Can Toyota recover from the crisis running its faulty cars off the road?

Published on Saturday 6 February 2010 15:44

ON A good day at Toyota's sprawling, modern UK headquarters on Surrey's leafy Epsom Downs, it is possible to enjoy views of London and the distinctive curved arch astride the new Wembley stadium.

But the UK division of the Japanese car giant has enjoyed few good days of late – and not just because of the wintry weather. Over the past 11 days, the business has found itself at the eye of a storm which began in America but which has quickly engulfed Europe and shows no signs of relenting.

Last month, Toyota's US division was embroiled in a disastrous recall of more than two million vehicles and faces allegations about causing 19 road deaths due to a sticky accelerator pedal problem with a range of cars.

On the command of Roy Lahood, US secretary of transportation, Toyota was forced to do something as reports linked the manufacturer to accidents and fatalities that had been trickling in for months.

It was rumoured that Irv Miller, group vice-president of environmental and public affairs for Toyota in North America, had been due to retire this year to enjoy life at his home on the idyllic Palos Verdes Estates, one of southern California's most expensive neighbourhoods. But those plans now seem a distant dream as he was promptly deployed to manage the crisis.

In Miller's 30 years working with Toyota, 2009 was one of the roughest and 2010 is shaping up to be even worse. Last autumn, he had to oversee the communications for the first Toyota recall after a high-end Lexus model sped out of control resulting in a fatal accident. In October, the group blamed problems on the accelerator sticking to the floor mats – which meant recalling 3.8 million cars to have the mats replaced, the biggest recall in the company's history. But it soon emerged that it wasn't the mats; the pedals had to be reshaped and there was a second recall in November.

By January, executives at Toyota's US headquarters were praying that the third recall, of more then five million cars, would put an end to whispers about accelerator problems that were continuing to trouble the brand.

At the turn of the year, the problem was largely limited to the US. But by the end of the month it had spread to Europe and Toyota was forced to confirm that the accelerator problem also affected models sold on this side of the Atlantic.

After watching their American colleagues struggle to contain the crisis, the UK division had to play catch up as it was announced on 27 January that as many as 1.8 million cars would need to be recalled in Europe. Sources within the building in Epsom admit they were taken by surprise.

"Normally in the event of a recall we would be aware it would be happening and we would be writing to the owners who were affected and we would know how many were affected and we would have the necessary parts," a source in the UK division said. "We had to play catch up here."

To make matters worse, Miguel Fonseca, the Portugal-born head of Toyota UK, was not even in the UK, but in Japan.

Scott Brownlee, a Scot who studied mechanical engineering at Strathclyde University and who heads the UK press office, went into action. A phone number was created for concerned Toyota owners to call and Jon Williams, the UK's commercial director made a reassuring video to be broadcast to customers on its website and on YouTube.

But the delays caused consternation and analysts fear it may have caused long-term damage to the Toyota brand. "It is very difficult for the guy running the UK PR, Scott Brownlee," said one crisis PR expert. "He is on the end of a very long chain and that is a problem for him."

Once it was clear Europe was affected, the Japanese head office got involved. In Toyota City on the outskirts of Nagoya, Shinichi Sasaki, a Toyota director in charge of quality control, bowed deeply – a traditional gesture of contrition – but not deeply enough for some commentators. He announced that the firm had devised a solution to the problem and a new car part was ready to be shipped out.

The executive vice-president admitted the fiasco may have cost Toyota up to $2bn (1.25bn) for parts and the resulting dent in sales. "The sales forecast is something that we're extremely worried about," Sasaki said.

But the biggest question among analysts was: where was Akio Toyoda? The chairman and grandson of Toyota Motor Company's founder had seemingly left his minions to take the furore on the chin.

At about the same time, a Japanese news service doorstepped Toyoda in Switzerland where he was attending the Davos forum. It took more than a week after Sasaki's admission for Toyoda to face a press conference. On Friday at noon – 8pm in Japan – he delivered a perfunctory two minute statement where he bowed low and expressed "sincere regret".

Only in place at the helm of the group since June, Toyoda was thought to be in the process of turning around the group in the wake of his predecessor, Katsuaki Watanabe. It was Watanabe, a cost-cutting economics graduate, who had overseen the firm's rapid growth as it overtook General Motors as the world's largest car manufacturer. But it was this expansion that may have cost Toyota's long-held claim to safety and quality, say analysts.

From Nagoya, the fault was put down to an electronic sensor in the accelerator mechanism. Faulty pedals for the Toyota Aygo, iQ, Yaris, Auris, Corolla, Verso and Avensis were made by contractor CTS in Indiana – all of which were subject to the recall whether the cars had experienced faults or not. It also turned out the same contractor made pedals for Citroen and Peugeot. At CTS's plant in Blantyre, which supplies the Toyota plant in Burnaston, Derby, where the Auris and Avensis models are made, Kenny Hall, the UK group finance director, kept quiet and referred all calls to Indiana.

Problems got worse for Toyota last week when the US transportation department opened an investigation into brake problems in the 2010 Toyota Prius. The firm's flagship eco car had not been affected by the accelerator problem, and although Toyota acknowledged some problems with the brakes, they had insisted it had been fixed. But with 20,000 complaints in the US, a recall was expected. On Friday, Toyoda stopped short of announcing a recall of Prius but many expect a turnaround – which would only worsen the crisis for Toyota.

Criticism has centred around the slow and insufficient response to the emerging crisis by Toyota. The textbook case of how to overcome a recall crisis was the Tylenol tampering scandal in the 1980s. After seven people died as a result of cyanide poisoning after taking Extra-Strength Tylenol, Johnson & Johnson took immediate action to recall 31 million bottles. Praised for its quick response and its public insistence on the safety of its customers, J&J saw sales of Tylenol, one of the US's leading brands of pain killers, recover.

At stake is Toyota's long established brand which analysts and brand experts say is undoubtedly threatened by the pounding they have taken in the US, its largest market.

"The only reason to buy a Toyota, at least if you are American or European, is reliability," according to one brand analyst. "If they are faulty, and dangerously so, one of the brand's key selling points is damaged, thereby holing the brand below the waterline."

Nor is it certain if Toyota will make a full recovery. Graham Hales, managing director of Interband UK, argues the scale of the disaster and the huge media coverage means Toyota needs to pull out all the stops to regain its status as a safe, reliable brand. "They are doing the right things but the scale of this makes it a particularly difficult problem," says Hales.

"The $2bn they will lose out of this is $2bn that could be invested in so many other things to grow the brand. It is a massive setback, but the company still has a scale and infrastructure that means if it resolves the issue well, it may gradually erode from people's minds. You need to offer proof points why it will never happen again. And you need some game changing innovation up your sleeve that corrects the impression. But there has never been a more difficult time to deliver against that," he admits.

"It is a really difficult time to be doing this. The automobile sector has been really hit hard by the recession. It is a real nightmare," he added.

Following a meeting on Thursday with Toyota's UK dealer council – made up of representatives of the firm's dealer network – dealerships have been gearing up to install small metal platelets in the offending accelerators. Although there had been no reported incidents of sticky pedals causing accidents in the UK, a Toyota spokesman said they expected over 167,000 Toyota owners to take advantage of the new part.

In Scotland Arnold Clark, one of the biggest dealers of Toyota in Scotland, said it was meeting Toyota representatives this week. The dealership is preparing for thousands of cars to be booked in for repairs when parts arrive on Tuesday.

Arnold Clark, the firm's chairman, said he "commends Toyota for their prompt recall".

Brand bombshells

In 1982, US drug giant Johnson & Johnson recalled millions of bottles of its analgesic Tylenol after some bottles were found to have been laced with a poison, potassium cyanide, resulting in the death of seven people in Chicago. The company saw its market share collapse but it recovered within a year after its handling of the crisis was widely praised. As a result tamper-proof packaging is now common on all pharmaceutical products.

&#149 In 1997, the new Mercedes A class failed the "elk test" avoidance manoeuvre, which resulted in it being withdrawn from sale and sent back to the factory for modification. A device called an ESP (electronic stability programme) was fitted and the A Class went on to become a top seller.

&#149 In 2006, Cadbury spent 30 million removing one million chocolate bars from shelves after 30 consumers fell ill, and three ended up in hospital. Cadbury was fined 1 million after it tried to downplay a salmonella outbreak at one of its factories.

&#149 In 2007, toy maker Mattel recalled 436,000 Chinese-made toy cars found to contain toxic levels of lead. A further 18 million toys were recalled because they contained magnets that could harm children if swallowed. Mattel stopped deliveries from China and began inspections of every toy while its chief executive undertook an endless round of media interviews to explain the situation. The reputational damage may have stuck with the Chinese suppliers rather than Mattel.