Toyota is looking more like Detroit’s Big Three all the time. First the quality problems and now the company has a big incentive campaign to win back loyalty. Toyota is offering 0% financing for up to five years and some discounted lease deals as a way to get buyers to look at its cars in the wake of its seemingly unending recall problems. The latest problem came in San Diego when a driver of a 2008 Prius claimed he couldn’t stop the car even though he was braking hard.
The incentive deal appears to be working, according to Edmunds.com. The company said in this Bloomberg story that Toyota may report a 30% boost in sales in March thanks to the offers. That comparison comes off a particularly bad March 2009 when the recession was hammering auto sales. Still, it’s good news if Toyota can gin up more sales interest when the company’s recall drama is a mainstay in the 24-hour news cycle.
There is a bigger point here. As I pointed out in this Bloomberg BusinessWeek story, Toyota’s troubles will put its brand on a more even playing field with its rivals, creating an opening for Ford, Honda, General Motors, Hyundai-Kia and others to steal buyers. The first casualty of Toyota’s problems may be pricing. Getting fat sticker prices is partly a function of brand strength. Toyota’s brand has taken body blows and the company is discounting to lure shoppers to showrooms.
How long will this last? It could be quite a while. GM started 0% financing back in 2001 and never got off the discounting treadmill. To minimize the damage to its pricing, and therefore profits, Toyota will have to find an end to these recalls and tell a credible story that its quality is up to snuff. That means the company has to get a fix that stops these problems with runaway Priuses and other sudden acceleration claims. Only good engineering and time will heal these wounds.
It truly is the end of an era. Bob Lutz, the cocksure maverick who led a product renaissance at both General Motors and Chrysler, will retire effective May 1. When Lutz goes, the industry will lose one of its best car guys and a strong personality known as much for his gravelly pronouncements at auto shows as he was for the automobiles he helped create.
GM will surely miss his direction in the company’s new-car works. When Lutz arrived in September 2001, GM was putting out bland cars and cutting corners on all but its most-profitable pickup trucks and SUVs. Designers also took a back seat when the company set up to develop a new model. The company would engineer the underpinnings of a car, putting all considerations from engineering, manufacturing and marketing first. Then designers would wrap a steel body around it. The results were typically rote and boxy. When GM tried to step out with design, it ended up with cars like the famously garish Pontiac Aztek SUV.
Lutz brought design to the forefront. The company started its new cars with the styling concept first and then started to make changes for fuel economy, cabin space or aerodynamics or any other practical attribute. Stylists didn’t win every battle, but clearly design has improved immensely under Lutz’s reign. It took several years for Lutz’s overhaul to take hold. When it did, the results were much better cars that typically sold for thousands of dollars more than the old model they replaced. The current Cadillac CTS and Chevrolet Camaro have been critically praised. The Camaro has consistently outsold the rival Ford Mustang since its launch last year. GM has had to add production for the Chevy Equinox and GMC Terrain SUVs.
Under Lutz, GM spent more cash to spruce up GM’s cabins, where the company’s finance-driven management team had often shaved budgets. Eric Noble, president of California auto consulting firm The CarLab, said the Malibu has nicer materials inside than a Toyota Camry. The Saturn Aura and Malibu won North American Car of the Year awards in 2007 and 2008.
Lutz also spearheaded the Chevrolet Volt program. The fruits of that work will come this fall when GM starts selling the car, which is engineered to run purely on electric power for 40 miles. Lutz had to make three passes at now-fired GM Chairman and CEO Rick Wagoner to get an electric car approved.
Lutz wasn’t Mr. Green. This is a guy who flies his own jet fighter and has a passion for sports cars. He argued against government fuel economy rules and eschewed hybrid-electric cars until he saw the kind of marketing mileage Toyota was getting for its Prius. He famously declared Global Warming “a total crock.”
He also had some misreads when it came to the models he put out. The new GTO in 2004 was a cult favorite among gearheads, but the car was based on Australia’s Holden Monaro coupe and its jellybean styling looked dated. GM sold about 1,000 GTOs a month before ending production after three years. Remember the truck-nosed minivans? Lutz put an SUV face on the Chevy Uplander, Saturn Relay, Pontiac Montana and Buick Terrazza in 2005 and they, too, flopped. Lutz said at the time that it was a low-budget program. It was also bad badge engineering.
More recently, Lutz was overseeing marketing. He played a big role in the “May the Best Car Win” campaign that compared GM’s models to the best from Japan and Germany. It was audacious and showed that the company had confidence in the new cars Lutz and GM’s team had produced. GM still has a long way to go to convince some consumers to give its cars a look, but the campaign boosted showroom traffic.
Things changed in December. Whitacre and the board fired former CEO Fritz Henderson and later made Lutz an advisor. Lutz was dismayed at Henderson’s dismissal. Being an advisor with little authority didn’t suit his style, either. As Henderson told me today, Lutz “wants to be in the game.” At 78, Lutz has had a long run. If he isn’t having a major impact, he may as well kick back.
Someone has to pick up where he leaves off. Without Lutz to bring a product focus to GM, the company may surely be lost right now. Tom Stephens, GM’s vice chairman of global product operations, and GM-North America President Mark Reuss are the two men who will have to keep the car culture burning at GM, says Jim Hall. Lutz says he left a system in place to make sure it happens. And the two executives minding the car works have the sense to keep it going. Stephens is a car nut with an impressive collection of muscle cars and deep engineering knowledge. Reuss recently ran GM’s Holden business, where he had a big hand in developing the Camaro and beloved Pontiac G8 sports sedan. He is an engineer by training and has just the kind of expertise GM needs high up in management.
There may be tremendous pressure to return to old habits. Chairman and CEO Ed Whitacre is driven to boost sales, turn a profit and take GM public as soon as he can. That way the government can sell its 61% stake and GM can ditch the “Government Motors” moniker. But with that drive could come the pressure to shave costs to show potential investors a better bottom line. That isn’t to say Whitacre doesn’t believe in good products, though he has said little on the subject. But the company will have to resist the urge to pinch pennies. And management will do it without Lutz’s force of will. Hopefully for GM’s sake, the team he leaves behind will be able to do it.
Well, so much for racing through the gap left open by Toyota’s recall saga. General Motors said late Monday that it will recall 1.3 million compact cars to fix a power steering problem.
The timing is terrible. GM may have just benefitted from Toyota’s problems as the company’s sales rose 11.5% in February. The more important number is that sales for the four brands it is keeping —Buick, Cadillac, Chevrolet and GMC—rose 32% in the month. That’s a sign that GM found some buyers who might have shopped Toyota otherwise.
Keeping that momentum just got a little tougher. GM said that the company will start the recall following 1,100 complaints about the power steering in its small cars. GM is recalling the 2005 through 2010 Chevrolet Cobalt, 2007 through 2010 Pontiac G5, 2005 and 2006 Pontiac Pursuit sold in Canada and the 2005 and 2006 Pontiac G4 sold in Mexico.
The company can hope that its big recall will be lost in the shuffle of Toyota’s ongoing recall problems and the related government hearings. Toyota’s problems give all of its rivals a chance to prove that their cars are as good as, or better than Toyota’s models. Honda can make that claim. Its quality scores have been good for years. Hyundai and Ford have been making progress for several years, giving them a credible story. GM has been making headway with quality but still had a lot of work to do to convince consumers that its cars are just as good as those sold by Toyota.
At a time when recalls are big news, this is a set back. Recalls happen all the time and this one pales next to the 8 million cars Toyota has recalled recently. So, GM may still be able to take advantage of Toyota’s big stumble. At the least, consumers will view Toyota’s quality on a more even field with most other carmakers. But GM just gave the skeptical consumers that the company needs to win over a reason to believe that it hasn’t closed the quality gap.
There’s a new verb in the auto vernacular. Saab-ing it. That’s what people inside Hummer and General Motors say they are doing with the menacing-SUV brand now that a tentative deal to sell it to China’s Sichuan Tengzhong Industrial Machinery has fallen through. GM says they will wind Hummer down. Recall over the past several months before closing the sale of Saab to Spyker Cars that GM said a couple of times that a sale was unlikely. They said that they planned to wind it down, thereby putting pressure on any bidder to come up with a cash deal quickly. It worked. So GM is playing a similar game with Hummer. The company says Hummer is in wind down mode, but if a buyer comes along with cash in hand there still could be a sale.
Well, I have another definition of Saab-ing it. GM management has already done it with Hummer. They just didn’t know it. To Saab a car brand means to buy it, give it some initial investment money in the early honeymoon years and then starve it of new models and marketing dollars until it has to either be shuttered or sold. GM spent a pittance on Saab and Hummer marketing in recent years. After the H3 was launched, GM didn’t add anything new. They had a great concept called the HX (pictured above) but it was never built. Both Hummer and Saab were limited to just two models to sell for most of their existence under GM ownership. Nothing in equaled nothing out.
To be fair, Hummer is a tough sell these days. Americans are in a recession-driven period of austerity. Fuel is cheap, but the prospect of a gasoline price spike sits on the consumer’s shoulder like a fat gargoyle. In an era when conspicuous consumption is scorned and consumer confidence is low, Hummer would be a tough sell.
That said, Lamborghini and Ferrari aren’t withering away. A new buyer could take Hummer back to what it was before GM bought it and Saabed it. It could be a niche brand selling expensive, recreational, ultra-rugged suvs that can go anywhere. And by anywhere, I don’t mean the speed bumps in the prep school parking lot. I mean the Dakota Badlands. Remember the H1? Imagine that, only more refined. In other words, it could be to suvs what Ferrari or Lambo are to sports cars, but its new owner can’t Saab it.
In the black comedy “The War of the Roses,” the divorce attorney played by Danny DeVito advises his client, played by Michael Douglas, that, “There is no winning! Only degrees of losing!” That brings me to the Congressional hearings over Toyota’s sudden acceleration issues and recalls.
Yesterday it was James Lentz, the president and COO of Toyota Motor Sales USA, who took the stand for his grilling from Congress. He certainly affirmed some things that make Toyota look bad. He admitted that the company didn’t do a good job of collecting customer complaints from its various global operations. He said that Toyota’s U.S. executives can’t order a recall without say-so from management in Japan. That slows the process. And he said that, while Toyota doesn’t believe that electronics or software are responsible for the sudden acceleration incidents, he couldn’t say for certain that the fixes to floor mats and accelerator pedals will keep accidents from happening again.
None of those admissions are revelations. They have been reported in the past or discussed by the company. But these hearings aren’t about revelations. They are about forcing Toyota to publicly affirm that the company made mistakes. And it’s about members of Congress showing that they side with the little guy, whose votes they covet. To show how silly these hearings can get, at one point a member of Congress asked Lentz which executive oversees Toyota’s Washington office, which handles safety and compliance issues. Turns out it’s not Lentz. He’s a sales guy. It’s Yoshimi Inaba, the president and COO of Toyota Motor North America. The Congresswoman then asked him why he was testifying. He responded simply that he was asked to be there. In other words, Congress invited the wrong guy.
But so long as Lentz was there, he got his beating. Rep. Edward Markey (D-Mass.) was particularly tough on him. When Lentz admitted that, “We didn’t do a very good job of sharing information across the globe,” Markey responded saying, “That’s just unacceptable.” He also took Lentz to task on the fact that the company says it has no reason to believe that electronics or software are the problems causing some of Toyota’s cars to suddenly take off. It’s either the floor mat or an accelerator pedal, Toyota believes. But Markey pushed on. He demanded to know why Toyota was installing a software fix that would override the accelerator if both the brakes and accelerator are being pushed. Fair question. But in this arena, it was also a rhetorical one.
I’m not letting Toyota off the hook. Far from it. Clearly there are serious problems. Edmunds.com mined the government’s database and found that Toyota has more sudden acceleration complaints than any carmaker. As I pointed out in this story in 2007, the company’s growth has led to many of its problems. Today, Toyota Motor Corp. President Akio Toyoda is expected to say in a prepared statement that, “I would like to point out here that Toyota’s priority has traditionally been the following: First; Safety, Second; Quality, and Third; Volume. These priorities became confused, and we were not able to stop, think, and make improvements as much as we were able to before.”
That admission may be the most significant thing to come from these hearings. Since Congress will not find the end-all cause for the recall problems, Akio’s statement would declare from the very top that Toyota is just like any car company. It sought growth and profits and lost its focus on quality. If the top executive says that today, as the company says he will, that will be the company’s biggest loss. The grandson of the company’s founder will fuel the new belief that his company is no longer the special one. Even Toyota loyalists will get that message.
Is GM Chairman and CEO Ed Whitacre crazy? Or crazy like a fox? His moves this week have raised some eyebrows. First, he names Fritz Henderson, the CEO he fired in December, as an advisor for the auto maker’s international operations. The same day, he names board member and advisor Steve Girsky to the position of vice chairman of the company.
Girsky’s promotion is the most problematic, but bringing Henderson back was the most surprising move. The former CEO was ushered out of GM by Whitacre (pictured above) and a board that wanted new blood and a change of direction. It is bizarre, to say the least, that Whitacre would can Henderson less than three months ago and bring him back to help run GM’s businesses in Asia and South America, which are vital to the company’s success.
In a way, it also makes sense. Henderson ran both businesses very successfully as he was soaring up through the ranks of GM management. The newly-promoted President of GM-International Operations, Tim Lee, is a manufacturing guy by trade. He could probably use Henderson’s knowledge of the markets in South America, China and South Korea. In fact, one source close to the situation said that Lee actually brought up the idea.
Girsky’s expanded role is also a curious decision. He was a Wall Street analyst for years, then an advisor to GM and, at various points, has been tapped by the UAW to give them his read on the industry. Girsky was appointed to the board at the behest of the UAW’s retiree healthcare trust, which owns 17.5% of the company. Girsky also worked in private equity for Centerbridge Partners recently.
While Girsky was a very good stock analyst and obviously was respected enough to be tapped for advice by GM and the union, there is a bigger question. What does he know about actually running a car company? He hasn’t managed an industrial business, let alone one the size and complexity of GM. Girsky did not return a phone call or an email seeking comment. The company says he is qualified to do the job Whitacre has given him.
To be fair to Girsky, his job as Vice Chairman-Corporate Strategy and Business Development will have him looking at partnerships and joint venture deals. Whitacre also wants him to oversee GM’s market analysis group. His background as an analyst and in private equity should make him a good candidate for both assignments. He did build a first-class board and management team that has turned parts maker Dana Corp. out of bankruptcy and onto firm footing. On paper, it’s not daft. But as we have seen with private equity, those firms are often good at putting deals together but they don’t know enough about how those businesses work to make them successful. Girsky will have to prove that he can do it. With GM, the stakes are very high.
There is one bigger problem with Girsky’s new role. He is a board member appointed by the union's healthcare trust and by the government to oversee the investment from taxpayers and other shareholders. One of his most important jobs is to measure the performance of the CEO, in this case Whitacre. Well, Whitacre put him in place as an executive with a $1.1 million a year salary, paid mostly in future stock. That makes him a member of Whitacre’s management team who also has a role in appraising whether or not the CEO is doing the job. As such, Girsky is no longer an independent director. He won't measure Whitacre's performance, nor can he sit on GM's governance, compensation or audit committees.
That establishes a fire wall between Girsky's two roles. It also takes away from the board the one independent director who knows something about the car business. The board needs someone who is independent and has industry knowledge to mind Whitacre's performance. Perhaps it's time to make Girsky an executive, and only an executive, and get another independent director with auto experience on the board. In other words, Girsky should be a board member or an executive, but not both.
I take it back. Or, more accurately, Toyota took it back. Company President Akio Toyoda is going to testify in Washington after all. Toyoda, the 53-year-old grandson of the company’s founder, first said he wouldn’t go before Congress. After I wrote yesterday’s post, he reversed the decision and will testify on Feb. 24.
This has been handled poorly on two levels. First, it’s just another example of the company’s inconsistency. He’s not coming, then he decides to show. Toyota looks like it is reacting to criticism from Congress as opposed to responding decisively to a crisis. Similarly, Toyota’s American executives have maintained that they issued the accelerator pedal recall voluntarily while one Japanese executive said they were prodded by the U.S. government. The company needs to get a handle on this crisis, make decisions faster and stick to them.
The second problem is that Akio Toyoda is probably not the best man for the job. For reasons I have stated in this blog item, Yoshimi Inaba is the best executive to go before Congress. Exposing the boss, who is also a Toyoda family scion, risks turning the hearing into a bigger circus than it already likely will be.
Toyota Motor Corp. President Akio Toyoda has snubbed Congress. He politely declined to come and testify at the Feb. 24 hearings during which the House Oversight and Government Reform Committee will look into the automaker’s string of recalls, Bloomberg reported. That has Washington lawmakers scolding the 53-year-old Toyota president, who is also the grandson of the company founder. Rep. Darrell Issa (R-Calif.) already expressed his disappointment.
I’ll go out on a limb and say I can't blame him. It’s actually the right move. These hearings often become vaudeville acts for politicians to make a name for themselves. Either way, Toyota will lose on this one. Mr. Toyoda declined, and he is taking heat. If he agreed to go, he would still take heat and it could be worse. If the Toyoda family scion shows up, the spotlight will be even more intense. He may be questioned about why the company didn’t act sooner, but my hunch is that some members of Congress will be more interested in making an example of a top executive—and Toyoda family heir--than getting information.
In his place at least one hearing will be Yoshimi Inaba, the Japanese President of Toyota Motor North America. From what I have gathered, Inaba is the best guy the company has to handle the task. He knows the U.S. operations deeply and should be able to offer up some real answers, to the extent that Congress wants them. Inaba is Japanese, but he has spent 40 years working for Toyota in a variety of global markets. He has had top jobs in the U.S. and Europe. He got his MBA at Northwestern University’s Kellogg School of Management and his English is fluent, according to one retired Toyota executive who spent years working with him. Inaba has been in plenty of sales jobs and he is known for being very personable. In other words, he has the tools for the task.
Perhaps Toyoda would as well. But we know what can happen when the wrong executive goes before an angry Congressional committee. If Mr. Toyoda showed up before Congress, the company risks a public beating for the top executive. When Ford Explorers were rolling over on their faulty Firestone tires, it was CEO Jacques Nasser—not Chairman and Ford family scion William C. Ford Jr.—who went to Washington. Nasser knew the business better. This looks to be a similar case. The spotlight will be on Inaba, and he is probably better suited to handle this kind of maelstrom than his boss. At the least, his name isn’t on the building. That alone should defuse some of the theatrics.
Toyota is on the ropes. Some in the commentariat think that the recall issues will blow over like sooty blast of diesel emissions. But I don’t believe it will. Problems keep piling up, with Toyota’s recall of 437,000 of the Prius for brake repairs being the latest. The embattled giant’s recall tally now tops 8 million cars.
Might this be the hole that Detroit’s carmakers can race through? General Motors, Ford and Chrysler have been hoping that their toughest rival might finally slip up and allow them a way to get some consumers back. This could be it. TrueCar, whose Web site tracks vehicle pricing and consumer shopping traffic online, says that people intending to buy a new Toyota declined 12% in January. The biggest beneficiaries were Kia, Honda and Ford, with Hyundai and Nissan not far behind. That means Ford is most likely to catch a tailwind from tempest that is pounding Toyota.
GM could as well, but the company doesn’t have the marketing momentum or the quality image that could get Toyota owners to give its brands a look. But at least GM can rest assured that Toyota won’t be grabbing easy market share for a while. Chrysler’s quality lags well behind the pack, according to J.D. power and Consumer Reports. So it will be tougher for the smallest of the Big Three to sway Toyota customers who are so reliability focused.
Advertising experts think this is a shot for Ford and GM to get in front of some consumers who deserted American metal decades ago. “You have to run through a hole when you see it,” says Lance Jensen, co-founder and executive creative director at ad agency Modernista!, which has done work for Hummer. “We’re talking about capitalism. If I were Ford and GM, I’d make the case that they’re on top now.”
Certainly, there are some things that Detroit can do that could have more impact than the $1,000 rebates Ford, GM and Chrysler have offered for Toyota trade-ins. That approach has a whiff of desperation to it. What can you say for a brand that has to put cash on the hood to get a Toyota owner to ditch his car during this maelstrom? I understand that competition can be bare-knuckled, but it’s also unlikely to work. Ricky Beggs, vice president and managing editor of Black Book, which tracks used-car prices, said he has heard from some dealers who have cut trade-in values anywhere from 10% to 30%, mostly on the low end. Some Toyota owners looking to trade up may need a rebate just to make them whole on lost resale value, but it’s not a great deal. If Toyota resale values rebound as Edmunds.com analyst Joe Spine believes, savvy consumers may think it is better to wait that trading in now when the only bait is a $1,000 rebate.
So what’s Motown to do? Try something a bit more subtle. Here are a few ideas:
• Rather than spend $1,000 per car in rebates to Toyota owners—as GM and Ford have and Chrysler is on select models—use the money to amp up advertising. A purse of $1,000 a car can go a long way.
• Make the advertising very targeted. GM has already been running ads comparing its new models to Honda, Toyota and others. Chevrolet, for example, has ads comparing the Cobalt compact, Malibu family sedan and Equinox crossover SUV to rival Toyota models. Run more of those ads and brag about the attributes. In other words, run with the “May the Best Car Win” campaign, but get some more air time.
• Dig into Toyota’s lineup and see where their cars offer more standard equipment. Whether it’s Bluethooth, a premium sound systems, navigation or whatever, use the rebate dollars to throw in some of those options to match or beat what Toyota has to offer.
• Ford has a real opportunity with its hybrids. The Fusion hybrid gets 39 mpg compared with the Camry’s 34 mpg. The Dearborn, Mich., automaker has been advertising that in local markets. But they should amp it up and do more comparisons.
• This one cuts closer to the edge, but brag about safety. Don’t mention Toyota or brakes or throttles. Talk about any cars that have posted strong scores in crash tests or safety and quality surveys, advises Eric Hirshberg, CEO and chief creative officer of ad agency Deutsch-LA.
• And one more, make a stronger pitch for the Ford Mustang and Chevrolet Camaro, which is pictured above’’. Those cars, both hot sellers, may have taken their styling cues from yesteryear’s muscle cars, but they are packed with technology. The Mustang has gadgets like active park assist, and crash avoidance systems. The Camaro has a 304 horsepower direct-injection engine that gets 29 mpg on the highway. And the car is loaded with airbags.
I especially like the last strategy because it marries Detroit’s muscle heritage with new technology. Both cars would be metaphors for two companies that Toyota once so easily beat. It might work. Toyota is already proving that it no longer is the company that ran circles around America’s carmakers for so long.
Tesla Motors CEO Elon Musk is finally preparing to take his car company public. On Jan. 29, Musk’s company filed for an initial public stock offering, which he has talked about as a possibility for a couple of years. He wants to sell $100 million worth of stock, which could help fund a new factory or some acquisitions as Tesla prepares to launch its Model S sedan in 2012. The company originally planned to launch the car in 2011. Tesla sells a $109,000 Roadster now.
A couple of things come to mind. First is the company’s profit history—or lack of profit history—and the risk it presents for stockholders. The company has lost $236.4 million on $108.2 million in revenue since its inception in 2004, according to its prospectus. The company also disclosed that it has not made money in any one single quarter. As an aside, the company bragged that it made a $1 million profit in July of 2009, but obviously couldn’t sustain it. Any investor needs to know that it will be difficult for an electric-car company to turn a buck, especially given the cost of developing lithium ion batteries and the power electronics needed to make these cars go.
The second issue is Tesla’s future sales prospects. Tesla is first to market with an electric car that uses lithium ion batteries. BMW’s Mini E came second and is only leased in small batches. The green crown eagerly anticipates the Model S. If Tesla gets the car to market, it would be much more usable that the two-seat electric Roadster. But green cars are still a very tough sell. After a decade of selling hybrids, they account for around 3% of the market in any given month. Toyota’s Prius is the only one that sells in volumes above 100,000 a year.
By the time Tesla is selling Model S, Nissan will have its Leaf on the market, boasting 100 miles of all-electric driving. General Motors will be selling the Chevy Volt. There will be a plug-in version of the Prius and a few other entries on the way all with green cred to sell. These cars will come from established carmakers with big dealer networks to offer customers many convenient locations for sales and repairs. Those companies also have long histories to prove that they will still be around to honor warranties. That’s a tougher sell coming from a startup that hasn’t made money. Tesla is backed by $465 million in government loans, which will keep it going while it develops its battery packs and the sedan. Another $100 million will just add to its liquidity.
The challenge will be selling enough cars to stand on its own in the long run. Tesla wants to sell 20,000 of the Model S a year at $49,900 apiece, it said in its public filing. It’s hard to see that happening. It took Toyota three years to get to that kind of annual sales clip with the Prius, and it sold for less than half the price.
Tesla was the first company since GM launched the EV1 to sell an electric car. That was an impressive feat. It will be even more impressive if they can make a buck doing it.
Toyota’s big recall problem just keeps getting worse by the day. The latest blow to the company, which stopped the sale of eight models that it said are “involved in the recall for sticking accelerator pedal,” is that Consumer Reports has suspended its recommendation of the models involved. Over the years, CR has lavished recommendation on Toyota’s cars and trucks in large part because they have been very reliable.
I don’t need to tell anyone that quality is the cornerstone of Toyota’s brand in the U.S. Consumer Reports recommended 27 of Toyota’s 32 models, giving the Japanese carmaker a great gust of wind at its back when it comes to winning converts. That number is now down to 15, though the magazine says Toyota can get the recommendations back pending resolution of the problem.
If that’s not bad enough, there is an even bigger threat to Toyota’s image. The company is no stranger to recalls, but to its credit Toyota has handled them swiftly and kept customers happy. Now that is under fire, too. Energy and Commerce Committee Chairman Henry Waxman said his panel plans a hearing on Feb. 25 to look in to what Toyota knew and when and if the carmaker moved quickly enough with a remedy, according to a story by Bloomberg. The news from Consumer Reports is a body blow, but the government hearings could be worse.
What members of Congress are wondering is if Toyota dragged its feet while sudden acceleration accidents continued to happen. Representative Bart Stupak (D-Mich.) went so far as to say that, “Incidents of sticking accelerators have been ongoing with Toyota vehicles for up to a decade and have led to a disproportionate number of deaths,” Bloomberg reported. That’s a bold statement and just the beginning of the kind of gauntlet Toyota is about to run through.
If the hearings get ugly—and Detroit’s carmakers can attest that going before Congress can be brutal—Toyota could be in for a hammering. Congress is snooping around the last pillar of Toyota’s great name—that it handles problems very well. Even if the hearings conclude that Toyota did a fine job of handling the recall and safety issues, the publicity could raise doubts with car buyers.
So far, consumers don’t seem irate, says Adam Simms, owners of Toyota of Sunnyvale (Calif.) He has almost 100 employees taking calls and he says so long as everything is explained, his customers have been OK with all that has happened. But it’s early days in this drama.
Someday soon, Toyota’s top management will need to come forward and talk to the American public. CEO Akio Toyoda will have to step up, tell his customers and future car buyers that the company has this under control and that it won’t happen again. Toyota has decades of goodwill with the American public for selling them good cars, creating jobs and doling out millions of dollar on philanthropy projects. It’s up to the company to react and keep it that way.
Toyota’s image problems just keep getting worse. Toyota said today that it will suspend sales of the eight models that the company stated it would recall on Jan. 21 due to isolated incidents of a sticking accelerator pedal. A recall is one thing, but when a company decides to stop selling the cars, it’s quite another. Bob Carter, Toyota division general manager and a group vice president of Toyota Motor Sales USA, said in a statement that the company wanted to stop sales until a remedy is found.
Recall that on Jan. 21, Toyota said it would recall 2.3 million vehicles that could potentially have a problem. They are the 2009 through 2010 RAV4, 2009 through 2010 Corolla, 2009 through 2010 Matrix, 2005 through 2010 Avalon, some 2007 through 2010 Camry models, 2010 Highlander, 2007 through 2010 Tundra and the 2008 through 2010 Sequoia.
Toyota is being very cautious, which is the smart thing to do. Some vehicle owners have alleged that the sticking accelerator pedals have caused accidents, some fatal. So Toyota needs to do this to prevent any more accidents from happening.
Sooner or later, Toyota will engineer a fix. And Toyota is handling it the right way. Edmunds.com CEO Jeremy Anwyl likened the move to Tylenol's decision to yank its products from the shelves. “I imagine that in this situation, Toyota eventually had the same decision-making thought process: realizing that the company has to get ahead of the problem,” Anwyl said. “Toyota needed to send a clear message they care more about their customers than monthly profits. And they are.”
True, but doing damage control for its once bulletproof quality image will be much more difficult. Add in the big recalls that Toyota has had in recent years and its image as a quality leader is taking another hit. That list of models, by the way, contains Toyota's two top sellers in the U.S. in the Camry and Corolla. Toyota sold 650,000 of the two models combined last year. That's a lot of customers who have a reason to question Toyota's cars.
Saab, it must be said, has more lives than a dozen cats. General Motors said today that it reached a deal with Spyker Cars NV to sell the Swedish carmaker. The deal is reportedly worth about $500 million. The sale comes after a year of trying to peddle Saab. One deal with Swedish sport car specialist Koenigsegg AB had already fallen through. GM was so certain that a buyer wouldn’t be found that they even sent two advisors in to start liquidating the company. Assuming the sale closes, the company will be called Saab Spyker Automobiles but will still use the Saab brand.
Give Spyker CEO Viktor Muller some credit. Through pure perseverance he managed to pull a deal together to convince GM to sell. GM was set on liquidating the company. All along, executives told me, GM was wary of selling the company to a player who couldn’t make it work in the long run. If a new owner failed to fix Saab, the company could have ended up back in GM’s hands only in worse shape than before. Muller convinced GM that he can save the company.
A few big things changed along the way to make the deal happen. Spyker upped its bid and proved to GM that he had the cash to get a deal done. The Dutch maker of exotic sports cars also got Russian banker Vladimir Antonov, who owned 29.9% of the Spyker, out of the picture, according to a source close to the deal. GM was not comfortable going into business with him, just as the company was not keen to sell its German Opel unit to a consortium that included Russia’s OAO Sberbank. The Russians want access to automotive technology to help grow their own industry. Since GM engineered future Saab models using platforms and engines shared by Opel and Chevrolet cars, the company will be doing business with Spyker for years to come.
This is great news for industrial Trollhaetten (Sweden) and college professors all over the Northeastern U.S. Seriously, Saab does have a cadre of loyal followers, especially in New England. It just never had enough of them for GM to make real money on the brand.
Of course, Saab’s failure under GM also came from a serious lack of investment. GM never really gave the brand the resources to grow. Saab sells two models—the 9-5 and 9-3—and spent very little on marketing in recent years. GM’s efforts to add models were usually rebadged versions of something else. The 9-7X wasn’t much more than a Chevrolet Trailblazer with a Saab grille and a few interior touches. The 9-2X was basically a Subaru WRX in Saab clothing.
Can Spyker make it work? Muller clearly has enthusiasm for the brand. He has put together a $500 million package to buy it. GM will get $75 million in cash, $325 million in preferred shares and $100 million of Saab’s existing liquidity, Bloomberg reported today before the official announcement.
Now Muller has to turn that enthusiasm into new products and sales. GM has some new cars in the pipeline, which Saab will be able to sell. But making this work won’t be easy. With less than 100,000 sales globally last year, Saab is tiny and won’t have the economies of scale to get parts as cheaply as competitors. The brand has respect among its die-hard fans, but doesn’t command the pricing that makes low-volume luxury brands profitable. Muller will have to get the company in the black, generate the cash flow to freshen models and market them and invest in tomorrow’s automotive technology. It’s going to be a challenge. For now, anyway, Saab has a new lease on life.
Finally, General Motors found a new CEO to replace Fritz Henderson, who was fired on Dec. 1. To the surprise of no one, it’s Chairman and CEO Ed Whitacre. Remember that Whitacre took the job the day Henderson was asked to resign on at least an interim basis (though GM never called him the interim CEO) while the company looked for someone new.
Given where GM is right now, bringing some stability can only help. Whitacre may not be a car guy. He will have to prove that he is the man for the job by showing results. Only sales gains and black ink will do that. Any CEO would have to do that. Leaving Whitacre in the job will at least bring stability to a company whose workers have endured almost constant turmoil for the past year.
When it comes to Whitacre’s appointment, there were several things at play. First, Whitacre already built the management team. He hired former Microsoft CFO Chris Liddell to become GM’s CFO. He promoted a slew of GM executives and has recast the organization. He has been so hands-on since he took over about seven weeks ago, that any CEO candidate would come in seeing much of the work had been done, says Maryann Keller, an advisor with auto consulting firm Casesa Shapiro. Any new CEO would want to build the team that he or she must rely on to bring GM back. She brings up a good point. “One thing no CEO would want is Whitacre looking over their shoulder.”
One source familiar with the search said that GM just didn’t have a long list of heavy hitters who also had experience running an industrial giant who could come in and take over. Running GM isn’t easy. The list of qualified candidates is short. The list of people willing to take on the challenge is, no doubt, even shorter.
But the bigger point from the board’s perspective is that they wanted to stabilize the company. Two CEOs were fired last year and the company went through bankruptcy. Many other top managers were sent packing. The people now in the top jobs could breathe a little easier knowing who the boss will be going forward. Now they will know what is expected of them and that the current plan will remain in place.
There is another side benefit. If GM keeps searching for a CEO, then rumor and speculation about possible candidates will keep hitting the papers. The public will keep reading that GM hasn’t stabilized itself yet. The sooner GM gets out of the headlines for hiring, firing and restructuring, the faster the company can start talking about new models and building its brands. That, in the end, is what will turn the company around.
The bad news just keeps rolling in for Toyota. Even with some $29.6 billion in cash (as of Sept. 30) the company can’t seem to buy a break. On Jan. 21, the company said it is voluntarily recalling 2.3 million Toyota brand vehicles to correct a sticking accelerator pedal. This recall is in addition to the 4.2 million Toyota and Lexus vehicles that are being recalled to correct problems with floor mats sticking on the accelerator, the company said in a statement. The recalls came amid claims from some vehicle owners that either floor mats or the accelerator pedals were causing the car to lurch forward unexpectedly, causing accidents.
Plaintiffs' attorneys have already been lining up. But for Toyota, the bigger damage could be done in the court of public opinion. Even though problems with the recalled models are not common, according to Toyota’s statement, this is just the latest in a series of large and embarrassing recalls. For its part, Toyota explained in its press release that, “the condition is rare, but can occur when the pedal mechanism becomes worn and, in certain conditions, the accelerator pedal may become harder to depress, slower to return or, in the worst case, stuck in a partially depressed position. Toyota is working quickly to prepare the correction remedy.” Here is the list of cars being recalled: 2009-2010 RAV4, 2009-2010 Corolla, 2009-2010 Matrix, 2005-2010 Avalon, 2007-2010 Camry, 2010 Highlander, 2007-2010 Tundra, 2008-2010 Sequoia.
Toyota is voluntarily recalling those cars to head off major problems or potential accidents. The company is known for handling recalls well. But the more pressing problem for Toyota is that these recalls and quality snafus can threaten the company’s reputation for quality. That image for great reliability is the foundation of the company’s sales success. For all of its prowess, Toyota is simply not known for having great styling or grin-inducing performance. Toyotaphiles appreciate the company’s quality, engineering and fuel-efficient technology.
Quality was supposed to be a given. And when problems started to appear, Toyota vowed it would make quick amends. Back in July 2006, former Toyota President Katsuaki Watanabe bowed deeply in apology at a press conference, according to a report in the New York Times. The company launched an initiative to solve quality problems, examine customer service and look at costs. After Toyota’s headlong expansion in the ‘90s and most of this decade, it seems they had lost control of some of the basic principles that made it such a great company. Watanabe was trying to reaffirm the company’s commitment to quality.
New CEO Akio Toyoda has redouble those efforts. If Toyota doesn’t get a handle on this issue, the company could make the same kind of missteps that Detroit’s automakers did when quality problems started cropping up in the ‘70s. Those problems gave consumers a reason to look elsewhere, creating opportunity for Toyota, Honda and Datsun--which became Nissan in the early ‘80s—to get a foothold in the U.S. market. It’s far too early to count Toyota out. The company isn't near where Detroit's carmakers were in the '80s. But if the recalls continue, Toyota could be exposed to a resurgent Ford or to ambitious players like Hyundai-Kia and Volkswagen. Even General Motors is showing some signs of stability. All of those companies are on the march just when Toyota is stalling.