TORONTO - A massive recall and sales suspension of eight popular Toyota vehicles is proving to be a marketing nightmare for a company that prides itself on quality - but could also have a silver lining, experts say.
A recall of 2.3 million vehicles in the U.S. and 270,000 in Canada escalated this week as the Japanese automaker said it would halt sales of vehicles containing a potentially faulty gas pedal, manufactured in Ontario, that could stick and cause unintended acceleration.
As a result of the sales suspension, production at Toyota's two Canadian manufacturing facilities, in the southern Ontario communities of Woodstock and Cambridge, will be halted for the week of Feb. 1.
Toyota's products and those of its luxury brand, Lexus, have consistently ranked near the very top of industry-wide quality and vehicle dependability studies, said Darren Slind, country manager for Canada with consumer survey firm J.D. Power and Associates.
Toyota's impeccable reputation - embodied by the Japanese word "kaizen," meaning continuous improvement - doesn't have to be sullied by this recall, Slind said. The fact that it took immediate responsibility for the problem and has proactively suspended sales of the affected vehicles to make sure they're safe could actually help the company in the longer term.
"I think it signifies that they are not afraid of doing the right thing for the right reasons, that short-term sales and profits are less important than taking care of the consumer and making sure they're safe in Toyota vehicles," Slind said Wednesday.
Bill Pochiluk, president of industry adviser AutomotiveCompass, agreed Toyota could successfully use this recall to enhance their existing image as a quality-oriented, customer-focused carmaker, but they will first have to overcome several obstacles along the way.
"It wasn't that long ago that a very senior Toyota person told me he thought... the only way Toyota could take a step backwards is if it did damage to itself," Pochiluk said.
"This becomes a huge opportunity for Toyota's competitors to try and fill the gap, to basically win the sales that Toyota can't do in the near term."
Toyota's closest competitors are other Japanese carmakers like Honda, Nissan and Mazda, but it will also be up against General Motors and Ford, who have been emphasizing the quality of their new lineups.
One of the most important fronts in the battle to regain consumer confidence will be the dealership, Slind said. Dealerships across the country, regardless of brand, have been hit particularly hard by the economic downturn, and this could be an opportunity for Toyota dealers to keep their customers coming back.
One Toronto dealership is extending its service hours to midnight for the rest of the week to be available to customers concerned about the recall.
"We want to be able to make sure that we're able to assure everybody that we can as quickly as possible of the safety of their vehicle," said Dan Golightly, operations manager of Downtown Toyota in east Toronto.
Golightly said he is awaiting "further instruction" from Toyota as to what his dealership can do to ensure the approximately 60 affected vehicles on his lot are safe to sell.
Politicians in Ontario, the province that will be hardest hit by the recall due to the shutdown of Toyota's Canadian manufacturing facilities, praised the company for moving fast to address safety concerns.
"If that requires that they compromise production of new vehicles in the interim, well, that's the responsible thing to do," Ontario Premier Dalton McGuinty said.
It wouldn't be the first time a company has managed to emerge relatively unscathed from a massive recall.
In 1982, seven people in the Chicago area died after taking cyanide-laced capsules of Extra-Strength Tylenol. At the time, experts predicted the brand would never recover, but within a year Johnson & Johnson had almost entirely regained its former share of the painkiller market.
The company's chairman, James Burke, was praised for initiating the extensive recall, which removed 31 million bottles of Tylenol from store shelves, and for his openness in discussing the situation with the public and the media.
Maple Leaf Foods Inc. (TSX:MFI) was also praised for its openness after dozens of cases of listeriosis, including at least 20 deaths, were linked to cold cuts produced at a Maple Leaf plant in Toronto. Maple Leaf's market share has largely rebounded since then, and it has become a recognized leader in Canadian food safety.
By contrast, other automakers have responded less than proactively to problems with their product, said Michael Mulvey, a marketing professor at the University of Ottawa.
Mulvey cited the Ford-Firestone tire controversy in 2001, during which an unusually high number of Firestone tires on Ford vehicles blew out, in some cases causing fatal accidents. Ford blamed Firestone, and Firestone blamed Ford.
"In the middle of that blame game, the person that was lost was the person that we should care most about, which is the consumer," Mulvey said. "So I really think these companies' behaviours do have long-term implications."
Toyota has said it was unaware of any accidents or injuries due to the pedal problems associated with the recall, but could not rule them out for sure.
The faulty part was manufactured by Indiana-based supplier CTS Corp. (NYSE:CTS) at a plant in Mississauga, just west of Toronto. CTS said Toyota accounts for only three per cent of its annual sales.
The sales suspension includes the following models: the 2009-10 RAV4, 2009-10 Corolla, 2009-10 Matrix, 2005-10 Avalon, certain 2007-10 Camrys, 2010 Highlander, 2007-10 Tundra, and the 2008-10 Sequoia.
The Japanese automaker produces the Corolla and Matrix at its plant in Cambridge and the RAV4 at its plant in Woodstock. The company recently said it would hire 800 new employees at its Woodstock plant to increase production of the RAV4. Once that hiring is complete, it will employ about 6,500 Canadians.
Last year, Toyota garnered 14 per cent of the Canadian market, with 189,313 Toyota-brand vehicles and 15,802 Lexus-brand vehicles sold. Compared to 2008, Lexus sales were up 5.3 per cent while Toyota sales were down 9.5 per cent. In November, Toyota came first place in terms of Canadian market share for the first time in its history.
The announcement Tuesday follows a larger U.S. recall months earlier of 4.2 million vehicles because of problems with gas pedals becoming trapped under floor mats, causing sudden acceleration. That problem was the cause of several crashes, including some fatalities. About 1.7 million vehicles fall under both recalls. CTS was not implicated in the earlier recall.