By now, the irony is obvious: The automaker that trounced rivals with top-tier quality and reliability is embroiled in a series of massive recalls to fix problems other vehicles don't have. All told, Toyota has recalled about 4.5 million vehicles in the United States since last fall—and nearly twice that number worldwide—for at least three distinct problems involving gas pedals and braking systems. The recalls affect top models like the Camry, Corolla, RAV4, and Prius, and there's no guarantee that the worst is over.
But there's plenty of room for Toyota to recover. Sales have tanked and its reputation has suffered, but Toyota remains filled with engineering and management talent. Plus, it's not broke the way General Motors and Chrysler were before declaring bankruptcy last year. And most of its customers still like their cars. "Toyota is in a very difficult position right now," says Jack Nerad of Kelley Blue Book, "but it also has a big bank of goodwill and an excellent reputation with American consumers." Regaining their trust, however, depends on what the company does next. Here's how Toyota can get its mojo back:
Regain control of the problem. When the government steps in and starts telling you what to do, disaster has struck. (Just ask Wall Street.) Automakers often resist full-blown recalls because they're expensive and they imply legal liability; instead, they prefer quieter fixes like service bulletins that go to dealers and mechanics but don't usually generate headlines. Letting the government claim responsibility for forcing the recalls made Toyota look passive and uncaring. Worse, Transportation Secretary Ray LaHood now appears to be the point man talking to the public about what to do, and congressional hearings could be even more damaging, as uninformed politicians seek to score points at Toyota's expense. Once Toyota is certain it has identified all possible problems, the company needs to demonstrate that its own people are the experts—and they, not the government, will be the ones to make consumers whole.
Come clean. It's very possible that Toyota doesn't know what, exactly, may have caused some of its vehicles to speed up inadvertently. There are dozens of factors that could affect the wear and performance of a gas pedal, including electromagnetic interference, software gremlins, and erratic driver behavior. Without any way to record what happens in these incidents, it's difficult to re-create them in a lab or on a test track. The fix Toyota has devised—a simple metal shim inserted into the gas pedal, to prevent friction that could cause it to stick—might be a catchall fix designed for a range of possible problems. Engineers may have a tough time publicly admitting that they don't know what's causing a problem, but that's better than saying that you do know and then having to admit you were wrong.
[See how Toyota stumbled.]
Discover its inner Iacocca. Toyota is known for teamwork and comity, not for swaggering executives. But it sure helps to have a bold leader in a time of crisis. Lee Iacocca helped turn Chrysler around in the 1980s by making himself the face of the company. Ed Whitacre is doing this now at General Motors, where he recently became CEO and appeared in a few TV commercials. If Jim Lentz, Toyota's top American executive, or any other Toyota pooh-bahs ever dreamed about being a rock star, now's the time to take the stage.
Get feisty. Once Toyota is sure it has a handle on its problems, it should push back against posturing politicians and pile-on media outlets. The company has already shown the obligatory humility, with official apologies from Lentz and other leaders. Next, it needs to show strength.
Woo every customer. Marketing experts know that when customers come to you with a problem, it's a chance to surprise them with exemplary service and win them over a second time. With many Toyota customers on their way to dealerships, the company has a rare opportunity to persuade millions of people to buy another Toyota. The dealers are the key, since they represent the interface between the corporation and the consumer. Toyota should spend lavishly to make sure that the recall fixes are as speedy as possible and that owners go away with a good feeling: valet service, loaner cars, doughnuts and coffee, fresh flowers, white-glove treatment, makeup gifts, whatever it takes.
Slow down. The larger problem seems to be that Toyota grew too fast and gradually abandoned some of the costly, labor-intensive procedures that made it a model for other companies. Steven Spear, an MIT lecturer who wrote about Toyota's quality-control systems in Chasing the Rabbit, says that the key to Toyota's success has been a "mentorship/apprenticeship model" that led all employees, at every level, to develop a deep appreciation for thoroughness and quality. But as Toyota became the world's biggest automaker, sales targets grew in importance. "New products had to be introduced more quickly, new plants had to be opened more rapidly, and supply networks had to be expanded more aggressively," says Spear. "We're now seeing the consequences of those decisions." As Toyota recovers, it will have to learn how to instill the fanatical attention to detail from earlier days across a global bureaucracy. One result could be less aggressive growth targets.
Buckle in for a long ride. Once Toyota solves its quality problems for good, it will still take months to repair the company's image. Data gathered by BrandIndex, a market research firm, show that Toyota faces damage similar to what Southwest Airlines experienced in 2008 after the government forced it to ground 40 jets for safety violations, cancel nearly 1,000 flights, and pay a $10.2 million fine. Southwest, like Toyota, had a top "buzz" score in BrandIndex's rankings, which plunged as the bad news mounted. Once Southwest resolved its problems, it took about six months for its buzz score to reach prior levels. Toyota could face an even steeper recovery, since its scores have fallen more than Southwest's. "What they can't do is fix everyone's problem in the next 48 hours and then call the crisis 'over,' " says Ted Marzilli of BrandIndex.
Take advantage of somebody else's crisis. Toyota is a big story now, but the drama will soon subside—or get pushed aside by another scandal. Once that happens, Toyota will have the chance to solve the problem properly, with fewer klieg lights and less need for posturing. That's when Toyota needs to do the hard work of troubleshooting its own cultural and management flaws and winning customers anew. They're winnable.