Kazira

Wow, what a mess! I doubt if anybody would want to be in Toyota’s shoes today. Regardless, the important questions to ask are – Where does Toyota go from here? What does Toyota’s future look like? Are they going to lose all the trust and goodwill, generated over the past 30 years, in the American market? How long, realistically, will it take them to bounce back? How do they define “bounce back”?

For years, they have been the darling of the markets and the envy of their competition. Toyota set the standards and raised them at a steady pace, and eventually became the #1 car company of the world. The world of manufacturing and process engineering has reaped huge dividends thanks to Toyota’s business revolutionizing concepts like Lean Manufacturing, TPS (Toyota Production Systems), Kaizen, Kanban, Poka-Yoke, etc. They have been one of the most admired companies in the world and other companies, both inside and outside of the auto vertical, have benchmarked their execution and performance against those of Toyota. You do not just become the market leader by fluke – it takes time, effort, money, planning, persistence, and performance. 

Will all of the above gains just get washed away due to their current recall crisis? Will their loyal customers start switching over to other brands? Will Toyota have to compromise on the price premium (anywhere from $1000 to $1,500) for the quality and residual-value advantage? The list of questions is indeed a very long one. The answer, in my opinion, is relatively simple and straightforward. I predict that Toyota will bounce back and we all will get to see an even bigger, better, and stronger global organization. You see, they are the Japanese. They are process freaks and they work their butts off. It’s in their DNA to fight back. They may come across as calm, quite, and composed but inside, there is a fire burning within. So they screwed up this time. I guess the timing was bad, given the economic situation and the plight of the auto industry. And they screwed up in the largest global auto market of all – USA. Yes, they couldn’t have timed this more poorly. 

Based on latest sales numbers, their sales have dropped about 15% in the US market. They’ve always been behind GM in the US market but now they will probably fall behind a few others as well. Globally, they may lose their #1 position to the Volkswagen group. Although Toyota initial response to the gas-pedal recall issues was late and lacking, they now have clearly understood the gravity of the situation and have poured in people and dollars like you won’t believe. When it’s all said and done, this crisis will probably cost them about $2.5B - $3B ($1.5B towards fixing the problem, $0.5B in incentives to boost revive demand, and another $0.5B - $1B to fix internal processes) and that would be money well spent. There may be rumblings of quality issues coming from other parts of the world as well but Toyota will focus on fixing the US issues, perception, and trust. US still is the #1 auto market, although China will likely surpass it in the near future. There are plenty of examples of such corporate PR crisis that Toyota can learn from and take consolation in the fact that all of them went away with planning and time. 

When it comes to competitive advantage, nobody stacks up like Toyota – be it there hybrid technology, manufacturing processes, distribution network, and consumer insights. They understand these critical business functions as well, if not better than their competition. So while the American big-3 auto manufacturers can extract some temporary joy from Toyota’s sorrow, rest assured that Toyota will be back. And BTW, I read somewhere that you are 10 times more likely to get struck by lightening than getting into an accident due to the gas-pedal issue. 

I would like to take a quick poll and see what the Kazira audience thinks about Toyota’s future. Please take 15 seconds to answer the 3 questions on the top-left side of this article.