Category Archives: Reputation Risk

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After Record Fine, Toyota Extends Car Discounts. But Will It Continue to Drive Sales?

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toyota recalls

For risk managers and others looking at the Toyota recalls as an ongoing lesson in corporate crisis response, seeing the daily headlines about the automaker’s woes is — both figuratively and literally — like watching a car crash.

Sure, in some ways, Toyota has handled the situation adequately, and its rebounding stock price and recent sales suggest that the immediate damage could have been worse. Then again, the company dragged its feet in addressing safety concerns publicly, and all the fines, recalls, class-action lawsuits, Congressional hearings and public scorn suggest that the long-term reputational damage could very well be lasting. This isn’t something that consumers will ever forget.

Especially not now.

Because on Monday, the National Highway Traffic Safety Administration hit Toyota with a record $16.4 million fine, which is more than an order of magnitude larger than the watchdog’s previous highest penalty, a $1 million slap on the wrist to GM for faulty windshield wipers. The $16.4 million figure is also the largest allowed under civil law, according to NHTSA.

Said Transportation Secretary Ray LaHood:

“We now have proof that Toyota failed to live up to its legal obligations,” said Secretary LaHood. “Worse yet, they knowingly hid a dangerous defect for months from U.S. officials and did not take action to protect millions of drivers and their families. For those reasons, we are seeking the maximum penalty possible under current laws.”

On Forbes.com, Ned Douthat advises Toyota to just pay the fine rather than try to fight the regulator’s decision.

Now, Toyota is faced with the choice of contesting the fine in court or simply paying the fine in order to get the episode behind in.  In comparison to the potentially lengthy and expensive legal battle, the nominal $16.4 million fine may be an attractive option.  However, in paying the fine the prestige of the Toyota brand may be forever damaged, as they would be admitting fault in hiding a very serious safety issue in their vehicles and thus endangering millions of drivers.  The number of incidences of stuck accelerators is still relatively small, but the recalls have affected some 8.5 million vehicles.  Furthermore, if Toyota admits fault and accepts this fine, it may open the litigation flood gates to hundreds of class action and personal injury lawsuits related to the stuck accelerator issue.

Amanda Bronstod of Law.com delves deeper into the idea that accepting the fine as handed down will be troublesome for Toyota, as it factually “validates the legitimacy of our allegations that Toyota has been misleading the federal government and consumers.”

With that damned-if-you-do, damned-if-you-don’t decision looming, Toyota also announced on Tuesday that it would extend its sales discount program. The program was successful in March and finally gave the company some positive headlines, but at least one industry expert seems skeptical that even this price-cutting measure will continue to push vehicles under the once-impeccable-but-now-tainted Toyota banner.

Last month’s incentive program helped Toyota “scoop up bargain hunters and loyalists” to achieve a 41% gain in sales over March 2009, said James Bell, an analyst with auto information company Kelley Blue Book.

But the increase was not as robust as it might seem, as results were tempered by the low sales in the same month a year earlier, he said.

“The question now is how many of those bargain hunters and loyalists are left. You have a finite number of people in the auto market at any one time,” Bell said.

Historically, Toyota has been among the stingiest automakers when offering incentives, helped by its historically high resale values and a reputation for building reliable cars, he said.

Last week at the International Auto Show, a Toyota rep spoke on the situation, specifically noting his thoughts that “people don’t buy a car they don’t trust just because you give them a good price.”

We’ll see, I guess.

For more on the risk management angle of the Toyota troubles, check out our past coverage. Morgan also covered “Toyota’s Total Recall” in the April issue of Risk Management.

State Farm Partners with Indie Rockers for Rube Goldberg-Styled Marketing in “This Too Shall Pass”

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State Farm has been branching out into nontraditional avenues to promote its products, services and brands for a while now — but never as extravagantly as its collaboration with the indie rock group OK Go.

The band, which hails from Chicago, gained internet fame in 2006 when its foray into treadmill choreography for the video of the song “Here It Goes Again” created a YouTube viral sensation. And when State Farm, which has been active on social media sites including Twitter, Facebook, Flickr and Youtube, saw an opportunity to help the band create its next viral vision, it jumped at the chance.

The result is a four-minute, Rube Goldberg journey through a warehouse, during which TVs are smashed, umbrellas are launched, dominoes fall and paint goes everywhere. Even if the song “This Too Shall Pass” wasn’t any good — which it is — the video would still be captivating to almost any audience. And by keeping its presence minimal and not obtrusively over-involving its brand in the production, the insurance company has helped create something that people will legitimately want to see. All of this helps increase its reputation, particularly among the younger, hipper audience who will most enjoy the video.

I had actually seen “This Too Shall Pass” twice before reading about the insurer’s involvement and didn’t even realize State Farm had anything to do with it. As you may or may not notice on your own, the red truck at the beginning that starts the dominoes and a State Farm logo after the video ends are the only evidence that the company was ever involved.

In the near-term, that may seem to trivialize State Farm’s reputational benefits. But as more and more people notice — and talk about — its involvement in a cool project, the brand becomes a little cooler. And it will likely become see as an innovative company that other creative types will want to partner with.

Essentially, rather than being a stuffy insurance company that awkwardly tries to convince people it is cool, State Farm is just sitting back and underwriting a project done by some guys who already are cool. And since underwriting is its specialty, that just makes sense.

Let’s face it, most insurance companies aren’t going to become hip on their own.

Check it out below. (video via Insurance Marketing HQ)

Toyota’s Woes Continue

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Another week and the fallout continues to spread from Toyota’s recall controversy.

In Minnesota, a man imprisoned for vehicular homicide in a fatal Toyota crash sought a new trial, claiming that, in light of the unintended acceleration recalls, he was wrongly convicted for a mechanical malfunction that wasn’t his fault. A prisoner in Portland, Oregon has made similar claims in what is sure to be new trend in courts around the country.

Meanwhile, lawyers have begun to jockey for position in what is assumed to be a lucrative, and perhaps historic, class action lawsuit for all involved (J.P. Morgan recently put the total recall price tag for Toyota at $5.5 billion), internal company documents revealed that Toyota was aware of the unintended acceleration problem in 2002, when Camry owners began to complain about the issue.

The technical service bulletin went to every U.S. Toyota dealership in late August 2002 after some customers reported their vehicles were speeding up unexpectedly.

“Some 2002 model year Camry vehicles may exhibit a surging during light throttle input at speeds between 38-42 mph,” the bulletin states. “The Engine Control Module (ECM) calibration has been revised to correct this condition.”

Since the National Highway Traffic Safety Administration (NHTSA) was apparently aware of the issue as well, some critics, including Clarence Ditlow, the head of the nonprofit Center for Auto Safety, have suggested that both Toyota and the NHTSA are guilty of a coverup.

“The government is really hiding this information from the consumer,” Ditlow told CNN. “They’re in a conspiracy with the auto industry to keep these out of the public’s sight.”

Some analysts have questioned the seriousness of this document, however. Matt Hardigree of the automotive blog Jalopnik wrote that the CNN article may be misleading.

[The document] just shows there was a problem with electronics on one year of the Camry, which Toyota identified and repaired. The engine affected, the 1MZ-FE, isn’t even offered in the Camry anymore. The change to a new platform and new engine lineup would have drastically changed the ECM between the sixth-gen Camry and the current seventh-generation 2007-2010 Camry. Claiming the 2002 TSB [technical service bulletin] is related to Toyota’s current sudden unintended acceleration problems is sort of like claiming a screen recall on an iPhone is related to a recall on a first-generation iPod click-wheel.

While lawyers to try to figure what what Toyota knew and when, the recall problems continue to plague the automaker’s business and have been blamed for plant shutdowns in France and the UK. In February, Toyota’s sales in the European Union fell 20% as compared to the same time last year, despite the fact that overall auto sales in the EU were up 3%.

Finally (for now), Toyota was also forced to respond to owner complaints that recalled cars were still experiencing acceleration problems after they had been repaired by dealers. The company pledged to replace the pedals free of charge at the owner’s request. The operative phrase being “at the owner’s request”  as an internal memo cautioned dealers “not to solicit pedal replacement.”

As the crisis at Toyota rages on, stay tuned to the Monitor for the latest news and updates.

Runaway Toyota a Hoax?

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On March 8, San Diego-resident Jim Sikes was driving his 2008 Toyota Prius on a Southern California freeway when he claimed it began to speed out of control. According to Sikes, his attempts to slow the car failed and after reaching speeds in excess of 90 mph, he was only able to stop the runaway car with the assistance of a highway patrolman.

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At first glance, the incident seemed like yet another symptom of Toyota’s unintended acceleration woes that have led to the recall of millions of vehicles since late last year (and will be covered in more depth in our upcoming April issue).

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But when a subsequent examination of the vehicle by Toyota and federal government investigators failed to duplicate the problem, it called the accuracy of Sikes’ account into question. Toyota found the car’s gas, brake, and safety override to be in working order and that Sikes had rapidly pressed the gas and brake pedals back and forth 250 times (the maximum amount of data that the diagnostic system could collect). This may have caused the brakes to overheat and since Sikes did not press the brakes hard enough, the brake override system did not engage.

Fox News reported that Sikes has had a history of financial problems, which has led some to suggest that his report may have been a hoax. Toyota spokesperson Mike Michels would not say outright that Sikes had fabricated his story, however.

“We have no opinion on his account, what he’s been saying, other than the scenario is not consistent with the technical findings.”

Toyota’s investigation of the Sikes incident seems to indicate a shift in their response to the acceleration issue from one of contrition to a more aggressive defense of the safety of the vehicles. As they continue to investigate the source of the problem (could it be cosmic rays?), it is apparent that they are now willing to fight for their brand. Hopefully for their business and, more importantly, for Toyota drivers, their rediscovered focus is not a case of too little, too late.

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