Toyota and Reputational Risk

As auto manufacturer Toyota begins a publicity offensive in response to two separate but related recalls of around nine million autos worldwide, a couple of reports make the important point that the long-term damage to the company’s reputation could be much more costly than the immediate financial fallout. The recalls and sales stoppages announced by Toyota come after floor mat or accelerator pedal problems in a number of its vehicles and several crashes. An article in the Wall Street Journal observes that if Toyota’s problems escalate, it could cause irreparable damage to its brand identity, requiring the company to spend billions of dollars in advertising, sales incentives, legal bills and, possibly, interest payments. Meanwhile, an article in Business Insurance cites various analysts saying that the damage to Toyota’s reputation for quality and safety could be extremely costly. What action a business should take to limit this damage and the topic of recall insurance are also discussed. There’s no doubt that product recall as a precautionary step or following actual injury or damage can be costly to a business and its reputation. As we’ve  said before, just one example is the 1990 worldwide recall by Perrier when traces of benzene found in the water eventually led to the recall of 160 million bottles of Perrier. There have been other notable examples, but the bottom line is that product safety in any business is paramount.

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