Risky Business: What the heck was Toyota thinking?

First off, I have to admit that if my parents read the headline above, they would quickly point out that a corporate entity does not have a brain and therefore cannot think. And I would have shrugged off my parental units, explaining that it’s a sexier headline than “What were the executives at Toyota thinking?”

But, no matter how you phrase the question, it’s tough to come up with an answer that makes sense.

In the interest of full disclosure, I am a former owner of a Toyota Tercel wagon. It was a terrific little car. I’d probably still have it if a truck hadn’t rear-ended me on the highway and totaled it. Three of my siblings were Toyota owners at one time or another, and we all loved the cars. This isn’t about bashing Toyota, although it’s going to be near-impossible not to. It’s about risk management.

Toyota received more than 2,000 complaints about accelerator pedal problems starting in 2002. There have been, to date, 11 class-action law suits filed. There have been multiple investigations, none of which produced definitive answers or, more importantly, solutions to the pedal problems.

And that’s where Toyota messed up – it allowed the vague results of the investigations to guide it. Warnings were issued about loose floor mats. But the complaints continued.

Then in August 2009, four people were killed when their Lexus accelerated out of control. The driver was an off-duty California Highway Patrol officer – a man who knew how to drive in an emergency situation. According to a story in The New York Times, a man in the car called 911 and said, “ ‘We’re in a Lexus … we’re going north on 125 and our accelerator is stuck … we’re in trouble … hold on and pray …’ The call ended with the sound of a crash.”

Now Toyota has stopped selling eight of its models. I heard on CBS News Radio that the estimated cost of fixing the pedal problem will be more than $900 million dollars. The drop in sales is estimated to be more than $100 million a week. The dealers’ stock of certified pre-owned cars has dropped in value. And no one is sure how badly damaged Toyota’s reputation is or how many sales will disappear in the future.

So to return to my question at the top of this article, I don’t know what the folks at Toyota were thinking. They don’t appear to have been thinking about risk. This problem has existed for about 8 years, with thousands of complaints, and no one seems to have thought that maybe, just maybe, there’s a very big problem here. A huge, potentially lethal problem. After all, is there anything more important in a product as inherently dangerous as an automobile than the quality of the equipment that allows you to operate it safely? Anything?

It’s hard to imagine that anyone at Toyota did a worst case scenario regarding the pedal problem. If someone did that, they either didn’t go to the true worst case, or they decided that the risk was so remote it was worth gambling that it would never happen.

It looks as if Toyota’s costs on fixing the problem, all the associated losses in sales, and PR expenses to repair the company’s image will total well over $1 billion. Wouldn’t it have been much cheaper if in 2004 or 2005 someone had said, “I don’t care how much money we spend or how much time it takes, but find out what’s causing this and fix it.”

It’s unlikely that such a thorough, in-depth investigation would have cost anywhere near $1 billion. Whatever the resulting fix was, it would have come earlier, so fewer cars would have had to be recalled, saving additional money. Toyota’s reputation would have remained intact, helping it to weather the challenges of selling cars in a tough economy and cementing its place atop the automotive industry.

Four people in California might still be alive.

Risk management can be life-and-death for your company as well as your customers. Don’t hold back when you assess risk – take it to the ugliest limit possible.

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One Response to Risky Business: What the heck was Toyota thinking?

  1. Stuart says:

    Well said, Geoff. To your parents’ point, even if a corporate entity doesn’t have a brain and cannot think, at the bare minimum they understand the bottom line profits. And these bad decisions will have a significant impact, short-term, on bottom-line profits … and longer term on the reputation of what had once been considered a stellar brand.

    But it also goes to prove, as we’ve learned before, that the mighty do fall and when they do, they can fall pretty hard. Bad decisions all around. I’m just glad that I don’t have a Toyota sitting in my driveway … but am also wondering and hoping that Acura and Volvo are “doing what’s right.” I’m counting on them, for the safety of my family.

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