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Toyota Accelerates Into U.S. History Over Safety Issues

Toyota Accelerates Into U.S. History Over Safety Issues

Time and time again it has been shown that companies facing product liability issues can turn badwill into goodwill by handling potentially damaging situations constructively. In our experience, where clients have dealt with recall issues in a positive and proactive way they have sometimes even seen turnover increase.  Although the Tylenol recall in 1982 cost Johnson & Johnson $100 million and threatened to destroy its leading share of the market, the company was credited for its openness in handling the matter and sales recovered within a year.  With Toyota just having reached a $1.2 billion (£720 million) settlement with regulators in the U.S. following a four year inquiry into the company's reporting of safety issues, one has to question the approach that the company took.

The criminal investigation of Toyota by the U.S. Department of Justice commenced following the company's recall of more than 10 million vehicles over issues with brakes, accelerator pedals and floor mats.  The investigation concluded with a Press Conference on 19 March 2014, with Attorney General Eric Holder stating that he was there to announce a new development "in our ongoing effort to protect the American people – and to hold accountable those whose actions harm and endanger consumers nationwide".  Not a good start for Toyota.

The Attorney General went on to state that Toyota:

  • rather than promptly disclosing and correcting safety issues about which they were aware, made misleading public statements to consumers and gave inaccurate facts to Members of Congress;
  • had concealed from federal regulators the extent of problems that some consumers had encountered;
  • had delayed a broader recall relating to floor mat issues – despite internal tests warning of the dangers posed by other, unrecalled vehicle models; 
  • had confronted a public safety emergency as if it were a simple public relations problem; and
  • had, by its own admission, protected its brand ahead of its own customers.

Financially, Toyota is now faced with the largest criminal penalty ever imposed on a car company in the U.S.  On top of that it has already paid $66 million in civil penalties relating to the incident and, in July 2013, the company agreed to pay $1.6 billion to compensate vehicle owners for financial losses from the fall in the value of their cars arising from a design defect that caused the car to suddenly accelerate without warning.  In addition, Toyota still faces hundreds of private lawsuits.

But with cash reserves in excess of $60 billion, these penalties, compensation payments and lawsuits are not likely to be where Toyota is hit the hardest.  With U.S. District Judge William Pauley in approving the settlement stating that this case shows that "corporate fraud can kill", the bigger struggle for the company will be addressing the associated bad publicity and rebuilding the public trust in the brand especially when the company has had to admit that it misled consumers.

Since the recalls, Toyota has had to plough significant resources into processes and procedures in order to convince the public that it is committed to building trust in the company, its people and its products and that it takes its responsibilities to its customer seriously.  Christopher Reynolds, Chief Legal Officer for Toyota Motor North America, has stated that  the company has gone back to basics to put its customers first.  Measures that the company has taken since the recalls include launching rapid-response teams to investigate customer concerns quickly; committing $50 million to launch Toyota’s Collaborative Safety Research Center in Michigan; expanding its network of field quality offices to improve customer responsiveness; enhancing regional autonomy, including naming the first American CEO of Toyota’s North American Region as well as Chief Quality Officers for North America and other principal regions – all of whom have direct lines to President Akio Toyoda; improving its quality control process; and extending the new vehicle development cycle by four weeks to help ensure reliability and safety.

Reynolds has stated that these fundamental changes across the company's global operations have been made in order to become a more responsive company, "listening to our customers' needs and proactively taking action to serve them." Only time will tell whether or not consumers are convinced.

This episode in Toyota's troubled history does not impact on the company in isolation with experts describing the settlement as a "game changer". Clarence Ditlow, executive director for the Center for Auto Safety in the U.S., has stated that safety advocates have long held two goals – unlimited civil penalties and unlimited criminal penalties with the Toyota settlement making both a reality.  Ditlow goes on to state that the possibility of criminal penalties is now front and centre with automakers and that that will change their behaviour far more than a civil penalty ever would.  This will not sit easy with the Board of General Motors with federal prosecutors already examining whether the company is criminally liable over its mishandling of ignition switch failures that led to 31 accidents and the death of 13 people.

If Toyota had moved swiftly to address the issues that have now been identified by the Attorney General, not only would it have looked after its clients' interests but, in the process, it perhaps might have protected and even boosted its brand.

As put so succinctly by the Attorney General when stating that other companies should not repeat Toyota's mistake – "a recall may damage a company's reputation, but deceiving your customers makes that damage far more lasting."  By their very nature, product recall events attract bad publicity but it is how a company handles those events that determines whether it can continue to accelerate down the road or stall to a grounding halt.  All eyes are on Toyota to see what journey lies ahead for the troubled car manufacturer.

Claire Adams
Director

LChalmers