The World's #1 Automaker is in Big Trouble

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, 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 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."