Toyota’s Ethical Issues and the Impact on its Reputation

 

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Toyota’s Ethical Issues & Shattered Trust

On August 28th, 2009, a sunny San Diego day turned tragic when emergency responders received a terrifying call about a Toyota Lexus that was accelerating uncontrollably towards an intersection. All the passengers in the vehicle were killed. Toyota suddenly had a huge issue on its hands (Dietz & Gillespie, 2012).

Consumer trust, in the brand that was known for reliability and quality, was shaken. To make matters worse, the company put off addressing and correcting the issue. Two days after the initial incident, the company issued a statement expressing concern. They promised to investigate the matter, but never commented on possible causes of the accident. Finally, after being aware of the issue for a month, the company issued a recall of 3.8 million vehicles (which took another month to fully set into effect) (Dietz & Gillespie, 2012).

The lack of corrective initiative negatively impacted the brand’s reputation, their customer’s trust, market share, sales, and consumer and investor confidence. Per a Consumer Reports survey, the brand’s reputation for quality fell by 11% following the San Diego incident. Failing to immediately address and fix the issue resulted in a public perception that the company was trying to ignore the problem until they were forced to fix it. In addition, the National Highway Traffic Safty Administration fined the company $16.4 million for “failing to react in a timely manner” (Dietz & Gillespie, 2012).

The company maintained denial even after investigations determined that the floor mats were likely involved. Months later, the company admitted that there were issues with the gas pedal. The company issued additional, unrelated recalls, through early 2010 which increased customer confusion and damage to the brand’s reputation (Dietz & Gillespie, 2012).

The incident seemed to initiate further criticism of the brand, its policies, and its customer service. The brand was scrutinized for its aggressive growth strategy, and that customer satisfaction and safety took a backseat (Dietz & Gillespie, 2012).

In an attempt to revive stakeholder trust, the President issued many heartfelt, public apologies. He also wrote an article for The Wall Street Journal acknowledging the company’s failures, discussing his commitment to safety, and addressing how the company was correcting the situation. He apologized to the US Congress in person and explained the company’s new safety system and procedures (Dietz & Gillespie, 2012).

What Toyota Could’ve Done Differently

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Trust is something that must be earned. To build trust, a company must display the ability to reliably perform a task, have genuine motivations, and act with honesty, fairness, integrity, and in the interest of its stakeholders (Dietz, 2012).

This is where Toyota fell short. After they learned about issues with their safety standards, the company still drug their feet in informing the public or issuing recalls. This was not acting with integrity, nor was it in the best interest of the stakeholders. Not only was it a significant safety concern for customers, but the negative impact on the company’s reputation, sales, and market share also affected internal stakeholders, suppliers, retailers, and investors.

The Guardian writer, and co-author of “Building and Restoring Organisational Trust,” Graham Dietz, discusses the importance of action when faced with a crisis. “The depth and rigor of the response is critical at each stage, from the immediate official statements through the investigation into the failure’s causes to the systemic reforms designed to ensure it cannot happen again” (2012, para 9).

There are two approaches a company can take when addressing the issue. The first is what is called “legalistic.” This is where a company tries to reduce its financial risk and negative publicity by suppressing information. This is the route Toyota initially took. This tactic is often met with increased consumer criticism, which was indeed Toyota’s case (Dietz, 2012).

The second method is a “relationship approach.” This approach focuses on taking responsibility and owning up to the company’s failures, even if it means sacrificing financially. This action would have been the better option for Toyota to implement following the San Diego crisis. While immediately issuing a recall and investigation may have required more resources up front, it would have been more beneficial for the company in the long run. Taking this approach would have saved the company a costly fine, eased the loss of sales and market share, and helped to maintain stakeholder’s trust and confidence (Dietz, 2012).

Toyota has long been perceived as a brand associated with quality and reliability. However, failing to address safety concerns negatively impacted the brand’s reputation. Immediately addressing the issue, transparently, would’ve helped ease the impact on the brand’s image. Perhaps this is one area where Toyota shouldn’t have hit the breaks.

What would you have done in this situation? How should Toyota have handled the situation?

Read more about the ethics of marketing.

 

Resources

Dietz, G. (2012). How to rebuild trust in business. Retrieved from https://www.theguardian.com/sustainable-business/rebuild-restore-recover-trust-business

Dietz, G. & Gillespie, N. (2012). The recovery of trust: Case studies of organisational failures and trust repair. Retrieved from https://www.ibe.org.uk/userfiles/op_trustcasestudies.pdf

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