Toyota's Image Problems: A BNET Autos Debate

Last Updated Jan 27, 2010 12:52 PM EST

BNET Autos' two Jims, Henry and Motavalli, decided to debate the issues presented by Toyota's striking decision Tuesday to halt production next week on eight popular models, representing 57 percent of production. The sudden acceleration issue has been growing, and Toyota's initial efforts to contain it failed. Now, the company needs to handle it carefully to preserve its long-established reputation for quality.

Jim Motavalli: The key point here, Jim, is that Toyota doesn't have a ready solution to its burgeoning sudden acceleration crisis. It blamed the problems separately on "pedal entrapment"--floor mats fouling the gas pedal--and sticky pedal assemblies. It's trying to re-engineer the pedal assemblies now, but there's no answer immediately at hand. Toyota firmly discounts that throttle-by-wire systems are at fault, but it may have to further investigate that theory--which is advanced by attorneys representing sudden acceleration victims. I think that, ultimately, consumers will think Toyota is doing the right thing by issuing a "stop sale" order, which it has only very infrequently in the past. There's no doubt that this is a huge blow to Toyota's sterling reputation, but the company can contain the damage if it acts quickly and comes up with a comprehensive fix. But it won't be easy.

Jim Henry: I wrote last week that, in effect, that automotive brands carry an awful lot of inertia, and they don't change overnight. People still carp about Jaguar in particular and British cars in general, even though those notorious quality problems have been fixed. The bad news is that so-called "British quality" got fixed by the near-extinction of the British auto industry, and the fact that foreign companies took over, like BMW buying Mini and Rolls-Royce, and VW buying Bentley.

Jim Motavalli: One of the big reasons British companies such as Triumph and MG died was their failure to even go through the motions in showing concern for their customers' plight. Addressing quality concerns was not at the top of their agenda, and it cost them heavily.

Jim Henry: As recently as last week, I was less worried about Toyota's immediate problem with the recall, and more worried about a slower but more worrisome trend from their point of view, namely that Toyota brand loyalty is eroding. I might add that the Toyota brand owner demographics are getting pretty gray--that's why Toyota created the Scion brand, not that it's done them much good. With the production halt, the recall situation becomes a lot more serious in terms of the short-term effect on earnings and the potential long-term effect on brand image.

Jim Motavalli: Note that the recall involves both the bestselling Camry and Corolla, which sold 650,000 in the U.S. last year.

Jim Henry: I keep thinking back to an interview I did with (then-Toyota President and COO) Jim Press in 2007. It was shortly before he jumped ship and joined Chrysler (as vice chairman), but nobody knew that at the time. I was struck at the time how Press kept coming back to Toyota's "growing pains," that there was a lot of concern internally that the company had grown too big, too fast. This was also about the time that there was a lot of coverage about whether Toyota had passed General Motors as No. 1 in the world. You have to wonder whether the current situation at Toyota has a root cause back in those go-go days.

Everybody keep talking about "biggest recall scandal since Tylenol," and Tylenol is still around and apparently prospering.

Jim Motavalli: I think the Tylenol parallel is really interesting, because the company's share of the analgesic market dropped from 37 percent to seven percent in the wake of the scandal, but a year later it was largely recovered (to 30 percent). And I think that's because people perceived Johnson & Johnson as doing the right thing under difficult circumstances. But nobody blamed J&J for poisoned Tylenol, and Toyota might be stigmatized permanently for producing unsafe cars.

Toyota Camry photo: Flickr/Luis F. Franco