Can Toyota Avoid Brand Disaster?

In the early 80s, Audi was an upcoming luxury auto brand in the U.S. A "sudden acceleration" recall linked to six deaths and 700 accidents put a stop to that. Within five years, Audi sales plunged 83 percent, and it would take 15 years for the brand to claw its way back to pre-recall sales levels.

The parallels to Toyota's current accelerator pedal crisis, which includes a halt in production of 8 models and a recall over 5 million vehicles, are obvious. But the potential damage of a so-called "lost generation" to the Toyota brand is enormous and on a scale far greater than any brand crisis in modern times. In addition to Audi, three other modern brand crises come to mind:

• Ford Explorer / Firestone tire recall (1999). Although the problem gestated for some time, when the companies finally executed the recall, they launched ad campaigns using top executives as spokespeople.
• Perrier benzene contamination (1990). Although the product was recalled within a week, an initial communications vacuum followed by confusion and inconsistent messaging among worldwide subsidiaries prolonged the crisis.
• Johnson & Johnson's Tylenol tampering (1982). Probably the most effective crisis management on record, J&J quickly pulled the product from store shelves and issued a nation-wide campaign to warn consumers.

1. Toyota is the top selling U.S. auto brand with a whopping 17 percent marketshare. Moreover, it has built its brand on quality. In fact, the massive recall has forced Toyota to pull its first-ever national "Portfolio" campaign that, ironically, promotes its cars' "dependability," "safety" and "reliability," according to the Wall Street Journal. It was planning to use the open media time to push the Prius brand, but now that its top-selling hybrid is experiencing brake problems, it may have to rethink that strategy.
2. The one-two punch of the accelerator problem and now, the Prius's brake problems, makes it almost impossible for consumers to view this as a "one off" problem. It will therefore be perceived as a systemic issue, a blow to a brand whose value is based largely on "quality."
3. Toyota has apparently known about the accelerator problem since 2007. And in a Bloomberg report, Henry Waxman, chairman of the U.S. House of Representatives' Energy and Commerce Committee, said that sudden acceleration of Toyota vehicles has been linked to 19 deaths in the last decade. It certainly appears that the company has reacted slowly to the problem - not a good thing in terms of crisis management.
4. Already reeling from the effects of the economic crisis, Toyota last year announced a record $4.6 billion operating loss on revenues of $263 billion. Its U.S. stock is already down over 20 percent in just two and a half weeks - a loss of over $30 billion in market cap. The financial impact of a brand meltdown, at this juncture, would be enormous.

"You can't restore image or reputation overnight," said Audi spokesman Juergen de Graeve in an interview. "We're talking about a process here that was stretching over many years. Even if it were found out later that the claims were unjustified, the damage was already done."

"I don't think Toyota will recover from this," said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler. "They used to have an edge thanks to quality, but surely that's been irrevocably shattered now. The impact of this catastrophe on their pricing power and sales will be enormous."

• Also check out the follow-up story: At the Heart of What's Ailing Toyota