GM, Ford, Chrysler, Toyota, Oh My!!

GM announced this week that they were paying back the government's load early. It almost sounded like they have made so much money lately that they have enough cash on hand to give back the money. Problem is, this was just a major public relations stunt by the company. The money given back is our money that was never used. It was kept in reserves. One has to wonder whether or not GM really was that desperate for money or that they did not know how to operate without the money for all the luxuries they were used to in their executive suit. I still think this is a loser company with limited brand value and no credibility. Their recent move to try to scam the public proves it. Senator Durbin even said that this was tantamount to a shell game. GM claims to be making a profit, which is likely is. They have cut so much cost from their system that any sales now will add profits.

Ford, on the other hand, seems to be doing well. Their sales are up in real terms and they are gaining market share--not just getting back what they had. Ford took a gamble several years ago to move toward environmentally friendly cars. William Ford was the CEO at the time and the board actually threatened him to back off the "environmental nonsense". Detroit has never really understood or appreciated more environmentally friendly cars. They always seem to serve the market and never try to lead or hit the leading edge of change--they have left that to the Japanese and Germans.

Ford has well designed cars, they are operating efficiently and they are also the only US car company that did not take government money, which I believe has endeared them to many consumers.

Chrysler is done--stick a fork in it. This is a company with no focus, no brand value and no strategy. They are sucking up cash and losing market share while the other companies have their best months in years. When you loose 8% share while others are increasing sales by 15-18% in a given month, something is very wrong. Say goodbye to our loan. Chrysler will be a footnote in history, alongside Studabaker, DeSota, and other companies that have failed in the past.

Toyota is having great sales, thanks to 0% interest for 5-years. They have to move 2010 inventory and also stimulate the 2011 sales since inventory has started piling up on the dealer lots. Some people have joked that we now know what it takes to convince someone to drive a "death trap". I don't see it that way. The sales incentives were expected, given the situation and the need to clear inventory. I think what we are seeing is deep loyalty and belief in Toyota. The company has lead for so long in price-quality that it has build some inertia in its brand. If there are new problems in new cars being bought, then we will see real brand erosion and long-term problems for the company

Could Toyota Damage Other Japanese Brands?

Kelly Blue Book Market Intelligence indicates that Toyota owners are shifting their car-buying interest to Ford and Korean automakers Kia and Hyundai, and away from not only Toyota, but also from other Japanese brands, including Honda and Nissan. This suggests that Toyota was not only a brand in and of itself, but also was the "Japanese car category".

Category is more important than individual brands. We think category before product brand. The leader in the category sets the standards against which all others in the category are judged. A funny thing happens, according to research. When competitors attack the category leader, it often helps to reinforce all the good things that led to its leadership position in the first place. But, when the category leader fails, it can damage others without clear brand preference attributes other than they are members of a desired category.

We are now seeing a very interesting situation arise. Since Toyota was the first and most prominent brand amongst the Japanese car manufacturers, it became not only a brand, but also the standard-barer for all Japanese made cars. All other Japanese cars--Nissan, Honda, Mazda, etc.--were judged against Toyota, but also were defined by it. They lived under Toyota's umbrella. When Toyota's metaphorical umbrella began to fold, the other Japanese car makers started to get wet. In other words, a significant number of Honda buyers select that car because it is a Japanese brand. Toyota build the Japanese brand, defined and lead in its key attributes of quality and reliability, and may be helping to damage the category now.

We are still seeing sales of other Japanese cars increase, but that is because there is market share to be gained by everyone at the expense of Toyota. But, the Blue Book analysis shows that Toyota's aura was big and may have encompassed the entire category of Japanese cars. So, Toyota's problems created a crack for all cars from that country--they were somehow lumped together, just like consumers got used to talking about the problems in "Detroit". Ford is still trying to distance itself from that category. It helped itself when it did not take federal bail-out money. GM and Ford have shown good increases in sales recently. People may be reconsidering a US-car category and Ford's success could be lifting even GM, even though the public is still not sold yet on GM's future.

We are witnessing an interesting situation of demand elasticity that is not related to price as much as it is related to perceived value of a category. Market demand for cars has a lot segmentation appeal and category attributes. Some people look for a car, but most people decide they want to look at European cars, or Japanese cars, or US cars. One might think that other Japanese makers would benefit, but they are getting hurt by category linkage.

At the same time, we see stories that Toyota is succeeding in getting its loyal customers to friend the company's Facebook site and to tout the car brand in social media. These are attempts by advertising and PR firms to drum up support and hopefully create a ground-swell--sort of like a political campaign. The problem is that Toyota is leading what happened in the last election. No Republican could win because Bush had damaged the brand and category. A similar situation could be at work in the market, with other Japanese manufacturers getting hurt for things that had nothing to do with. Toyota is rapidly becoming the Japanese car category George Bush.

A Once Great Brand is Suffering a Death by a Thousand Cuts

If you have followed my blogs, you will recall that about a month ago I praised Toyota for recalling all of their cars and indicated that they were demonstrating a commitment to the customer by putting their brand and reputation ahead of short-term profits. It turns out that I may have been wrong. We are seeing inexorable damage to a once great brand and it seems to be their short-term focus that killed it.

The hearings in Washington with the CEO of Toyota USA were awful to watch. Toyota is not up to the challenge in dealing with this crisis. Their CEO seemed clueless, like a salesman trying to explain what happened at headquarters--but, that is exactly what is happening. Jim Lentz is a super salesman, a country representative, not a real CEO. Decisions at Toyota seem to be made in Toyota City, Japan. It is now becoming public that the management style of Mr. Toyoda, the CEO, was not conducive to open discussion and contradiction. He is, after all, a direct descendant of the founder and is referred to as "the Prince". We will see what type of person he is when he faces the furor of the US Congress that is both angry and grand-standing over this, egged on not only by scared and angry Toyota owners, but also I'm sure by plaintiffs attorneys, Detroit car makers, and their own reelections in 2010. It will be a circus.

It now appears that Toyota may have focused more on becoming the #1 car maker in the world than maintaining their quality and reliability. They now appear to have known about this situation far longer than they might have wanted to admit. They bragged about making a deal with the US government that saved them $100 million in recalls.

Now, this is my view of what they face from a brand perspective. Draw a perceptual map of the car industry before this crisis, one with two axes: price and quality. Toyota was in virtually everyone's upper right hand quadrant--the best perceived value for the money in terms of quality. Now, draw a second perceptual map and plot Toyota today. They are now judged as being worse than the other car makers. I'm not certain that anyone will be able to claim the quality and reliability differentiation that Toyota once could claim. Quality and reliability have no longer become differentiators, but are now points of parity. Ford has been improving on this perceptual map. I do not believe that GM has moved, but now Toyota is moving back toward them. They have taken a great brand, highly distinguished, and relegated it to the "all others" category--commodity status meaning that price will now become more of a factor than it ever was before.

Pedro, one of the followers of this blog, pointed out that Toyota resale values are already suffering. Who wants to buy a Toyota right now? Not many. How many want to get rid of their Toyota? A lot. The math is not good. When someone considers a car--new or used--they will consider alternatives. Toyota will be out of the alternatives list for at least the next cycle and it will be difficult for them to convince many buyers to consider them again. Loyal Toyota buyers are questioning their perceptions of the company and having their perceptions questioned by others.

That is how bad this is becoming. We may be witnessing the crippling of a once great brand. They may not die, but they could if they do not right the ship quickly. We may see Toyota need to pull back considerably from the US market for a while to regain its confidence and quality before it can come back. This happened to Audi when it had its acceleration problems in the 1990s. They handled the situation terribly, blaming drivers and not accepting responsibility. They virtually withdrew from the US for many years and then reentered once the "dust had settled". I was considering a Lexus next year when the lease on my current car expires. I will not longer be looking at Lexus.

Toyota has created a lot of "dust". It will take a long time for it to settle. I cannot believe how wrong I was about the company in my original assessment. It seems that the company may have "overshot its own headlights", a very dangerous situation when a company becomes so focused on success and its own hype that they keep moving quickly without refocusing the organizational capabilities that made them great and are needed to keep them great. They were a company of substance; they became a company of hype.

Toyota Recall a Correct Decision

Toyota's decision to stop the sale of all cars affected or potentially affected by the acceleration problem should be applauded. It is an unprecedented move by an automobile manufacturer. In making this decision, Toyota took a short-term financial hit to save its reputation long-term. The decision reminds me of the decision by J&J in 1982 to recall all Tylenol from the market after 7 people died from cyanide-laced Tylenol in the Chicago area.

Toyota has built its reputation on quality and reliability of its cars. Those attributes have been put into question. Toyota's perceived leadership on quality and reliability will be tainted for many and the troubles will be a competitive lift to other car manufacturers. However, what Toyota told the public by its action is that they put safety and reliability over revenues and profits. Their recall may open them to even more litigation since it likely will be interpreted by the courts as being an admission of guilt. However, trust is built by trustworthy behaviors, not by words, and they have demonstrated by their action that they can be trusted.

All of these downsides were obviously weighed by the management team in Tokyo before making this decision. A recall of all affected cars was the first step and that is what most other car companies would have done, but most would have stopped there. Toyota, however, went further, pulling all affected cars from the market and also stopping the rentals of these cars from rental car agencies. By taking this action, Toyota also preempted regulatory withdraw of its cars. Within days they would likely have been forced to pull their cars, which would have been much worse of the company. They chose to get in-front of the crisis.

In the competitive world of auto sales and especially in our tough economic times, Toyota is pulling themselves out of consideration for many car buyers, loosing sales for a long period of time since auto buyers typically do not return for years. That is why anyone who believes in brand management or reputation management should applaud Toyota's action. They took the tough but right decision.

I have been asked whether I believe that they will regain market share after this is behind them. I believe that they have the potential to do that. It will take time because of the car buying cycle--it's years, not days or months like Tylenol. But, consumers now know for sure that Toyota is concerned with the quality of its cars and the safety of its consumers. We know that when those cars come back on the market, they will be engineered to the highest standards. Remember that Southwest Airlines was found to have cracks in its planes that were overlooked by negligent maintenance. It pulled its planes and when it began flying again, the public lined up again. Loyalty rebounded.

I suspect that loyal Toyota customers, those who have been their customers for years, will return. Those who bought a Toyota for the first time might find themselves looking elsewhere. They are what are called "passive loyalists", easily swayed by other offers.

I wish Toyota well. I do not own one of their cars, but I admire them for recognizing the importance of reputation in their long-term corporate health.