Back in 1982, Johnson & Johnson faced a corporate crisis that can “brand” a company in more ways that one. The Tylenol brand of pain reliever had been poisoned with cyanide that had resulted in seven deaths. The way in which a company handles such a crisis can sometimes determine its destiny, and in the case of J&J they handled it perfectly.
Fast-forward to today, and the car making giant Toyota faces a somewhat similar corporate crisis. While not the victim of a deadly criminal act, the brand, image and reputation of this industry leader is in jeopardy. How they handle it will determine the amount of market share they retain, and whether they can grow that share going forward.
The Toyota Product Recall
In the fall Toyota had recalled about four million cars due to a problem with the floor mats causing the gas pedal to stick, potentially resulting in sudden, unexpected acceleration. They have since recalled 2.3 million more vehicles due to a similar problem of the gas pedal potentially sticking when it becomes worn down, again causing sudden and unexpected acceleration. Toyota has shutdown production facilities for eight models as a result.
A product recall such as this typically involves the company notifying the owners, who would then bring the vehicle in for a day, maybe two while the fix is implemented. This is done at the expense of the company. In this case the situation is different, because Toyota issued the recall before a fix or solution had been determined which is an indication that the problem is severe. The company has said that the cars can still be driven, and that they can be driven “safely”. They have also issued instructions on how to handle the car in the event the gas pedal does stick.
Now as a driver of a Lexus, this is not a particularly comforting solution while I wait for the real fix. I drive in traffic and performing abortive maneuvers is not in the cards. For parents, do you risk taking your kids and other people’s kids in the carpool? What do you do for transportation in the meantime? Rent a car? Borrow a car? Take the train? At whose expense as lease or bank loan payments continue to be due?
With General Motors and Ford moving in on its customers, Toyota faces the potential for a slide that will continue until it can somehow rectify the gas pedal problem, and more importantly retain current customers and lure new ones. It will be an expensive and lengthy process, and will someday be a Harvard Business School case study on managing or mismanaging a crisis.
The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com