The recent massive recall at Toyota, aside from breathing new life into a moribund General Motors (an Obama conspiracy?), raises an interesting question for public relations folks. If your management makes a conscious decision to take more risks in manufacturing, is it also obligated to communicate this strategy’s potential impact to stakeholders, particularly customers and investors?
The Lean Manufacturing approach at Toyota puts standard parts into a wide variety of vehicles in their lineup, and by doing so raises the risk that failures will cause havoc to the company’s public relations, or worse, harm to its customers. So, how do you balance the additional profit per vehicle with the increased risk that if something goes wrong, it goes wrong big-time?
As Daisuke Wakabayashi reported in The Wall Street Journal last week, the Lean Manufacturing technique is seen as risky even by its promoters. David Meier, co-author of “The Toyota Way Fieldbook” and a consultant on the approach, was quoted in the Journal: “The cost may be decreased in the short term, but the risk is increased.”
Some experts say that Toyota’s perceived quality score could fall 20%, leading to a 4% drop in the residual value of its cars. The company could face difficulty borrowing for its operations (Fidgety Fitch put the company on negative watch recently). Some analysts predict impact on sales of over $1 billion. Add to that the lawyers’ fees, the increased advertising and incentive costs, and you have the makings of a true corporate crisis.
Now, Consumer Reports has a dedicated page of blogs on Toyota issues.
Another overlooked-but-important question, then, is “How much is this going to cost me when I sell or trade my Tundra pickup?” Toyota had about 17% of the 10.7 million car and truck sales in 2009, according to WardsAuto.com. In recent years alone, their huge share increases mean that they’ve put millions of us at risk of experiencing a drop in the value of our vehicles.
Does a company engaging in this risky business of Lean Manufacturing have an obligation to tell customers and investors of the risk? Or, is it caveat emptor? Toyota lists 10 risks of doing business in its 2009 annual report’s automotive section. Lean Manufacturing didn’t make the list. While it may not be material to Toyota in an accounting way, what about reputation and brand risks based upon exposing Toyota owners (both of their vehicles and of their shares) to such significant costs?
Roger Vincent and Ken Bensinger, reporting in The Los Angeles Times this week, focused on the “public relations blitz” begun last Sunday, quoting some PR professionals saying that the recent communications represent a “too little; too late” approach. In their reporting, Vincent and Bensinger characterize CTS Corp., manufacturer of the pedals, as apparently “taken by surprise” by the recall.
Was the Toyota PR team surprised, also?
Regardless of what happens to Toyota sales, it is important for the company to look at this incident with its legendary attention to detail. While the recall certainly has an impact on the seven wastes that are so high on the Toyota Production System radar screen, there is an even better reason to analyze and address the circumstances that led to this foulup.
The confidence of consumers can be a fragile thing. The discipline of disclosing risks to consumers and investors has to include revealing risks like the one coming from Lean Manufacturing practices. This means that a very deep look into operations should be married with a propensity to overdisclose; both to the company’s public relations, risk and sustainability professionals, and other, external stakeholders.
Toyota will survive and even thrive. The bigger opportunity here is to rewrite the book on how a manufacturer tells the rest of us about our risks due to its way of doing business. Toyota is in a great position to change the rules in favor of such transparency.