- Form a Company Now!+
- Compare Prices+
- Learning Center+
- HBS Blog+
- Make Payments+
If corporate crises were a game, the Toyota safety recall would be a Superbowl contender.
Toyota Motors is a company that heavily promotes its engineering innovation, production quality and service reliability. In a haymaker blow to Toyota’s reputation, the company suspended production and sales of eight of its most popular models -- including America’s (previously) best-selling car, the Camry. And now Toyota is recalling millions of already-sold cars worldwide to fix a potentially life-threatening problem: unintended acceleration.
(Disclosure: I have a personal stake in this story: I own a second-generation Toyota Prius.)
This week Toyota began shipping parts to dealers across the country to correct an accelerator problem that could lead to cases of disastrous unintended acceleration. The Toyota problem is so serious the automaker stopped production and sales on eight of its top-selling models -- including the Camry, the best-selling car in the U.S. The scope of the problem is staggering: I’ve seen stories on the web sites of European, Japanese, South African, Canadian and Israeli newspapers. Toyotas sold in China have also been implicated.
I always judge a company’s handling of a crisis by what I call the Tylenol Standard. Back in 1982, Extra-Strength Tylenol capsules were the best-selling over-the-counter pain reliever in the United States. Then, seven people in the Chicago area died; they had all been taking the drug. J & J jumped into action with an approach that is taught in business schools to this day. The company suspended all production of Tylenol immediately. It recalled the 31 million bottles of Tylenol then on store shelves, destroying all the medication that was returned. It launched a rigorous inspection of all its manufacturing facilities. And, Johnson & Johnson made top officials readily available to the media where their story was: “We don’t know how this happened. We will find out and correct it. Meanwhile, do not use any of our products that you have at home; return them immediately, and report any adverse effects from our medication that you have already taken.”
The company’s response was fast, comforting and took a page from the Harry Truman adage: “The buck stops here.”
As it turned out, the buck did not stop at Johnson & Johnson. The Tylenol deaths were murders, not the result of accidental contamination. Someone had tampered with some Extra-Strength Tylenol boxes in drug stores around Chicago. The killer opened the packaging and the bottles, inserted potassium cyanide into the capsules and then resealed everything and put the product back on the shelves. Police and FBI theorized the killer had a specific target in mind but killed others in order to make his intended victim look like a random casualty in a series of accidental poisonings-by-contamination. (The case remains unsolved to this day, possibly because the intended victim never took the contaminated drug.)
Within a year, Extra-Strength Tylenol had regained its position as the country’s top-selling pain killer. Unfortunately, the Toyota brass must have cut class in business school the day they taught the 1982 Tylenol lesson.
Toyota was late to the table with an admission that there was, indeed, a problem and slow with information to the media (and through the media to the millions of Toyota owners worldwide). This sowed the seeds of confusion and resulted in a serious erosion of trust in the company.
Toyota’s worldwide president, Akio Toyoda, grandson of the company’s founder, made no statements to the media and no apologies to customers until a crew from NHK, the Japanese TV network cornered him at the World Economic Summit in Davos the last week of January. This reclusive behavior despite the fact that the issue has gained massive media attention since last August when an off-duty California Highway Patrol officer and three family members burned to death after crashing a runaway Lexus they had borrowed from a dealer in San Diego. The company’s U.S. president, Jim Lentz, was also noticeably absent from the media until February 1, when it was time to announce the fix. Then he began a media blitz explaining the problem and the repair, a belated attempt to restore Toyota’s battered image.
But wait, there’s more, as the infomercials say. If you look at the list of cars being recalled for the accelerator fix (below) you’ll notice that the Lexus in which Highway Patrol officer Mark Saylor died -- a 2009 ES -- is not on it. That’s because those cars -- and many other Toyota-made cars, including my Prius -- were subject to an earlier recall, back in November, 2009. In that recall, the Lexus accelerator pedals were shortened so they could not be trapped under the floor mat -- the ostensible cause of Officer Saylor’s accident. (For the Prius, I was just told to remove the mat -- which I had already done. It still sits in my trunk awaiting the promised “permanent fix.”
But at the same time as the mat matter was being handled, Toyota was aware that for six years both the company and the National Highway Traffic Safety Administration has been looking into multiple cases of unintended acceleration and that the mats were unlikely culprits in all of them. In its autumn response, Toyota tried to sweep the more basic accelerator problem under the floor mat problem. In fact, in November, Toyota put out a press release misrepresenting the NHTSA’s conclusions about the floor mats and had to issue another press release correcting the first one. But neither press release acknowledged that unintended acceleration might have been caused by anything other than misplaced or mismatched floor mats.
So there were two problems and initially Toyota tried to conflate the simpler problem (the mats) with the more serious problem (the accelerator mechanism). The mat recall affected 3.8 million vehicles and despite the fact that NHTSA told Toyota that mat removal was at best an interim solution, no long-term solutions has been reached for many of those recalled cars. The faulty accelerator affects 4.6 million vehicles, some of which were previously involved in the mat recall (with the attendant danger that owners who addressed the mat problem will now think the entire problem solved.)
Here is a list of the cars in the current Toyota recall.
• 2009-2010 RAV4
• 2009-2010 Corolla
• 2009-2010 Matrix
• 2005-2010 Avalon
• 2007-2010 Camry
• 2010 Highlander
• 2007-2010 Tundra
• 2008-2010 Sequoia
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.