The Impact of the Toyota Crisis

March 15th, 2010

The March 5 Business Matters program focuses on the impact of the problems at Toyota. One thing we haven’t talked about yet is the impact in real dollar terms to the current owners of Toyota’s cars.

When customers loose trust with companies the impact is broad. As we heard in the interview with Tom Asacker, Toyota’s customers are having a bit of an identity crisis. They expected Toyota to have the highest quality, best reliability and great safety. Customers were less concerned about status than practical considerations.

These customers take their time when then buy and don’t like the feeling that maybe they made a mistake

Right now, those what bought Toyotas are finding that the value of their car has dropped since this crisis of confidence began.

According to the recent Kelley Blue Book Market Intelligence data, 27 percent of those surveyed  that said they were considering a Toyota prior to the recall now say they no longer are considering the brand for their next vehicle purchase.

In addition, 28 percent of those who said they were considering a Scion and 23 percent of those who said they were considering a Lexus prior to the Toyota recalls, now say they are no longer considering those brands.

Now nearly half (49 percent) of the car shoppers who have defected from Toyota say they are not sure if they will consider the brand again, even once Toyota’s problems are resolved.

This shows in quantifiable terms the impact of this crisis of confidence on future purchases. But what about all those Toyotas sold. As Toyota was loosing its focus on customers and paying attention to market share and profits,  millions upon millions of Americans were buying their automobiles believing Toyota’s promises.

Again according to Kelly Blue Book,

  • All Used Recalled Toyota Models: Used-car values have declined between 3 and 6%
  • New 2010 Prius:  New Car Blue Book® Value (transaction price) has dropped by $1,000 – $1,500

“We are seeing a softening of both used Toyota values and the New Car Blue Book values of new Toyotas this week,” said Juan Flores, director of vehicle valuation, Kelley Blue Book. “The softening of values is a product of weakened consumer demand, and the realization that Toyota is going to have to offer lower prices to get some consumers to consider Toyota vehicles again.”

Now I know that we consumers are a fickle bunch and may change our mind at some point. We’ll just have to wait and see.

What I believe is important for all of us is to realize is the systemic impact of a break down in trust with customers. In the case of Toyota, the company will see falling profits and possibly losses that may extend well into the future. By some estimates their US dealers are loosing over $2B per month. The manufacturing line has been shut down at two US plants with more closings possible. None of this takes into consideration parts suppliers and the economic impact on all those who either do business with Toyota or provide goods and services to Toyota’s dealers and their employees.

Why is all this happening? While we don’t have the detailed information on the specific problems, we can glean from the Toyota executives’ appearances before congress that it was because Toyota lost sight of what they valued. The old values of quality and customers first were replaced with growth and profitability.

How could this happen? Just look at most crisis and you can find similar stories. Corporate leaders don’t want to hear from anyone who is going to slow down the growth train. Even one of the best corporate systems, such as the Toyota Production System, can be subverted by fear and greed.

Good lesson for us all to remember.

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