Worcester, MA (February 2010)—Once again a car industry disaster is dominating the news cycle. But this time it isn't American car companies coming under fire. No, it's #1 automaker Toyota that is on the chopping block. The company faces a laundry list of problems: a recall of eight of its models, a halt in sales for those models, negative press associated with the recall itself and Transportation Secretary Ray LaHood's now recanted statement advising people not to drive their Toyotas, allegations from the government and the American public that it didn't act fast enough to protect consumers, and developing reports that the Prius could be the next model recalled because of problems with the model's brake system.
There's no denying that Toyota is stuck between a rock and a hard place. However, that doesn't mean there is no exit strategy for the company. Mark Ragsdale, former car dealer and author of the new book Car Wreck: How You Got Rear-Ended, Run Over, & Crushed by the U.S. Auto Industry (Langdon Street Press, January 2010, ISBN: 978-1-934938-65-2, $15.95), says that if the company partners with its dealers to protect the brand—an imperative for both parties—they can achieve the service recovery they need to not only get the company back on its feet but to keep the dealerships that made the brand great afloat.
"Right now Toyota isn't treating its dealers like partners," says Ragsdale. "In fact, ten days ago, Toyota's dealers learned they needed to pull vehicle inventories off their lots, not via communication from corporate, but by watching the six o'clock news. Since that time, Toyota corporate hasn't put any plans in place to help dealers cope with the massive economic and public relations nightmare the company is suffering.
"My guess is the recall will cost the company approximately $500 million per month as its stock plummets by 20 percent. It's a mess, and one that is being poorly managed by Toyota executives."
Many of Toyota's dealers are in dire financial straits. As they struggle to provide customers their sole touch point of brand experience, they are losing profits. Dissatisfied customers are growing angrier. And Toyota's chances for recovery are diminishing.
The outlook for Toyota is certainly bleak. But according to Ragsdale, the company isn't down for the count...yet. He stresses that Toyota can survive this massive recall. In order to do so, it absolutely must rally and support its dealers—the Toyota brand's strongest touch point with its customers. He offers a few solutions for Toyota that, if heeded, will help it weather the recall storm.
Keep them informed. There has never been a more important time for communication between Toyota corporate and its dealers. The company needs to be updating dealers daily about what is going on with the recall. It needs to tell them what its plans are moving forward and how the news should be communicated to customers. "Dealers need to be just as in the loop about what is going on as the Toyota executives are," says Ragsdale. "Not only does doing so make the dealers feel like they are true partners with the company, but it also allows the dealers to more effectively communicate accurate information to customers."
Help your dealers understand the power of service recovery. There's no denying that Toyota has dropped the proverbial ball with its initial handling of the recall. However, the company still has an opportunity to mend relationships if it recognizes it has dropped the ball and actively makes changes to fix it. Dealerships already have ongoing relationships with their customers, but Toyota needs to make sure its dealers understand how to use those relationships to speed up the service recovery process. Toyota should:
• Ensure dealers and staff are properly trained. Remind all dealers about the importance of understanding customer service protocol. Provide a refresher tutorial that can be accessed online.
• Give them the answers for tough questions. Many of the questions customers are asking are difficult for dealers to answer because A) they don't want the answer given to upset the customer further, and B) they don't want to say anything that doesn't align with what customers may be hearing on the news from Toyota executives. Toyota corporate can solve this problem by providing dealers with the answers they should give to tough questions. Not only will doing so provide service staff with the confidence they need to handle these situations properly, but it will help the company ensure that everyone is speaking with one voice.
• Provide dealerships with factory reps. Toyota might want to consider putting a factory rep on every lot to help dealers handle tough customer questions. Realistically, dealership staff can't be prepped to answer every possible question a customer might ask, but having an easy-to-access factory rep on staff provides them with an instant go-to guy (or gal!) who can help them satisfy customer needs quickly.
"Toyota still has a chance at significant service recovery," says Ragsdale. "But if already irritated customers aren't treated well or given the answers they want from their dealers, they'll flee to a competitor in an instant."
Be realistic about what it's going to cost to fix the problem. Toyota has estimated that fixing recalled models takes half an hour each. Ragsdale stresses that the company must make sure that time provision is accurate.
"Factories are famous for underestimating how long warranty work will take," says Ragsdale. "So I think Toyota should be careful in how they compensate dealers for technician time. With the volume of cars needing the fix, I think it is likely that technicians are going to get backed up. Also, because of this added volume, dealerships will encounter time-consuming logistical problems that they don't have to deal with on a normal basis. Now is not the time to shortchange dealers and technicians by compensating them based on the most conservative time estimate possible. Fixing all of these cars is going to take time and it's going to take money. Toyota corporate needs to get a sense from its dealers what a realistic time frame and subsequent compensation rate truly is."
Help offset ancillary costs. Dealing with this recall is going to require more resources than business as usual would require. Dealerships will be staying open later. Staff members and service technicians will be working overtime. Call centers will need to be set up to help dealers field customer calls. "Toyota corporate absolutely must offset these costs," says Ragsdale. "Dealers are already losing tons of money in sales and simply cannot provide the service necessary to recover from this kind of hit without help from corporate. Toyota must remember that the dealers are the ones really being left to clean up this mess. They absolutely must give them the supplies to do so efficiently and to the satisfaction of every customer."
Provide a commanding public relations presence.
It seems Toyota's idea of effective PR is limited to President and Chief Operating Officer of Toyota Motor Sales Jim Lentz's disaster of an interview with Today show host Matt Lauer. In the interview, Lentz stated that customers "feeling a certain sensation" should "get the vehicle right into the dealer for repair." But if customers didn't "feel" those sensations, they could continue driving their cars. Statements such as these open up a Pandora's Box at the dealership level. Everybody will "feel" something whether there is anything to "feel" or not.
"Toyota needs to be very clear about which cars need repairs and which do not," says Ragsdale. "They need to remind customers that they were smart to buy a Toyota. They don't need to force dealers into a position where they are playing middleman between a group of disgruntled, worried customers and a corporation that is trying to get out of incurring as much cost as possible. It's not fair to the dealers, and it's not fair to the customers.
"Toyota must understand—GM and Chrysler didn't go out of business by having too many dealers. However, Toyota itself may fail from having too few. A customer leaving one of its dealerships feeling neglected or angry will not tolerate inheriting the same aggravation from another Toyota dealer across town. Instead, he or she will simply defect to another Asian transplant manufacturer, or perhaps even a domestic. Toyota must get in front of this issue by getting behind its dealers in a very public way—not by Mr. Lentz creating a stampede."
Let dealers know right now how they will be compensated for lost sales.
Toyota should not wait another second to provide dealers with a plan for how the company will compensate them for lost sales. Under the Federal Safety Act, Toyota is required to pay dealers 1 percent of their acquisition cost each month until the remedy is implemented. So for a $26,000 vehicle a dealer will receive $260 per month from Toyota. The company should consider compensating dealers further. And it must let them know the possibilities for compensation immediately.
"For some dealers this recall is a death sentence," says Ragsdale. "Others will barely survive. But they deserve to know what their chances are sooner rather than later. Doing so will help them focus on fixing cars and providing customers some TLC, instead of worrying about remaining solvent. Of course, this expense could be mitigated by offering customer trade loyalty incentives for dealers to work with. Dealers do have unaffected product in stock to sell. Give them the tools to keep their customers, as competing automakers apply special programs to pick-off potential refugees."
"As more troubles for Toyota loom, these issues must be acted upon quickly," says Ragsdale. "The U.S. Department of Transportation is looking into whether Toyota's unintended acceleration issues can be traced back to electronic defects. If documentation is discovered indicating Toyota has hidden known causes, it will need a viable, published plan that gives consumers as much security and the least amount of guesswork possible.
"In the past, Toyota has received high satisfaction ratings from its dealers," concludes Ragsdale. "The company has a positive history with its dealers. But to continue that good reputation, it has to do right by them now, when it counts most. Toyota's focus now should go to its dealers. Not only are they the branch of the company who will physically be fixing these cars, they are the brand's most constant and easy-to-access touch point with customers. Without a strong viable dealer network to get this one behind them, the court of public opinion will order a hanging. Toyota must give its dealers what they need."