Toyota Offers Formal Apology as Quality and Safety Crisis Continues

More fallout from the massive Toyota recall crisis is starting to affect the company's business, as previously friendly media outlets at home and in overseas markets continue to hammer the company's handling of its accelerator and brake safety issues. Investigations are accelerating in markets around the world, and now the Japanese media have openly and harshly criticised Toyota CEO and family scion Akio Toyoda for his handling of the ongoing crisis. The developments over the weekend have led to the situation looking like this:

• Toyota will Possibly Recall Prius in Japan, Unsure About Rest of World: Toyota has announced on its website that it will recall the 2010 model Prius hybrid sedan in the Japanese market to replace software in the antilock braking system units that leads to a significant pedal feel issue when the car transitions from regenerative braking to hydraulic braking. Vehicles made after January 2010 already have new software, but older ones do not. Toyota is expected to announce a fix this week for the 270,000 Prius sedans made before the software fix was implemented as a running change, but it has not said how it will roll out the fix to existing vehicles. "We want to assure our dealers that we are moving rapidly to provide a solution for your existing customers. We will share more specific details on this solution early next week," Toyota brand sales general manager Bob Carter wrote, according to an e-mail reviewed by The Detroit News. "Whether this would be a service bulletin, service campaign or recall hasn't been determined." In a related story, Toyota is also investigating the braking system on its Lexus HS250h Hybrid sedan, which uses a similar system to the Prius. No complaints have been reported on the system, and Toyota is reportedly taking the action as a pre-emptive measure.

• CEO Akio Toyoda Issues Formal Apology, Japanese Media Rejects It: Toyota company scion and CEO Akio Toyoda held his first formal news conference on Friday (5 February) to formally apologise for the recall issues surrounding "We, the ones supposed to relay to people the attractiveness of automobiles, have instead imparted on them worry. I regret this more than anything," Toyoda said. The executive then went on to announce the formation of a global quality task force that he would lead which will review every step in Toyota's design and production process with an eye on improving quality controls. But the response from the Japanese media the following day was swift, brutal, and none too friendly. "Words are not enough," said an editorial in the Nikkei business daily. "The company's crisis management ability is being subjected to severe scrutiny." The Asahi Shimbun said that Toyoda's press conference was "utterly too late," as "the entire world is watching how Toyota can humbly learn from its series of recent failures and make safe cars."

• U.S. Toyota Resale Values Drop 1-3% in Kelley Blue Book, NADA Guides Valuation: The crisis over Toyota's quality and safety is starting to affect the company's used vehicle pricing, with residual values of Toyota vehicles being lowered by 1-3% in the Kelley Blue Book (KBB) and National Auto Dealers Association (NADA) pricing guidebooks. That equates to a US$200-500 decline, depending on the vehicle price, according to KBB, and comes as increasing questions about the recalled vehicles' safety begin to mount. Dealers are reportedly finding interest in used Toyota slacking off dramatically, according to the Detroit Free Press.

• S&P Reviewing Possible Downgrade of Toyota Investment Ratings: Ratings agency Standard & Poor's (S&P) announced late last week that it may downgrade Toyota as the company has lost nearly US$30 billion in market capitalisation in the recent weeks since beginning to experience its massive recall crisis. S&P said that the warning of a possible downgrade stemmed from "increased concern over the potential negative impact on Toyota's business risk profile of unfolding developments related to recent quality issues." The downgrade may also extend to Toyota's keiretsu suppliers: Denso, Aisin, and Toyota Industries. Toyota stock has fallen more than 20% since 19 January; S&P said it should decide by mid-May what to do about Toyota's ratings.

• Sales of Recalled Vehicles Resume in U.S., Production to Resume Today: Sales of some models of the 8 recalled vehicles on the stop-sale list have resumed at certain Toyota dealers, according to Automotive News. A Grand Rapids, Michigan, stamping supplier is cranking out tens of thousands of metal shims a day to send to dealers, who can then use the bars to repair customer vehicles and their own inventory. Any repaired vehicle can then be sold. Some dealers are reporting having many more shims than customer repair vehicles, thus allowing them to begin repairing their inventory and resuming sales and deliveries, per Toyota's instructions. The company is also set to resume production today at its five North American plants that have been idled for the previous week while new pedal assemblies were delivered from supplier CTS.

• Toyota Faces Over 30 Lawsuits in U.S. and Canada for Variety of Reasons: Over 30 lawsuits have been filed in recent days against Toyota in U.S. and Canadian courts, according to Bloomberg News, for issues stemming from unintended acceleration recalls but in many cases going well beyond those initial complaints. The suits vary in their plaintiffs, but lawyers quoted in the news article state that the U.S. suits are likely to be combined into larger national-level class action suits for purposes of easier handling, pre-trial evidence gathering, and rulings. Toyota had no comment on the number of lawsuits or their nature, according to Bloomberg.

Outlook and Implications

Toyota's troubles are only continuing to worsen, as it continues to react in ways that the media, the public, and politicians in several countries have largely rejected. The Prius brake problem is only adding to the company's woes, and its handling of it is already throwing a public increasingly wary of Toyota's safety reputation more ammunition to fuel their fears. On one hand, rollout of an official response from the company's top executives has been lacking, with the Japanese management seemingly letting their American counterparts handle the damage control and public relations spin. This has not been as co-ordinated or informative as it needs to be in order to prevent the unfortunate out-of-control crash and burn that the issue has caused for Toyota. However, in all fairness, it is not entirely unexpected to see such a response from Toyota. Simply put: this is new ground for Toyota.

For thirty years, the company has seen the slow, steady progress of increasing sales, expanding markets, record-setting volumes, and a gradual but inexorable climb up the charts to become the dominant automaker in the world. The one thing it has not had to deal with on a regular basis or on any sort of global scene has been a massive quality issue, something nearly all other non-Japanese automakers have had to deal with at one point or another. Ford has seen millions of vehicles recalled for safety reasons, and even endured a highly visible tyre debacle related to its best-selling Explorer that it weathered successfully, but prior recalls and quality issues have given companies such as Ford practiced countermeasures and seasoned executives who know how to deal with such emergencies—Toyota has not experienced anything like this in the company's history, and it is still learning the best way to effectively deal with its crisis situation. It is safe to say however, that given the 20% drop in the company's stock price and the loss of US$30 billion in market capitalisation, that Toyota has not yet found an approach that has restored either the public or investor confidence in the company's products. Given that there is about to be a massive amount of public scrutiny of Toyota's policies, responses, and safety issues with this week's 10 February U.S. House of Representatives committee hearing on the topic, it seems likely that the company is set to continue to take heat for the current safety recall crisis for at least the next few weeks.