate challenges and what it all means to the consumer, BU Today spoke with Louis E. Lataif (SMG’61, Hon.’90), Allen Questrom Professor and Dean of BU’s School of Management, and a former president of Ford of Europe.

BU Today: Will Toyota recover?
Lataif: I think it can. If the root problem goes away, they’ll recover quickly. For example, consider the 1982 case of seven deaths that resulted when someone added poison to Tylenol capsules on store shelves. Johnson & Johnson recalled all Tylenol even though the poisonings were concentrated in one area (and rereleased the product with tamper-proof packaging). It was a wonderful way to preserve the Tylenol name. Toyota has stopped production of the models associated with the recall, and all new models. If this is the correct mechanical solution, they’ll bounce back very quickly. But the problem with the Prius brakes only digs the ditch a bit deeper for Toyota. Now it’s not just a one-off problem of accelerator pedals; it’s a matter of Toyota making cars with problems. That could be the takeaway.

In the case of the tainted Tylenol, Johnson & Johnson was blameless, but some have charged that Toyota was aware of the problem long before the recall.
I think Toyota and its manufacturers do their best. NHTSA — whose leader is so critical of Toyota — completed eight inquiries of reports of acceleration problems in Toyota models, and all those reports were opened and closed with the conclusion that there was no pattern. Every day there are thousands of reports about possible defects in all makes of vehicles, and the automaker must decide if it’s systemic. Is that exhaust smell inside the car a systemic problem? Or could it be just one bad car? Toyota finally concluded the floor mats were getting caught in the accelerator pedals, so they recalled the floor mats. Then there were reports of problems in car with no floor mats. Reports like these come every day; they could be the result of driver error. If so, it doesn’t require you to go and recall four million cars.

How much effort do you think Toyota’s management is devoting to finding out exactly what went wrong, and when?
There would be a lot of root cause studies and discussions of what it was about the design. These problems aren’t mechanical anymore; you’re just feeding electronic signals. I’m sure the engineers are doing a very deep dive to see what can be done about the problems. Since 15,000 components go into an automobile, a lot can go wrong. And when they test these cars, they overheat them, they overcool them, they crash them, they subject them to rollovers. The prototype vehicle withstands a lot of stress and abuse and there are a lot of checks and balances. If they find someone along the way who saw a potential problem and winked, heads are going to roll. I do think it’s unlikely, but it’s not impossible. Humans make mistakes.

Toyota says it won’t recall the Prius, despite admitting a delay in the brake pedal’s response on uneven road surfaces. Might it reverse that decision, if only for good public relations?
If the politics get so noisy that Toyota has to do something different, it may decide on a partial or total recall of the Prius model with the quirky braking, which, by the way, is explained in the Prius manual — it warns drivers to press the brake pedal longer on uneven surfaces. There’s a company procedure to follow on recall decisions. But if the press is harping on Toyota, it may recall those cars.

What else should Toyota do to win back the loyalty and goodwill of its customers?
There are full-page ads, open letters to Toyota customers, which is a good effort. I think in a month or so you’ll see a pretty aggressive ad campaign that presents the recalls as one glitch in their otherwise long record of success. The ads will stick to the ribs: this is a good company with a good reputation.

If Toyota continues to falter, which rival automaker stands to gain the most?
If there isn’t a fix at Toyota, they’ll have a big problem. In Japan, Honda may take over Toyota sales, and it may take sales here. And people may reconsider and retry American cars. Ford is winning all kinds of awards for its Fiesta Van and Transit models, and the company reported a profit last quarter. There could be some faction of Toyota people who will give the domestics a nod. Maybe it’s a window for them, and the market might turn around in Ford’s favor.

Can Toyota withstand this burden financially? How much are dealerships suffering now?
It will cost Toyota an estimated billion dollars to get these recalled cars back to consumers. It will eat the cost, and can afford to. If Toyota’s brand reputation survives and consumers come back in a month, there will be makeup sales. The dealers will hurt in the short term, but they are getting income from all those warranty and recall repairs. But if this isn’t the final problem with Toyotas, the dealers are in trouble.

The Toyota recall is reminiscent of Ford’s troubles with the Pinto sedan, whose gas tank reportedly exploded if the car was rear-ended. How did Ford weather that?
Well, of course Ford was tainted from that. The Pinto had become a late-night comedy joke, so the model was eliminated. Soon after, the Escort came out, and that was a very popular car.

Susan Seligson can be reached at sueselig@bu.edu.