First, here's the good news on Toyota (NYSE: TM ) : On Thursday, they announced that they expect to declare a profit of 80 billion yen (about $881 million) for the fiscal year ending March 31, up from a 437 billion yen (about $4.8 billion) net loss in the year prior. Of course it is still less than rival Honda's (NYSE: HMC ) fiscal year forecast of 265 billion yen ($2.9 billion), roughly double from the prior year.
Toyota's profit is despite the bad news, which is ... oh, where do I start?
Let's just say that the list of bad news is a long one, thanks to the company's poor handling of a variety of safety and durability problems with its products. Toyota's recent attempts to shoot itself in the foot are nothing short of spectacular, and it's getting worse by the day. I can barely write fast enough to keep up.
Thursday morning, for instance, brought news that the U.S. National Highway Traffic Safety Administration (NHTSA) is opening an investigation into brake problems on the new-for-2010 Toyota Prius. Apparently, the brakes sometimes kinda sorta fail to work when the car is going over rough surfaces, like potholes or bumps. At least four crashes are blamed on the problem in the U.S.
Toyota says that they found the problem, and a fix has been included in new cars sold since late January. And because the problem is related to a system unique to hybrids, they're checking their other hybrid models for similar issues.
That's all well and good. But really, the brakes aren't Toyota's real problem.
It's not the crisis, it's how you respond
As everyone who has ever read a book about the Watergate scandals will tell you, crises themselves aren't usually what do permanent damage to reputations. It's the responses to crises that show the world who you really are, for good or bad.
And Toyota's responses to crises in recent years -- engine sludge problems, that whole "unintended acceleration" thing, and now the brake issues -- have been slow, guarded, late, and seemingly incomplete.
Consider this: Toyota said, on Thursday in Japan, that they've known about the braking problem for weeks and have already implemented a fix on the production line. But on Wednesday -- just one day earlier -- they had said they were still "studying" the braking complaints and hadn't yet found a cause.
Memo to Toyota management: Folks, you can't be doing that.
How "protecting" a reputation can kill it
I get why Toyota management doesn't want to go public with reports of quality and safety problems. It's pretty simple: What's the first word most Americans think of when they think of Toyota? I bet its quality. Toyota's vehicles have been the darlings of Consumer Reports for ages. They may be boring, and I don't think they're particularly fun to drive for the most part, but they seem to stay screwed together and problem-free for years and years -- and lots of people buy them with that expectation.
Put another way, quality is the essence of what Toyota's selling. I think that's why they're so reluctant to send PR folks out to blow holes in their quality image in front of reporters.
Other car companies have (mostly) learned from bitter experience -- like Ford's (NYSE: F ) adventures with Firestone tires on Explorers several years ago -- that prompt action to contain a story is the best way to go. The procedure should be: The company has some phone calls with regulators, they identify the problem, a press release goes out on some Friday afternoon announcing a recall, and it gets fixed, no big deal.
Big consumer-facing companies like Kraft Foods (NYSE: KFT ) and Johnson & Johnson (NYSE: JNJ ) -- heck, most companies -- surely have the same standard procedure: If something bad should come up, get out in front of the story. Disclose everything you know and take corrective action right away.
Toyota hasn't been doing that, and it has blown up on them big-time. Worse, now people might be starting to ask, What else are they hiding?
Whatever it might be, they'd better figure it out soon -- and tell us all about it.
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