Toyota's Fall From Grace
Thursday, February 18, 2010
In December, Davis Brand Capital announced the 2009 Davis Brand Capital 25 ranking. Toyota ranked #8 overall and was the top-ranking automaker. Since the release, Toyota has issued a series of historic recalls, and the brand has suffered a precipitous fall from grace. So far, the recalls affect more than eight million vehicles worldwide, with Toyota considering still more for its best-selling Corolla. And recall-related malfunctions have caused an estimated 34 deaths since 2000 in the U.S. alone, according to government data released this week. Beyond the direct financial, legal and ethical implications of the recalls themselves, Toyota faces a crisis of consumer confidence comparable to the Tylenol cyanide murders or the Ford Explorer/Firestone fiasco. Rebuilding consumer trust will require much more than a public relations war room and marketing blitz. Toyota faces a fundamental brand challenge that extends deep into its culture, its operations and its core meaning. As the story unfolds and an embattled Toyota hunkers down for the onslaught, important lessons from the crisis are already coming to light.
Sneakiness and Retaliation Backfire
There is much debate regarding exactly who at Toyota knew what and when. But it's fair to say Toyota has been less than forthcoming with consumers and the news media. For example, the company didn't make a critical service bulletin readily available to reporters, and it took advantage of the nation's distraction on Super Bowl Sunday, announcing the Prius recall during the big game. Even a series of public apologies from Toyota President Akio Toyoda has been overshadowed by his decision soon after not to testify before Congress.
A Wall Street Journal article citing an alleged "culture of secrecy," and Toyota's reported resistance to consumer complaints, have made a bad situation worse for the auto giant. To top things off, the NHTSA may fine the automaker for intentionally delaying the recall and endangering consumers, which will only further outrage the car-buying public.
More recently, Toyota demonstrated its tone-deaf hubris by pulling advertising from ABC for the network's "excessive" coverage of the recall. Throwing its weight around in retaliation for negative editorial coverage certainly doesn't look good for Toyota. While it's true many consumers may never get wind of these types of maneuvers, the brand is only providing ammunition to its detractors.
Quality is Precarious Positioning
Toyota boasts decades of industry accolades for quality and reliability. Most recently, it took top honors in Consumer Reports' 2010 Car Brand Perception Survey. Yet while car aficionados have long respected Toyota for its legendary reliability, they have consistently criticized it for its lack of...well, everything else. Beyond the reliability of its engineering and longevity of its vehicles, there simply isn't much personality to the brand. After all, it doesn't get more vanilla than the crowd-pleasing, appliance-like Camry.
Following the recalls, the singular, defining concept for the Toyota brand has been sullied by the fallout. If Toyota had something else to hang its hat on, the recalls' impact would likely be softened. Consumers may be more willing to forgive the brand if its meaning wasn't wholly tied to quality. Rather, in one fell swoop, everything consumers thought Toyota meant has evaporated.
In past eras, quality and reliability within the auto market were true points of differentiation. Today, however, quality is a price of entry. True, some automakers still struggle with quality problems. But by in large, quality is closer to parity than it was in past decades. Brands like Ford, as well as South Korean manufacturers Hyundai and Kia, have made tremendous strides in quality and reliability. With this crisis, Toyota's competitors may jump the bar it has spent decades raising for the entire industry. If that happens, what will the Toyota brand mean to consumers?
Culture May Guide, but Operations Must Follow
Brand emanates from an organization's culture and operations. Academics have studied and praised Toyota's corporate culture, which is embodied in what the company calls "The Toyota Way." This culture of "continuous improvement" has undeniably helped drive the brand's success. But somewhere between culture and operations, something went horribly wrong.
The first principle of "The Toyota Way" is "Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals." Toyota's organizational behavior surrounding the recall suggests this guiding principle was overlooked. Even recent PR blunders, such as its pulling ad dollars in retaliation for negative reporting, suggest this principle was ignored.
Given that Toyota had at least some knowledge of issues related to the current recalls as early as early as 2006, the company also failed to adhere to its second principle: "Create a continuous process flow to bring problems to the surface." Toyota certainly did not "Build a culture of stopping to fix problems, to get quality right the first time." And this week Toyoda himself conceded that the company, fueled by easy financing, broke a basic rule of the Toyota Production System: "Build only as many cars as can match demand."
The list of discrepancies between what Toyota preaches and practices goes on an on. Its easy to rub the brand's nose in it as it's making such a mess in front of everyone. But the fact that Toyota so clearly and transparently defines its culture points to its tremendous potential to overcome the current crisis. With colossal failures the focus of attention, it is easy to forget what Toyota has accomplished over the decades. The operational issues that led to the recall are arguably due to growing pains from the brand's own success. Increased production to keep pace with growing global market share stretched Toyota's managerial talent too thin, and it failed to adhere to its own cultural principles. So realigning culture and operations is an essential first step. What's the second?
Gird the Young
Scion and Prius, while still fledgling brands, are already success stories for Toyota, and should be the focus as Toyota recovers. The company has built tribe-like followings of loyal consumers for both. Scion's quirky designs, youthful personality and tuner-culture cache give it a hipness that Toyota desperately lacks, while Prius has emerged as the badge of honor for the environmentally conscious set. Each brand stands for something beyond its associations with the parent brand and has throngs of loyal followers.
While Toyota's first instinct has been to dedicate as many resources as possible to polishing its tarnished corporate brand, as evidenced by Toyoda's apology and the company's feel good "Restoring Your Faith" spot, these efforts could be counterproductive. Many of Toyota's most important customers will actively reject both the message and the genre. For the younger generations, these slick, corporate image plays are merely fodder for spoof ads or brand parodies. And for the anti-corporate zealots in the Prius crowd, these attempts may come across as disingenuous. Jokes are already mounting up, and typical PR crisis management may only exacerbate the problem. Worse, these efforts do little to move the brand from a quality position to something ownable and meaningful to customers. As the dust settles and Toyota looks to the future, it should focus energy and resources on nurturing these young brands and building momentum behind the upcoming model launches, for Scion and Prius. Each has the potential to help bolster its parent as Toyota works to rebuild its image and reputation.
If past performance is any indication, Toyota will right itself. It has a history of learning from its mistakes and the example of others. When the company started stateside production in the early 80s, its corporate culture and Japanese-style management didn't translate well with the U.S. workers. Through a partnership with GM, it learned how to effectively manage and motivate U.S. workers while staying true to Toyota's company culture.
Toyota is a dynamic global brand, and it will rebound from the severe but temporary setback of its recall woes if it returns to its core principles and builds on its younger, meaningful models. Some consumers are likely to never trust the brand again, but its most loyal customers will be quicker to forgive, even if they don't forget. Toyota will keep "Moving Forward" - but at a slower, more deliberate pace, no doubt.