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$2 billion lesson for Toyota

Toyota has always had catchy slogans to captivate the American market.

“Oh, what a feeling!
I love what you do for me, Toyota!
Who could ask for anything more”

While sticky gas pedals have created some uneasy feelings, the love has turned into fear and customers are asking for better brakes.

When Toyota introduced its first luxury car, Lexus, in September 1989, it was a big surprise considering the name “Toyota” was associated with compact cars with high gas mileage. Toyota’s transformation from the manufacturer of econobox cars to a leader setting standards in the luxury car segment began with a clandestine operation spanning six years and price of its development exceeding $1 billion. The entry of the Lexus LS 400 came as a shock to industry leaders, especially BMW and Mercedes-Benz rivals who previously dismissed Toyota as company making cars for the poor. Starting with a sale of mere 16,000 cars in 1989, the Lexus brand sold over 200,000 vehicles in 2009 in the US. This astronomical growth and the success of Lexus can be easily attributed to the quality, competitive pricing, dependability and customer loyalty to the Toyota brand.

Toyota understood the U.S. market extremely well. Just 4 months after launching, in December 1989, Lexus initiated a voluntary recall of all 8,000 LS 400s based on just two customer complaints about overheating problem related to brake lights. What followed after the voluntary recall was unheard of in the automobile industry history. In a military style operation, in just 20 days, all 8,000 vehicles were fixed. Lexus technicians went to customer homes, picked up the vehicles, replaced defective parts and returned the cars back to customers. In some cases the company even flew technicians to reach customers in remote locations. This quick response helped create the legendry Toyota reputation and fierce customer loyalty to the Toyota brand.

Twenty years later, Toyota became the largest automaker in the world, surpassing GM. In the last seven years, the number of complaints from U.S. customers about unintended acceleration in Toyota has been steadily increasing. According to National Highway Traffic Safety Administration (NHTSA) data, over 400 cases were reported in 2007 alone and at least five deaths were related to this problem. In stark contrast to the earlier recall in 1989, this time around, Toyota completely failed to heed warnings. Toyota’s inability to identify and fix the problem the first time, led to a major recall involving over 8 million vehicles. The total cost of the recall is estimated at $2 billion.

Toyota’s image of quality is tarnished and loyal customers feel betrayed. Toyota’s President Akio Toyoda recently apologized and took personal responsibility. His appearance at the congressional hearing next week and answering the questions of law makers may help restore public confidence. Although it is an opportunity for U.S. automakers to close the gap on the perceived quality difference between U.S. and Japanese cars, it is unlikely customers will abandon Toyota for GM or Ford. Toyota has learned a costly lesson – when you are at the top, the only other direction you can go is towards the bottom.
 

Comments

  • Cook 4 years ago

    Toyota still #1 in my book.

  • Paul Rizza 4 years ago

    It is not just the number of vehicles recalled but how Toyota dismissed all attempts to identify the problem dating back to 2002. They covertly sank 4 NHTSA investigations, their dealers consistently told owners there was no problem (the Texas woman whose husband died with 3 others brought her car to the dealer 3 times! The corporation deflected criticism stating the problem was 1) drivers 2) floor mats 3) brake pedals and they STILL have avoided the true source, electronics. They have been covering up for almost a decade now.

  • Red 4 years ago

    I have a 2007 Tacoma.
    Vehicle is a piece of junk has been from day 1.
    I have always bought Toyotas for over 25 years.
    After the way I have been treated by the dealer and Toyota about it's many major issues I will NEVER buy another one.
    It is one thing to build the occasional lemon it is another to
    screw the poor schmo who got stuck with it.

  • GreedyConsumer 4 years ago

    I'll continue to drive GM products until I get less than 400,000km in one before powertrain repairs. It's always been about reliability and replacement part availability/cost for me. After looking around, I always end up back at GM. Perspective: I don't buy compacts and I don't buy luxury. Mid-lux or bust, lol.

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