Total Recall: Six Ways Toyota Can Avoid a Life Sentence from the Court of Public Opinion
The worldâ??s #1 automaker is in big trouble. A massive recall has forced Toyota to halt virtually all sales and incur the costs of millions of repairs for car owners. Unfortunately Toyota is blowing its chances of a full recovery. Here are a few suggestions for what the company must do to survive.Â
By Mark Ragsdale
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Once again a car industry disaster is dominating the news cycle. But this time it isnâ??t American car companies coming under fire. No, itâ??s #1 automaker Toyota that is on the chopping block. The company faces a laundry list of problems: a recall of eleven of its models, a halt in sales for those models, negative press associated with the recall itself and Transportation Secretary Ray LaHoodâ??s now recanted statement advising people not to drive their Toyotas, and allegations from the government and the American public that it didnâ??t act fast enough to protect consumers.
Thereâ??s no denying that Toyota is stuck between a rock and a hard place. However, that doesnâ??t mean there is no exit strategy for the company. If the company partners with its dealers to protect the brandâ??an imperative for both partiesâ??they can achieve the service recovery they need to not only get the company back on its feet but to keep the dealerships that made the brand great afloat.
Right now Toyota isnâ??t treating its dealers like partners. In fact, Toyotaâ??s dealers learned they needed to pull vehicle inventories off their lots, not via communication from corporate, but by watching the six oâ??clock news. Since that time, Toyota corporate hasnâ??t put any plans in place to help dealers cope with the massive economic and public relations nightmare the company is suffering. Â Â Â Â Â Â
 My guess is the recall will cost the company approximately $500 million per month as its stock plummets by 20 percent. Itâ??s a mess, and one that is being poorly managed by Toyota executives.
Many of Toyotaâ??s dealers are in dire financial straits. As they struggle to provide customers their sole touch point of brand experience, they are losing profits. Dissatisfied customers are growing angrier. And Toyotaâ??s chances for recovery are diminishing.
           The outlook for Toyota is certainly bleak. But the company isnâ??t down for the countâ?¦yet. Toyota can survive this massive recall. In order to do so, it absolutely must rally and support its dealersâ??the Toyota brandâ??s strongest touch point with its customers. Here are a few solutions for Toyota that, if heeded, will help it weather the recall storm.Â
Keep them informed. There has never been a more important time for communication between Toyota corporate and its dealers. The company needs to be updating dealers daily about what is going on with the recall. It needs to tell them what its plans are moving forward and how the news should be communicated to customers. Dealers need to be just as in the loop about what is going on as the Toyota executives are. Not only does doing so make the dealers feel like they are true partners with the company, but it also allows the dealers to more effectively communicate accurate information to customers.
Help your dealers understand the power of service recovery. Thereâ??s no denying that Toyota has dropped the proverbial ball with its initial handling of the recall. However, the company still has an opportunity to mend relationships if it recognizes it has dropped the ball and actively makes changes to fix it. Dealerships already have ongoing relationships with their customers, but Toyota needs to make sure its dealers understand how to use those relationships to speed up the service recovery process. Toyota should:
Ensure dealers and staff are properly trained. Remind all dealers about the importance of understanding customer service protocol. Provide a refresher tutorial that can be accessed online.
Give them the answers for tough questions. Many of the questions customers are asking are difficult for dealers to answer because A) they donâ??t want the answer given to upset the customer further, and B) they donâ??t want to say anything that doesnâ??t align with what customers may be hearing on the news from Toyota executives. Toyota corporate can solve this problem by providing dealers with the answers they should give to tough questions. Not only will doing so provide service staff with the confidence they need to handle these situations properly, but it will help the company ensure that everyone is speaking with one voice.
Provide dealerships with factory reps. Toyota might want to consider putting a factory rep on every lot to help dealers handle tough customer questions. Realistically, dealership staff canâ??t be prepped to answer every possible question a customer might ask, but having an easy-to-access factory rep on staff provides them with an instant go-to guy (or gal!) who can help them satisfy customer needs quickly.
Toyota still has a chance at significant service recovery. But if already irritated customers arenâ??t treated well or given the answers they want from their dealers, theyâ??ll flee to a competitor in an instant.
Be realistic about what itâ??s going to cost to fix the problem. Toyota has estimated that fixing recalled models takes half an hour each. The company must make sure that time provision is accurate.
Factories are famous for underestimating how long warranty work will take. So I think Toyota should be careful in how they compensate dealers for technician time. With the volume of cars needing the fix, I think it is likely that technicians are going to get backed up. Also, because of this added volume, dealerships will encounter time-consuming logistical problems that they donâ??t have to deal with on a normal basis. Now is not the time to shortchange dealers and technicians by compensating them based on the most conservative time estimate possible. Fixing all of these cars is going to take time and itâ??s going to take money. Toyota corporate needs to get a sense from its dealers what a realistic time frame and subsequent compensation rate truly is.
Help offset ancillary costs. Dealing with this recall is going to require more resources than business as usual would require. Dealerships will be staying open later. Staff members and service technicians will be working overtime. Call centers will need to be set up to help dealers field customer calls. Toyota corporate absolutely must offset these costs. Dealers are already losing tons of money in sales and simply cannot provide the service necessary to recover from this kind of hit without help from corporate. Toyota must remember that the dealers are the ones really being left to clean up this mess. They absolutely must give them the supplies to do so efficiently and to the satisfaction of every customer.
Provide a commanding public relations presence. It seems Toyotaâ??s idea of effective PR is limited to President and Chief Operating Officer of Toyota Motor Sales Jim Lentzâ??s disaster of an interview with Today show host Matt Lauer. In the interview, Lentz stated that customers â??feeling a certain sensationâ? should â??get the vehicle right into the dealer for repair.â? But if customers didnâ??t â??feelâ? those sensations, they could continue driving their cars. Statements such as these open up a Pandoraâ??s Box at the dealership level. Everybody will â??feelâ? something whether there is anything to â??feelâ? or not.
Toyota needs to be very clear about which cars need repairs and which do not. They need to remind customers that they were smart to buy a Toyota. They donâ??t need to force dealers into a position where they are playing middleman between a group of disgruntled, worried customers and a corporation that is trying to get out of incurring as much cost as possible. Itâ??s not fair to the dealers, and itâ??s not fair to the customers.
Toyota must understandâ??GM and Chrysler didnâ??t go out of business by having too many dealers. However, Toyota itself may fail from having too few. A customer leaving one of its dealerships feeling neglected or angry will not tolerate inheriting the same aggravation from another Toyota dealer across town. Instead, he or she will simply defect to another Asian transplant manufacturer, or perhaps even a domestic. Toyota must get in front of this issue by getting behind its dealers in a very public wayâ??not by Mr. Lentz creating a stampede.
Let dealers know right now how they will be compensated for lost sales. Toyota should not wait another second to provide dealers with a plan for how the company will compensate them for lost sales. Under the Federal Safety Act, Toyota is required to pay dealers 1 percent of their acquisition cost each month until the remedy is implemented. So for a $26,000 vehicle a dealer will receive $260 per month from Toyota. The company should consider compensating dealers further. And it must let them know the possibilities for compensation immediately.
For some dealers this recall is a death sentence. Others will barely survive. But they deserve to know what their chances are sooner rather than later. Doing so will help them focus on fixing cars and providing customers some TLC, instead of worrying about remaining solvent. Of course, this expense could be mitigated by offering customer trade loyalty incentives for dealers to work with. Dealers do have unaffected product in stock to sell. Give them the tools to keep their customers, as competing automakers apply special programs to pick-off potential refugees.
 As more troubles for Toyota loom, these issues must be acted upon quickly. The U.S. Department of Transportation is looking into whether Toyotaâ??s unintended acceleration issues can be traced back to electronic defects. If documentation is discovered indicating Toyota has hidden known causes, it will need a viable, published plan that gives consumers as much security and the least amount of guesswork possible.
In the past, Toyota has received high satisfaction ratings from its dealers. The company has a positive history with its dealers. But to continue that good reputation, it has to do right by them now, when it counts most. Toyotaâ??s focus now should go to its dealers. Not only are they the branch of the company who will physically be fixing these cars, they are the brandâ??s most constant and easy-to-access touch point with customers. Without a strong viable dealer network to get this one behind them, the court of public opinion will order a hanging. Toyota must give its dealers what they need.
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About the Author:
As an ex-car dealer from a car dealer family, Mark Ragsdale brings 25 years of experience to his insightful new book, Car Wreck. Passionate and articulate, he enthusiastically lays out the â??fixesâ? for the car industry, which is currently being hammered by decades of accumulated financial abuses, unholy political motivations, and unadulterated greed.Â
After earning a journalism degree from the University of Massachusetts in 1988, Mark graduated from both industry- and manufacturer-sponsored car dealer schools. In 1989, he rejoined his fatherâ??s Chevrolet dealership, where he had dedicated his Saturdays and summers from the age of seven. By age 24, he ran a Pontiac-Cadillac dealership on behalf of his father and a partner. By 30, he purchased the majority share of the store. Over the next twelve years, he proceeded to purchase or construct five additional franchised automobile dealerships and three motorcycle stores. He has represented Chevrolet, Pontiac, Cadillac, Kia, Honda, Excelsior-Henderson, and Indian Motorcycle.Â
His experience in the industry is broad. He has served on the Kia National Dealer Advisory Council, as chairman of a National Automobile Dealers Association (NADA) 20 Group, as director of the Massachusetts State Automobile Dealers Association, and as president and/or director for several different dealer marketing associations.Â
In 2008, Ragsdale sold his dealerships. He now writes and consults with car dealers, policy makers, and other industry professionals. He resides in Shrewsbury, Massachusetts, with his beautiful wife, Lauri, and their two children, Wyatt and Isabella.Â
About the Book:
Car Wreck: How You Got Rear-Ended, Run Over, & Crushed by the U.S. Auto Industry (Langdon Street Press, January 2010, ISBN: 978-1-934938-65-2, $15.95) is available in bookstores nationwide and from major online booksellers.
For more information, please visit www.MarkRagsdale.com.
Mark Ragsdale will be available to sign copies of his new book at the 2010 NADA Convention (Booth #483) in Orlando, FL, February 13-15, 2010.
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As an ex-car dealer from a car dealer family, Mark Ragsdale brings 25 years of experience to his insightful new book, Car Wreck. Passionate and articulate, he enthusiastically lays out the “fixes” for the car industry, which is currently being hammered by decades of accumulated financial abuses, unholy political motivations, and unadulterated greed.
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