Life After a Massive Scandal

Context

Despite a decline in sales that crippled the car industry, Toyota steered its way through the 2008-09 financial crisis deftly without resorting to mass layoffs the way other carmakers did. The Japanese company instead slashed employees’ work hours and salaries temporarily and relied heavily on its lean manufacturing philosophy more than ever.

However, the worst crisis was yet to come: the recall of over 7 million vehicles sparked by a fatal accident involving a Toyota in August 2009.

A horrifying 911 call from the victims, just moments before their car crashed, would be played over and over in the media in the weeks that followed, tarnishing Toyota’s reputation as a world-class brand.

Into this perfect storm entered Toyota’s newly appointed president, Akio Toyoda, an executive taunted by the more senior salarymen at the group for his supposed lack of experience. Yet, out of all the officials at Toyota, it was Akio – the grandson of Toyota founder Kiichiro Toyoda – who would endure public scrutiny head-on from the recall crisis.

Real-Life Story

The 2009 accident that killed all four passengers resulted from the accelerator pedal jamming. Later investigations found millions of other vehicles in the US had a similar defect arising from a mismatch in parts. By January 2010, about 7.5 million Toyota and Lexus cars had been recalled.

The US Congress summoned Toyoda to a hearing. At the time, while the recall issue happened in the US, most decisions on engineering and safety were centralised in Japan. This was contrary to the corporate philosophy dubbed ‘The Toyota Way,’ part of which meant company officials would deal with production crises “as close to the scene as possible”.

Amid this firestorm, Toyoda appeared before lawmakers and pledged to take personal responsibility for the crisis.

“I will do everything in my power to ensure that such a tragedy never happens again,” Toyoda said. “All the Toyota vehicles bear my name. For me, when the cars are damaged, it is as though I am as well. I, more than anyone, wish for Toyota’s cars to be safe, and for our customers to feel safe when they use our vehicles.”

The company paid a hefty US$1.2bn fine, but the steps Toyoda took after the hearing defined his leadership and turnaround strategy.

Closing the Gap

Back in Japan, engineers started to look into the cars’ electronic systems but found no link between the software and mechanical defects. However, what went on internally at Toyota wasn’t always clearly communicated across teams in different parts of the world.

Beyond the recall crisis at hand, Toyota had to address the disconnect between geographies – the communication gap was feeding the growing hysteria over product quality.

Teams handling regional operations and those centralised in Japan began to collaborate more diligently to close the gap and approach problems with a ‘customer first’ mindset, a rule mandated by Toyoda himself.

Learning from the Crisis

Toyoda brought on board senior officials from Toyota’s network of suppliers to help re-engineer the company’s systems and products from the bottom up. He introduced changes to manufacturing processes and pressed engineering teams to build even better cars and integrate safety features that would activate automatically to prevent accidents.

Lessons from the 2009 scandal gave rise to more powerful technology, including a brake assist system that monitors the pressure a driver puts on the brake pedal. If the monitor detects an emergency, as evident in panic braking, the automatic brakes kick in. Meanwhile, other pre-collision features also sense when pedestrians are in the way of the vehicle.

PostScript: Toyoda was determined to turn around Toyota’s fate after the twin crises of the recession and recall. Yet, his emphasis on customer care and safety and his commitment to follow through with concrete action won the trust of stakeholders and made Toyota profitable once more.

Key Lessons

1) Take personal responsibility

Demonstrating accountability the way Akio Toyoda did can help rebuild trust and show commitment to resolving issues. Taking personal responsibility reinforces a leader’s dedication to their customers.

2) Embrace lean principles

In times of crisis, adhering to lean manufacturing and operational efficiencies can help a company navigate financial difficulties without resorting to drastic measures such as mass layoffs.

3) Prioritise communication

Ensuring clear and effective communication across different geographies and teams is crucial. Bridging gaps and fostering collaboration can prevent misunderstandings and improve crisis management.

4) Focus on continuous improvement

Use crises as opportunities to innovate and improve. Toyoda’s push for better safety features and more integrated systems exemplifies how continuous improvement can enhance product quality and customer safety.

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Until next week, may the force be with you.

Kevin

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