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.