Following a significant investment of time, money and energy, Toyota determined 1989 as the year to introduce its luxury division, Lexus, in North America. Toyota knew it could match its rivals in terms of quality and reliability. And the value of the yen versus the dollar gave it a competitive advantage when pricing the initial models, the Lexus LS 400 and ES 300.
The LS 400 proved a massive success, winnig awards from dedicated magazines, emerging victorious in comparison tests against German luxury sedans, stealing market share from more established brands.
However, at the end of its debut year, the LS 400 had to be recalled -- every one of the 8,000 vehicles that had been sold. The issue: two customers, or 0.025 per cent of the total, complained that a brake light overheated due to faulty wiring. This was a critical time for the young brand – a brand that promised peerless quality through its tagline, “The relentless pursuit of perfection.”
The story of how the situation was handled has been included in countless business books as an example of how to turn a potentially damaging scenario into victory. The company admitted fault and triggered a voluntary recall. Rather than diminish the brake light issue as minor, Lexus chose to highlight the issue and leverage it to further strengthen its brand promise. Over the course of 20 days, the company sent out technicians to pick up and service all 8,000 vehicles at dealerships. When a Lexus service bay wasn’t close by, the technicians rented garage space in order to perform the necessary repairs. Courtesy cars were issued to ensure customers weren’t inconvenienced, and their cars were detailed from nose to tail before being returned.
Fast forward 25 years and times have changed – a lot.
For starters, the world is a more litigious place than it was in the late 1980s. And, with the advent of the Internet, it’s more difficult for a company to control the information pertaining to a product recall, either enforced or voluntary. The idea of admitting blame for a manufacturing defect is not as automatic as it once was – particularly when serious injury or death is the result.
But if the issue is a serious one, the response should be automatic, says Richard Powers, national academic director of governance programs at the Rotman School of Management in Toronto. “Whenever there’s personal safety at risk, you don’t defend your case, you take responsibility,” he says. “Is it ethical to even consider the cost-benefit analysis of a recall when lives are in danger?”
The issue that spurred the discussion is the General Motors ignition switch recall, which reached a crescendo earlier this week. The full facts are still pending, including precisely when people within GM knew that the issue affecting 1.6 million vehicles built from 2003 to 2007 was a serious one.
The faulty switch has been linked to at least 12 deaths and the lateness with which a recall was triggered has both GM and the U.S. National Highway Traffic Safety Administration (NHTSA) scrambling for answers.
Earlier this week, GM announced a further three recalls of different vehicles for completely different reasons; another 1.18 million vehicles are affected. This latest recall is an example of “getting out ahead of the issue,” says Monica LaBarge, professor of marketing at Queen’s University in Kingston, Ont.
“This is difficult because there’s so much information consumers can find for themselves,” she says. “And a recall can be damaging to a company’s reputation – but, ultimately, if there’s a problem, you should let consumers know about it and fix it.”
If it seems car recalls are becoming commonplace, that’s because they are. Transport Canada’s website (tc.gc.ca) reveals a staggering number of recalls involving every single manufacturer in the business. The vast majority of issues are relatively minor – a loose trim piece here, a corroded hood ornament there – but it’s still surprising to see so many vehicles called out for build quality issues.
“Consumers have become more nonchalant with respect to recalls, provided the issue is not life-threatening,” LaBarge says. “But if recalls happen over and over again to the same company, consumers will take notice.”
Powers believes that recalls are more frequent because safety standards are higher, but acknowledges that brand image also plays a big role: “The biggest risk companies face is to their reputation. And when it comes to information about a safety issue, it’s not always the truth that matters – it’s the perception of the truth.”
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