It’s been a rough road for Toyota of late. Its celebrated Prius line is experiencing brake problems. Other Toyota models are suffering from sticky accelerator pedals and floor mat problems. Altogether it is creating a huge product recall and public relations nightmare that will be studied by business students for years to come.
One headline called it Toyota’s Tylenol moment. Frankly, that was a kind assessment. The comparison to the Johnson & Johnson Tylenol recall of 1982 is fair only to the extent that both crises tested the leadership mettle of senior management. But that is where the similarity between the two ends.
Instead of being a text book example of what to do right, the unfolding Toyota example is reading more like chapter two of my book (The Business Guide to Legal Literacy: What Every Manager Should Know About the Law) where I discuss how latent legal liabilities escalate the cost of doing business. In Toyota’s case, those costs are escalating fast.
Let’s take a look at some of them:
1. Toyota’s stock price has taken a hit. The ticker symbol for Toyota Motors is TM. Examinehow the stock price has dropped since the recall news started making headlines earlier this year and keep an eye on it in the coming months. It’s not pretty. Financial markets are more fickle and unforgiving than a court of law where you’re presumed innocent until proven guilty. Markets react immediately. That loss of capitalization represents a genuine loss of buying power and borrowing power.
2. A Congressional investigation is underway and such scruitiny is never fun. There will be hearing on Capitol Hill on the subject later this month and the guests of “honor” won’t be having a good time. Preparing for that party is also guaranteed to divert management’s time and attention from business as usual. It’s another unwanted expense.
3. The current drop in Toyota car sales isn’t helpful. The cost of recall repairs won’t be cheap so dried up cash flow couldn’t come at a worse time.
4. Managing the logistics and cost of the product recall without creating total chaos among customers or at the dealerships diverts management’s time and resources from making and selling cars — another unwanted expense.
5. Lawsuits — class action design defect product liability law suits are already rolling in. At last count there were already 40 suits filed.
6. Lawsuits — this time the claims center around Toyota owners suing for diminished resale values. Edmonds and Kelley Blue Book values are already down by 3.5 percent and could drop as low as 6 percent according to some estimates.
7. Lawsuits — since Toyota and its senior management knew about the accelerator and braking problems years ago, multiple class action shareholder suits against the company AND individual executives have popped up alleging the company’s knowledge amounted to false and misleading statements about company operations that misled investors.
8. Lawsuits — who knows what legal theories will form the basis of more suits next week. They all make plaintiff’s lawyers’ cash registers ring.