Lessons Toyota Can Learn From Ford on How Not to Handle a Recall

There once was a company on track to become the largest automaker in the U.S. Having raked in profits from several successful vehicle introductions, the company was flush with cash, and its stock price was sitting pretty. But then a problem surfaced. Dozens of drivers reported a similar problem, one that came on suddenly and too often resulted in crashes. Many people were injured; some died. A recall was issued, but the damage was done. The company's reputation -- and market share -- suffered.That brief narrative, of course, describes the problems currently facing Toyota Motor (TM) in recalling some 8.1 million cars worldwide for unintended acceleration and other problems. But it could have easily been applied to Ford Motor (F) a decade ago. Back then, it was mired in the infamous recall of its top-selling Explorer midsize SUV, after reports surfaced of drivers suddenly losing control and crashing.

The accidents were attributed to the vehicle's standard-issue Firestone brand tires. Investigations revealed the tires essentially shredded when they got too warm, causing the tread to separate from the tire core. The disintegrating tires and subsequent crashes were blamed for some 250 deaths and 3,000 injuries.

Exploring the Similarities

Cornell University auto-industry expert Art Wheaton sees many similarities between the past recall of Ford's Explorer and the ongoing one for numerous Toyota models. As was the case with Ford, beyond the toll taken in human lives -- unintended acceleration is blamed for 19 deaths in Toyota vehicles -- Toyota's bungled attempt to deflect criticism onto its parts supplier and its timid response to the crisis have only made matters worse for the company and its customers, says Wheaton.

Beyond public-relations debacles, Wheaton says both scenarios are similar in that the contributing factors to the recall, including vast expansion and detours into too many ancillary businesses, caused a family scion to assume control of the companies amid crises "to save the family name."

In Ford's case, it was Chairman William "Bill" Clay Ford, the great-grandson of Henry Ford, who took over as president and CEO in 2001. At Toyota, Akio Toyoda, grandson of founder Kiichiro Toyoda and 25-year veteran of the company, became CEO in early 2009.

Rapid Corporate Growth

Both men took charge during periods following rapid corporate growth. Under previous CEO Katsuaki Watanabe, Toyota not only broadened its vehicle lineup and added brands, but undertook vast construction projects, building new factories worldwide. It also veered off into other industries such as prefabricated housing.

In the 1990s at Ford, former CEO Jacques Nasser led initiatives to create a luxury automobile group by purchasing brands such as Volvo and Range Rover, gobbled up Norwegian electric-vehicle maker TH!NK and even bought junkyards.

As in the case of Bill Ford a decade ago, Toyoda seeks to get his namesake company back on track by focusing on building quality cars. Ford realized, "You focus on what you're good at, and if you can't be No. 1, No. 2 or No. 3 in that product, you're wasting your time," Wheaton says.

Congressional Inquiry Mistake

Another similarity between Ford and Toyota are congressional inquiries, though Toyota's were postponed due to the Washington area's record snows. Toyota still has the opportunity to avoid the mistakes Ford made in 2000 when it at first sought not to have Nasser testify, says Jon Harmon, author of Feeding Frenzy, a book about the Ford Explorer recall.

Ford erred by offering to send company vice presidents rather than the CEO, says Harmon, adding that Ford reversed its decision barely a day later amid "blistering criticism" from Congress and others. Still, as will likely be the case with Toyota, the hearing was less about fact-finding than about political theater, giving elected officials an opportunity to look good before their constituents by deriding Ford and its executives with TV cameras running.

It remains unknown whether Toyoda will appear at a scheduled Feb. 24 congressional hearing. Speaking Friday, a Toyota official told AFP that Toyoda "was planning to go to Washington as early as Feb. 10 but was forced to change the date due to heavy snow." Company spokeswoman Mieko Iwasaki added, "At the moment he plans to reschedule it to around early March."

Given Ford's example, Harmon says, Toyoda would be wise to testify before Congress sooner rather than later. "Don't waste time," he says. Lawmakers -- and the public -- are going to want to hear from Toyota's CEO.
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