At present, it is hard to tell whether Toyota will become the new poster child for cockroach theory – the cautious investor’s belief that when one serious problem surfaces, others are sure to follow – or replace Johnson & Johnson – which in 1982 recalled the entire nation’s supply of Tylenol after a handful of bottles were tampered with – as the poster child for corporate responsibility. Or both.
Soon after the discovery that poorly designed floor mats interfered with accelerator pedal function on some of Toyota’s Prius, Tacoma, Avalon, Camry, Tundra models and Lexus IS 250, IS 350 and ES 350 models (recommended fix: throw the floor mats into the trunk), complaints of stuck accelerator pedals on other models arose. As the press and government agencies seized on the story of poorly designed accelerator pedals, and Toyota scrambled to engineer a fix, news spread of a known problem with the 2010 Prius braking system. As we go to press, the braking issues appear to be a software design problem that causes drivers to believe their brakes are failing as the brakes switch from regenerative to conventional anti-lock systems. Drivers of the Ford Escape hybrid have experienced the same thing, and both companies have been re-programming the braking computers to solve the problem.
Investors know a cockroach when they see one, and Toyota’s stock price dropped about 20 percent during the two weeks before Toyota President Akio Toyoda held a press conference on February 6 to apologize for the company’s problems. Everyone loves a good scandal, so the press is full of recriminations. One investor boldly speculated that Toyota traded quality for growth and this was the natural result. Marketing firms lined up to call the company’s response slow and ineffective.
Yet Mr. Toyoda, humbly facing the media, expressed the clearest fact of the matter in a succinct and forthright manner: “I believe what is happening now is a very big problem. We are in a crisis.”
The company is indeed in the middle of a crisis – by definition a turning point – and the outcome is not yet known.
Johnson and Johnson achieved legendary status for its bold and quick response during the Tylenol crisis. Certainly, one should not compare the logistics of recalling and repairing millions of automobiles (at least 2.3 million in the US) – with an average price tag of five digits – to the recall and destruction of pain relievers that likely cost a few pennies to manufacture, but bloggers are doing so and the comparison will resonate with the public, however unfairly.
Drivers are frightened because this is not merely a reliability issue, but a safety issue. (One humorist notes that drivers are enraged because they should not have to worry about their accelerator sticking while they are busy conducting all the other essential functions for piloting a two-thousand pound metal and glass projectile along a crowded highway: texting, chatting, eating, applying makeup, shaving and performing interpretive dances).
Consider that the scope of actual damage caused by the faulty accelerator pedal is yet unknown, nor do we know how long it will take Toyota to complete repairs. It is entirely possible that Toyota will have engineered and executed a fix for millions of vehicles within a two-month period. That will seem like forever to owners of the vehicles, but it could be a great source of pride for the company and its dealers. Moreover, the faster this situation resolves, the sooner it will recede in the public’s memory.
Last year, Toyota, the world’s number one automaker by vehicle sales, posted its first fiscal year loss in 59 years. Yet this year, with recalls dominating the headlines, the company is posting a profit. This is a company that seems to know how to address problems in a methodical way. A reputation for quality and value takes many long years to build and can be destroyed in a flash. It remains to be seen whether more cockroaches will be discovered as media and government agencies focus bright lights on the company, or whether the company itself will shine more brightly after solving its problems.