Professionalism/The Toyota Recalls of 2009-2010

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The case study is about crisis management at the Japan-based Toyota Motors Corporation, one of the largest automakers in the world. In January 2010, Toyota was forced to recall millions of cars after problems with braking, floor mats and acceleration pedals in its vehicles. The recalls even led Toyota to halt sales and production of eight of its most popular models. Due to growing number of recalls, sales plummeted thereby affecting the company's position in the global automotive industry. Analysts began to question Toyota's legendary quality and felt that the recalls represented a major failure on part of the company. After the recalls, Toyota went into crisis management mode and announced a fix for the accelerator problem.

Marketing Management Case Studies | Case Study in Management, Operations, Strategies, Marketing Management, Case Studies The case describes the various crisis management initiatives undertaken by the company to regain the trust of customers and restore its image as a quality automaker.

As part of its crisis management process, Toyota placed ads in print and television media, involved executives and used social media platforms to address its customers. However, some analysts felt that the crisis communication team of Toyota was weak which led to a delay in identifying and addressing the situation. The case concludes by discussing what the company planned to do in the future to contain the impact of the crisis. Crisis management experts were of the view that the image of Toyota would depend on how quickly it can fix the problems and how well it communicates with its customers.

Issues:

» Understand the importance of crisis management and various issues and challenges related to it.

» Analyze whether Toyota's response to the crisis was adequate.

» Explore the PR and crisis management strategies that Toyota should adopt to contain the impact of the crisis and retain its brand reputation. Failure in Crisis Management?

In April 2010, Toyota Motor Corporation (Toyota) agreed to pay a whopping US$16.4 million fine imposed on it by the National Highway Traffic Safety Administration2 (NHTSA) in the US. The fine related to sticky accelerator pedal defects in its vehicles, which resulted in the company recalling approximately 2.3 million vehicles in the US in late January 2010. According to industry observers, the fine was the largest civil penalty ever levied on an automaker by the NHTSA.

Regulators said that Toyota had been penalized as it had failed to notify the NHTSA for at least four months after learning about the problems in its vehicles.

Marketing Management Case Studies | Case Study in Management, Operations, Strategies, Marketing Management, Case Studies

As per US federal law, automakers were required to disclose defects within five business days. However, Toyota refuted the allegations that it had violated safety regulations and maintained that it had agreed to pay the fine in order to avoid a dispute.

According to a statement released by the company, "We regret that NHTSA tentatively concluded that they should seek a civil penalty. Toyota denies NHTSA's allegation that it violated the Safety Act or its implementing regulations. We believe we made a good faith effort to investigate this condition and develop an appropriate counter-measure. We have acknowledged that we could have done a better job of sharing relevant information within our global operations and outside the company, but we did not try to hide a defect to avoid dealing with a safety problem. Toyota is already moving ahead with a number of important steps to strengthen our quality assurance operations and enhance our ability to meet customer expectations."3

Marketing Management Case Studies | Case Study in Management, Operations, Strategies, Marketing Management, Case Studies Toyota, an iconic car maker, was founded in 1937. Its business segments mainly included automotive operations and financial services operations. It was also involved in other business operations.4 Background Note

Toyota was founded by Kiichiro Toyoda (Kiichiro) in 1937. The history of Toyota goes back to 1897 when Sakichi Toyoda (Sakichi), father of Kiichiro, diversified into the textile machinery business from the traditional family business of carpentry. In 1926, Sakichi founded the Toyoda Automatic Loom Works, Ltd., (TALW) which manufactured automatic power looms...

Quality - The Hallmark of Toyota

Over the years, Toyota witnessed dramatic growth and emerged as the number one automaker in the world mainly because of its quality products. The company had set a standard for manufacturing, product development, and process excellence in the automotive industry...

Issues Related to Quality

According to analysts, Toyota's quality problems began in the mid-2000s when the automaker began to use the same components across its different models, reduced assembly quality, and ignored customer complaints in order to increase its production volumes...

Marketing Management Case Studies | Case Study in Management, Operations, Strategies, Marketing Management, Case Studies Image Implications

Industry experts considered the spate of recalls as a major crisis for the company as it not only led to financial loss but also became a significant threat to the reputation of the company. The suspension of the sales of eight of its popular models cost the company sales of 20,000 cars and light trucks, accounting for over US$ 500 million in lost revenue in the last week of January 2010, based on average vehicle sale pricesAs part of its crisis management strategy, on January 31, 2010, Toyota launched a major PR campaign to promote the safety and reliability of its vehicles. It used print and television media for public apologies, explanations, and press releases. Toyota sent apology letters to its customers informing them about the recall...

A PR Disaster?

Toyota's handling of the recall crisis became a topic of discussion in the global automotive industry. While some analysts felt that the company had taken all the necessary steps to handle the crisis, others felt that it had not responded to the crisis well...

Looking Ahead

Despite the recalls, Toyota reported a profit of US$ 2.3 billion for the fiscal year that ended March 31, 2010, compared to a loss of US$ 4.8 billion in the previous year. In the fourth quarter it reported a profit of US$1.2 billion (Refer to Exhibit VII for income statement of Toyota)...

Marketing Management Case Studies | Case Study in Management, Operations, Strategies, Marketing Management, Case Studies Exhibits

Exhibit I: Toyota Milestones Exhibit II: Brief Note on the Shift in the Global Automotive Industry Exhibit III: Consolidated Vehicle Production and Sales: 2007-2009* Exhibit IV: Regional breakdown of Toyota Recalls Exhibit V: Toyota's Print Advertisements Exhibit VI: Prepared Testimony of Akio Toyoda Exhibit VII: Toyota Motor Corporation Income Statement