NEW YORK (Feb. 1, 2010) — Toyota Motor Corp. is facing a multi-billion-dollar hit to its brand image and reputation for high quality in the wake of its disastrous recall and sales halt of an unprecedented 2.3 million vehicles over eight models.
In what many are likening to the 1982 Tylenol scare, Toyota can only hope this has the same outcome, except there is one crucial difference: Tylenol rebounded due to an aggressive and proactive communications plan from Johnson & Johnson Services Inc., while Toyota has remained yet to allay fears.
When it's all tallied up—lost profits from car dealers stuck with stock they can't move while they await word on how the faulty accelerator pedal that caused the problem will be fixed; a halt in production at plants that are virtually shut down; and the substantial cost in advertising it will take to regain shaky consumer confidence—some experts estimate the damage to be in the billions of dollars.
“This is devastating, and this is not a blip,” said Peter DeLorenzo, a former automotive advertising and marketing executive who runs the Web site autoextremist.com and authored the book “The United States of Toyota.”
Even given that staggering figure, the dollars and cents might be the least of Toyota's woes right now. “We are at a pivotal moment in automotive history,” Mr. DeLorenzo said. “Toyota had been at the top of the heap in this industry, from word-of-mouth to ratings to quality to customer satisfaction. Toyota has skated along as the bulletproof car company. That moment has passed. They're not going to fall on their faces and go out of business, but their image has been permanently tarnished.”
“They are seriously damaged,” said Mark Hass, CEO and partner of MH Group Communications and the recently named president of Edelman China, who has a long history in automotive PR. “What's made them a great car company is that their brand was all about consistency. Consumers always knew what they were getting with Toyota, and this has to give people serious doubts about what they are getting. This blows up that idea of consistency that has surrounded them for so long.”
Toyota will lose an estimated $400 million a week for as long as it suspends sales and production, according to IHS Global Insight, Lexington, Mass., and TrueCar, Santa Monica, Calif., a pair of industry research firms. Toyota averages about 20,000 sales of new cars a week at an average price tag of $20,000.
The affected vehicles make up 57 percent of the car maker's U.S. sales. Car rental firms Avis, Enterprise and Hertz all said they were pulling thousands of Toyotas from their respective rental fleets, while Enterprise—which also owns Alamo Rent-A-Car and National Car Rental—said it was pulling the Pontiac Vibe, jointly made by General Motors Co. and Toyota.
Asked if she felt the brand was damaged, Celeste Migliore, national manager for business and field communications at Toyota Motor Sales USA, said she didn't want to comment on that specifically.
“We are in the initial phases of this,” Ms. Migliore said. “We have experienced a strong consumer loyalty and trust for a long time so it remains to be seen what the impact of this will be, and we will certainly be measuring it. But we don't have a comment on it at this time because we are still assessing the depth and breadth of the event itself.”
It seems inevitable that to regain its footing, Toyota will have to spend heavily on advertising. According to Kantar Media, the company has cut its media spending almost 20 percent in the last year—a product of a weak economy but also a consequence of the lofty reputation Toyota has enjoyed. Last year, it was again the No. 1 car company in customer loyalty, according to automotive information firm R. L. Polk & Co., a position that allows Toyota to spend less on advertising and promotion while taking advantage of free media such as the Polk survey and positive word-of-mouth.
Suzy Sammons, who worked on the Toyota account while at ad agency Saatchi & Saatchi from 1989-97, and who also worked on the Nissan-Infiniti account at TBWA Chiat/Day from 1997-2009, said Toyota needs to get out a message. The problem, she said, is that the marketer is hamstrung while awaiting government approval on the faulty-pedal fix, and by its own culture.
“The next voice that they bring to the market place is the most critical decision they will ever make,” said Ms. Sammons, now the director of account services at Grand Rapids, Mich.-based Hanon-McKendry. “Domino's Pizza just did it by putting their CEO in front of the camera and saying, 'Boy, we stink, and we're going to try this again.'
“That idea goes back to (former Chrysler Chairman) Lee Iacocca, but the Japanese family culture of Toyota won't allow that.”
Mr. DeLorenzo estimated that Toyota would have to spend up to 50 percent of its advertising budget—or almost a half-billion dollars— “just to move the needle back in the right direction. It's going to be costly.”
But John Wolkonowicz, an analyst at IHS Global Insight, said it depends on how that money is allocated. “In some cases, they don't have to spend a penny to make it right; in other cases, they won't even begin to have enough money to make it right,” Mr. Wolkonowicz said. Baby boomers might not be as much of an issue, but “they need to get younger buyers into the fold. Their median age (of buyers) is going up slowly, and they're alarmed by it.”
“Toyota owners' confidence is shaken,” said Michelle Krebs, a senior analyst with Edmunds.com. “Most consumers choose the Toyota brand because of its reputation, but where does this prolonged and misunderstood problem leave the company's reputation? This situation opens the doors for competitors to steal away their customers.”
And they were certainly quick to jump in.
General Motors Co. announced a day after the recall that it would offer incentives through the end of February to Toyota and Lexus owners, and a day after that, Ford Motor Co. offered $1,000 trade-in assistance for Honda, Acura, Toyota, Lexus and Scion owners if they trade in their vehicles by March 1, as it tries to push the Fusion.
It's an ironic twist, of course. For the past several years, Detroit's domestic car makers have taken a beating from Toyota, which last year unseated GM as the world's largest auto maker. Now it's Toyota's turn.
“About seven years ago, Toyota's upper management went on this quest to become the biggest global aut omaker to surpass GM. They were obsessed with eclipsing GM,” Mr. DeLorenzo said. “In making that commitment, they added capacity (plants) at a dizzying rate. They added them quicker than they could keep up, and faster than they could instill the 'Toyota way' for quality.
“They took their eye off the ball. That's the real gist of this, and now the reality is that Ford, Hyundai and even GM are building some outstanding products. Toyota isn't the top dog anymore.”
Reporters Michael Bush and Abbey Klaassen contributed to this report, which appeared in Advertising Age, a New York-based sister publication of Tire Business.