Think a recall is cheap? Think again.
Toyota Prius one of many Toyota/Lexus models being recalled.
Companies hate recalls. Even recalls that go well, such as the Tylenol recall of the early 1980s, still cost money in inventory, distribution, PR, and of course legal costs. While the Tylenol recall was handled simply by letting consumers know that they should throw away their bottles of aspirin, Toyota’s recent recall of vehicles first in America, then in Europe, cannot simply be handled through a press release.
Instead, Toyota actually has a greater battle. First, engineers must diagnose the problem with their cars, first said to be poorly designed carpets, and now a problem with the electronic throttle control. The truth may be that the company does not fully understand the source of the problem as the LA Time’s recently wrote in interviewing California Congressman Henry Waxman.
Toyota has contended that a slight modification to the accelerator design, including adding a small metal plate to the mechanical sensor in the accelerator should fix the problem. The automaker advises consumers to get the problem fixed, to hold down the start-stop button for three seconds and/or shift the car into neutral. So critical and misunderstood, however, is the procedure to cut power to the car during operation that the company is considering redesigning the start-stop button. The LA Times, who has been covering the Toyota recall extensively (Toyota USA is based in Torrance, California), reports that the company may be changing the button to turn the car off with three-taps of the button in future models. Of course, you might argue, why bother with this potentially costly change, and the response would be to put yourself in the shoes of someone who is driving in a car that has accelerated out of control. Do you really want to wait three seconds to turn off the engine? Certainly not.
Meanwhile, Toyota’s sales and marketing people have a massive challenge awaiting them. When you consider just how much of Toyota’s marketing dollars have been poured into conceptualizing the Lexus/Toyota brands as safe and reliable. Further, the company will have trouble maintaining residual vehicle values. This affects owners of Toyota products as well Toyota Financial Services, which bases lease values on projected end of term residual values. The LA Times further reports that Toyota should be able to regain faith in customers “with direct marketing, more TV commercials and a message that it has solved its safety problems and made its vehicles better than ever”. That analysis is probably right on, but rebuilding a broken brand takes time. As an example, Audi was falsely accused of selling the 5000 series with a faulty accelerator in the early 1980s. The brand took nearly two decades to recover, and until current leadership took over, the brand was largely seen as a non-threat to the likes of BMW and Mercedes-Benz.
No doubt Toyota will be spending US$2billion in the USA alone to fix the problem, but even then you have to tally the marketing and PR costs. Then there are the lawsuits. Even a company with a formerly bulletproof reputation as Toyota had is not immune from the litigious society that is America. Another LA Times article polled legal experts and litigators as to the likely outcome of the pending and future cases in court. The consensus seems to be a US$1-2.2billion dollar legal bill. Most of the lawsuits will involve compensation for lost residual values, but a few will involve compensation for injuries and even deaths resulting from the problems. Worst-case scenario would have to be the infamous Ford decision, which resulted in a US$125million verdict against the company (later reduced to US$6.6million). Add all of this to an already tricky economic climate characterized by soft vehicle sales (some auto research web sites are already projecting a 33% decline in interest for Toyota vehicles), and the company could be seeing some red in its future financial forecasts.
When all is said and done Toyota has no one to blame but themselves. Whether the cause for these problems is grounded in cost-cutting, poor management, or failure of government/consumers to assure safety in the car, the people responsible will long be forgotten but the incident of the police officer and his family who were killed, possibly as a result of this problem will most likely not be forgotten.