Toyota: Deer Caught in the Headlights—the High Cost of Doing Nothing.

I’m sorry about what is happening to Toyota. I drove a Camry for a couple of years and it worked just fine. And I have friends working in Toyota marketing. But right now, Toyota seems to be doing just about everything wrong.

1] The company and the world was on two weeks-notice that something was very wrong with the gas pedal. The company shut down manufacturing and stopped selling cars on dealers’ lots—but it had virtually nothing to say to the public and press about what was going on.

In such a crisis, the first priority has to be to analyze the problem and come up with a solution. But ofttimes, as in pharmaceutical or food tampering cases, this process can take weeks or months.

Toyota at first refused to talk to the world. That’s a shame because there were a lot of Toyota owners out there who were scared to take their cars out of the garage.

If the car has a bug, you have to explain that to the public –- right away—and try to fix the bug. Toyota could have said a lot more beginning in early January on what was going on –- and what theories they were testing, if nothing more than to boost its credibility. Instead in late January it simply announced it was recalling 2.3 million cars—leaving everyone with all kinds of questions. To wit:

[a] Why were the Toyotas built in the U.S. (and Europe) experiencing the gas pedal freeze – but not the ones in Japan? It turns out that some genius decided to change the specs on the gas pedal assembly from metal to plastic. I thought the Toyotas in the U.S. were exact copies of Japanese cars. Though Toyota still won’t admit the U.S.-made cars are inferior, common sense tells you otherwise.

[b] Why did it take Toyota so long to wake up to the fact it had a problem? The National Traffic Highway Safety Administration (NHTSA) has been investigating reports of sticking pedals and floor mat interference since March 2007. [Source Automotive News, 2/1/10]. Toyota should have fashioned some kind of apology for being late to the realization that its gas pedals were subject to sudden acceleration—even though I’m sure its lawyers told the company not to talk about that.

[c] There was lots of talk about floor mat interference—something Toyota in its unfortunate wisdom calls “entrapment.” But in August 2009 a family of four was killed in a runaway Lexus ES 350 driven by an off-duty California highway patrolman. All the floor mats were found in the trunk. So Toyota has known for at least four months it wasn’t the floor mats.

[2] This week the company decided to recall all affected cars and install a metal shim next to the gas pedal to give it more tension. OK, after you’ve diagnosed the problem and begun your fix, how does your communication strategy change? You have to get someone very senior to make the proper explanations. Here, Toyota did a pretty good job, introducing on Monday, Toyota Motors North American president Jim Lenz to make some weasily apologies for their poor engineering, then to promise fixes. That must have been hard for Lenz to do—but at least he got out there on the TV news shows.

Then I think, after they get the new cars and trucks on the dealers’ lots cleaned up, Toyota should do something over-the-top wonderful to re-open the sales spigot: dropping prices 20% + for the next six months would be a start. When PR had finished its initial push to reestablish communications and build credibility, and sales had begun to climb, you can turn your attention to advertising.

[3] Advertising—put it on hold at least for four or five months. Obviously advertising people know how to make a brand shine—but if they tried anything right now the company would be a laughing-stock. And don’t expect miracles. It took Audi decades to wash away the sour taste people felt with their perception that the company had a similar sudden acceleration crisis in the ‘80s.

[4] How much will putting in the new pedal assemblies, settling lawsuits, etc. cost? We’re talking a recall in the U.S. of 2.3 million cars. Automotive News says Toyota’s weeklong shutdown could cost Toyota $450 million in lost sales. They think fixing floor mats and pedals could cost another $450 million. So let’s round that up to $1 billion. Then I would plan on starting an intensive ad campaign that starts around May and keep it going for the rest of the year—at a cost of roughly $400 million. Toyota already has a U.S. advertising and promotion budget of almost $1 billion, so the extra spending could easily fit present budgets. But the other extra $1 billion the company will lose this year will force the company to show an operating loss for 2010. And they will be lucky if it’s only $1 billion.

The long-term costs, of course, are incalculable. Toyota needs to get outside help and get this right. It’s kind of like Tylenol. If you do everything right you can save the brand, but it might take five to 10 years for the public to forget. Meanwhile, in order to draw on the reservoir of goodwill built up over the years, Toyota must take care to tell the truth and be as open as it can. Some say the problem is not mechanical but electrical. Should that prove to be the case someone more senior than Lenz is going to have to fall on his sword.

“Ultimately Toyota stands for quality, and this is the antithesis of quality,” Chris Richter, an analyst for CLSA Asia-Pacific Markets in Tokyo, told Automotive News. “They still have a lot of public good will. But at the end of the day, the customer’s patience is not infinite. I’m less worried about the impact on earnings and more concerned about their brand reputation.”