Toyota Problem Isn't Millions In Recall, It's That No. 3 In Loyalty

Last Updated Jan 22, 2010 10:27 AM EST

Despite a lot of damaging press coverage, barely concealed joy within Detroit, and the big numbers in the latest Toyota (TM) recall, I have a hard time believing that Toyota's reputation for quote-unquote "bulletproof" quality will disappear overnight.

However, I do think Toyota has a longer-term worry on its hands, which the latest recall will probably make worse: for the last couple of years, Toyota had already started to slip from its position as No. 1 in customer loyalty.

Toyota was No. 3 and Lexus was No. 4 in the 2009 J.D. Power and Associates Customer Retention Study last month. That's not bad, but before 2008, it looked as if Toyota and its Lexus luxury division had a lock on No. 1 and No. 2 in customer loyalty.

The Toyota announcement yesterday, Jan. 21, that it will recall 2.3 million Toyota brand vehicles to correct sticking accelerator pedals, won't help.

Within the auto industry, "unintended acceleration" is a loaded term, connected with the Audi brand. Audi was nearly put out of business in the United States in the mid-1980s by accusations of unintended acceleration even though the claims turned out to be false. The takeaway in the industry was that Audi got punished, not so much for the facts, but for the unfeeling way its executives initially responded.

Later, in the early 1990s, Lexus wrote the book on how to turn a recall from a problem into a downright advantage. When the Lexus Division encountered its first recall, it bent over backwards to coddle Lexus customers and make it up to them. This time, that Toyota magic seems to have failed them, probably because the recall numbers are so much bigger than the relative handful of Lexus cars that were subject to the first Lexus recall.

Before yesterday's announcement, Toyota was already recalling 4.2 million Toyota and Lexus vehicles to replace the floormats, which were seen as a potential threat to catch the gas pedal. All told, about 4.8 million Toyota and Lexus vehicles are subject to one or the other recall, or both.

"As a company with a reputation for steadiness, these must be uncomfortable days for Toyota," said James Bell, executive market analyst with Kelley Blue Book.

The immediate discomfort will pass, but the lasting impression is getting to be a problem.

Chart: J.D. Power and Associates