Toyota used to sit on top of the world. It basked in the reputation of building high-quality cars efficiently. It enjoyed unprecedented growth, even surpassing General Motors as the largest car manufacturer in the world. But all of that came tumbling down with reports that cars were accelerating out of control, careening down highways, and putting everyone’s lives in danger. There was even a recording of a 911 call from an off-duty policeman who lost control of his car and died in the ensuing crash. Toyota responded with a recall of historic proportions—nearly 8 million cars in the United States and 1.8 in Europe. It even suspended sales of brand new models, including the best-selling Camry and Corolla, until the vehicles could be repaired. But still, there was confusion about what was causing the problems—was it the floor mats, the braking system, the software controlling the engine, or something else? Conspiracy theorists argued that Toyota had no clue what was causing the sudden acceleration, and that their recall was basically worthless.
By early 2009, your company was in a situation it had not faced for decades—i ts sales had dropped by 16 percent. Even the bankrupt General Motors, which looked like it could do nothing right for many years, grew 8 percent during the same time. According to some journalists, the recall cost Toyota more than $2 billion. But by March 2010, things seemed to be on the rebound. Sales picked up dramatically, 35 percent from the previous year, and 88 percent from the previous month. Customers were once again buying Toyotas, and putting their confidence in its ability to produce reliable cars.
But just as things seemed to be rosy again, Transportation Secretary Ray LaHood announced plans to levy a fine of $16.4 million against your company. The money itself isn’t necessarily a problem. Even with losses, Toyota still made $1.8 billion in the 4th quarter of 2009. The fine would be less than 1 percent of what you earned in just three months. So why not just “take the medicine” as it were, pay the fine, and move on from the whole mess? Because the fine comes attached with a statement that Toyota “knowingly hid” safety problems with regulators in order to avoid a costly recall. According to LaHood, “We now have proof that Toyota failed to live up to its legal obligations. Worse yet, they knowingly hid a dangerous defect for months from U.S. officials and did not take action to protect millions of drivers and their families.”
So what will you choose to do? You could just pay the fine and admit fault, but if you do, the company’s reputation for quality will take a perhaps fatal blow. You wouldn’t just be admitting that you made a mistake, but that you deliberately lied about it in order to keep making money. What’s more, an admission of covering up would give great support to the hundreds of lawsuits that claim Toyota committed consumer fraud. How much money would those settlements cost? You could, of course, just contest the fine and the admission. But, your company’s reputation is already fragile, and fighting the government (and potentially losing) may make things even worse.
Form a group with three or four other students and discuss what decision you would make as a Toyota management team by answering the questions below.
Questions
1. What is your recommendation for how Toyota should approach this situation?
2. What are the decision criteria that should be used in this situation, and how should they be weighted?
3. Under what conditions do you think it is acceptable for Toyota to settle for a “good enough” decision?
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Under what conditions do you think it is acceptable for Toyota to settle for a good enough decision?
Answer 1:
Our recommendation for how Toyota should approach this situation is to carefully evaluate all available information, including the evidence presented by the Transportation Secretary and internal investigations, to determine whether there is any truth to the allegations of knowingly hiding safety problems. If it is found that there was indeed a deliberate cover-up, we suggest acknowledging the mistake, taking responsibility, and working towards regaining public trust by implementing transparent and effective safety measures. On the other hand, if there is evidence to suggest that the allegations are unsubstantiated, we advise contesting the fine and maintaining our innocence while continuing to emphasize our commitment to safety.
Answer 2:
The decision criteria that should be used in this situation include:
a) Legal implications: Assess the potential impact of the fine and admission of guilt on ongoing and future lawsuits claiming consumer fraud and calculate the potential cost of settlements.
b) Reputation and brand image: Evaluate the potential damage to Toyota's reputation for quality and reliability if the company admits fault or is found guilty of knowingly hiding safety problems.
c) Financial implications: Consider the financial cost of paying the fine versus the potential loss in sales and market share due to the damaged reputation.
d) Public safety: Prioritize the safety and well-being of customers by ensuring that any safety issues are addressed promptly and effectively.
The weights assigned to each criterion will be subjective and will depend on the specific circumstances and priorities of Toyota as a company. However, it is recommended to assign a significant weight to reputation and brand image, as they are vital for long-term success in the automotive industry.
Answer 3:
Toyota should settle for a "good enough" decision under the following conditions:
a) Strong evidence supports the allegations of a deliberate cover-up: If an internal investigation uncovers solid evidence that Toyota did indeed knowingly hide safety problems and it is in the best interest of the company to mitigate further damage, settling for a "good enough" decision may be acceptable.
b) Potential financial impact outweighs the risks of settling: If the cost of potential lawsuits, settlements, and a damaged reputation is significantly higher than the fine and admission, it may be more prudent to settle and focus on rebuilding customer trust.
c) The credibility of internal investigations is in question: If Toyota's internal investigations are inconclusive or deemed unreliable, contesting the fine and admission may pose a greater risk to the company's reputation and open the door for further scrutiny.
In any case, it is crucial to carefully weigh the potential consequences and seek legal advice before making a final decision.