Tuesday, February 23, 2010

“Been There Done That”: How a Trite Phrase Can Screw Up Your Supply Chain and Your Thinking

It is critical to look at the past with an eye toward understanding why things were done and the applicability of new and old ideas for the future. “Been there done that” turns off your mind to understanding the nuances of history and says “shut up” to those who want to learn. The market out there is complex. We can leverage understanding why Toyota, Ford, Deere, and GM did certain things over the past 30 years to help us see the complexity of today’s parts market...and to dream of ways to change.

“Been there done that!”
is a phrase that should be abolished from spoken language. I cringe when I hear it. Literally translated it means that once you’ve experienced something, you’ve learned all you need to know and there is no reason to look back. In fact, you don’t even have to listen anymore. Been there done that is the equivalent of saying, “shut up, don’t want to talk about that.”

But, if we are to change and improve, it is important for us to look back. We can look back for answers about why certain things were done, why they did not work then (but might now), and to help us un-learn some “stuff we know, but just ain’t so.”

Let’s go back 30 years. I started working with several Toyota independent distributors in the early 80’s. The old guards at Toyota Motor Sales parts division were ex-Marines, some of whom proudly hung their swords on the walls behind their desks. They changed the industry. Over beers at night I kept hammering them about why they steadfastly held onto an unprecedented 95% facing fill metric. The best I could reason from a virtual goulash of responses was that, hey, how could the military competently go to war without having most of the materials available for the soldiers? Why were they so efficient? They were proud entrepreneurs working for the emerging darling of the industry - Toyota. This preceded the brilliance of the Toyota Production System. Where else could a good Marine go and beat the pants off Detroit’s arrogant, elite, and best & brightest? There wasn’t a lot of money to be spent on warehouse workers, so they had to work smartly. On the West Coast a new order arose that was closing the gap with Motown. They crunched labor costs, order cycle times, stock order frequency, T&C entitlements, and delivered 95% facing fill to dealers. It is important to understand that all this was more about leveraging military readiness benchmarks than about emerging customer requirements. Customer requirements had not yet emerged.

In reality Toyota was way out in front of their dealer customers with a level of parts fulfillment service that the market had not really asked for. After awhile dealers simply took this for granted as an entitlement … “a customer requirement.” Toyota arose out of the mist and was recognized as the industry benchmark. Other OEMs looked and responded. Distribution networks were re-jiggered based on these new customer requirements and TPS inside the parts warehouse (that grew out of the entrepreneurial need to be cheap, efficient, and lean). We did not think much about this; we did not look back. Hey, been there done that.

Besides Toyota, if we were students of supply chain history, we’d study three brilliant companies: John Deere, General Motors, and Ford. Why is each particularly brilliant?

In the very early 1980’s Deere rolled out their parts distribution system that responded to how dealers/distributors stocked and ordered parts … based on 20th century customer requirements, logistics, and terms and conditions. Dealers placed large stock orders to replenish their inventories. However, the breadth of Deere’s parts population meant that dealers could not possibly stock all the parts they needed. Dealers needed to have very quick access to these “emergency parts.” Deere listened and designed a parts network that hyper-efficiently shipped stock orders from a single location, and provided emergency parts from regional locations that were close to their dealers. They achieved industry-leading system fill and with a very high level of efficiency due to rigid adherence to work standards. It is now the 21st century and Deere is retooling its supply chain to be responsive to 21st century customer requirements, T&Cs, and logistics.

GM’s history parallels Deere’s. Up through the late 1980’s (and early 1990’s) they, too, shipped fast moving parts (filters, brakes, etc.) through highly centralized specialty facilities. Dealer stock order discounts were for much larger order batches than we see today; a size that could be most efficiently sourced from centralized specialty warehouses. If you look at GM’s 1980’s distribution network complexity and broad array of T&C derivations, you see a company that believed in market segmentation. The traps that GM fell into were threefold: (1) run-away UAW labor costs that colored everything purple, (2) too much complexity that required geniuses to understand and orchestrate, and (3) Toyota’s market expectation shift that was harshly corrosive to all that complexity.

Ford’s Daily Parts Advantage (DPA) brought service parts logistics into the 21st century. The genius of this was in segmentation & integration – Ford devised four different kinds of parts segments: (1) bulky parts that had unique customer requirements and materials handling needs, (2) fast moving parts that needed to fulfill 24-hour order response times (ORTs), (3) small slower moving parts that could benefit from small parcel shipping, and (4) slow moving parts that benefited from centralization. Ford then massively re-wired its distribution network to optimize the supply chains for each of these segments. Finally, Ford integrated massive changes into its terms and conditions to modify dealer behavior and influence them to travel down a different path towards increased customer satisfaction.

Been there, done that. The Sirens of supply chain history are singing to us. To avoid crashing into the rocks we need to understand not what was done in the past, but why it was done. In each case of brilliance the thinking was that supply chains should be designed on current, now, customer requirements. Toyota was a thunderclap that started an avalanche of change. They muddied the water and delivered a level of service that transcended then-current customer requirements. Toyota did not do this by using a Michael Porter competitive model to change the rules and move the market. It was those wonderful Marines and associated “mercenaries” they hired who didn’t know any better way of doing things other than near-perfection. After birthing Toyota’s parts personality, they grazed in Southern California and moved on to Isuzu, Mitsubishi, Hyundai, and Kia.

Maybe it is time to re-think our 21st century customer requirements and assess how well the status quo fits the bill. The above chart is an attempt at doing this. I’ve come up with at least eight unique market segments that represent a blend of competitive, size, age, and just plain old common sense characteristics. The shadings in the column of “supply chain implications” range from green to red. I used green for segments that benefit from specialized internal OEM control. Red was used for segments that could be outsourced or significantly re-wired in terms of roles, strategy, and who does what. Yellow shading is used to identify opportunities for more collaborative supply chain operations – dealer/distributor collaboration or manufacturer collaboration.

Maybe the Deere, Ford, GM, and Toyota supply chain approaches each embedded some deep wisdom and designs. Maybe if you’ve been there and done that, when things change, you need to go there and do it again; if you have not already closed your mind to this possibility. Maybe there are aspects of each that could help form our current and future supply chains. Maybe Ford was right when they started to break down our business into more homogeneous, somewhat independent, segments … and integrated T&Cs. Maybe customer requirements evolve and can be redefined by a single market maker. Maybe it might make sense to take a re-look at our supply chains from the eyes of sales and marketing, not just logistics. Maybe we need to be less asset intensive so we can be more flexible. We will push this further in the next few weeks.

* * * * *

Many of you might have heard that Mopar’s Jim Belleau passed away on Sunday. I started working with Jim around 1990. He was a man of incredible presence – stories were told that he was an ex-boxer. Jim looked like an intimidating lean, nice, fighting machine. Jim was one of the most admirable executives I have ever worked with. Some lessons from Jim were in the things he was not. Jim did not have a tiny bit of arrogance. None. Other lessons were in the things he had in abundance: trust, grace, humor, kindness, and compassion. Jim was a very good man. We will all miss him.

Wednesday, February 17, 2010

Auto Insurance Compassion, “Good Hands” and Other Myths

Despite those cute geckos and assuring “good hands”, auto insurers are repairing damaged vehicles with cheap, low quality (and sometimes used) parts. Body shops don’t like them, but their hands are tied if they want to get paid. Most consumers are in the dark about this, or don’t think it matters. And we thought those “good hands people” cared about us. This is a big deal, now, for the auto segment, and will evolve into a big deal for Heavy Trucks – see the afterward.


What can a customer do when an insurance company’s “customer brand promise” slogan doesn’t foot with reality, and the customer gets cheated in the end? Consumers are being fleeced. Or, hey, maybe they don’t have the right to have their cars and trucks repaired to pre-accident condition using original genuine OEM parts.

What you don’t know can cost you - We spent over two years researching the entire collision-repair industry. As part of our research we delved into the psyche of the unsuspecting body shop customer. What we found was astonishing. More than 75% of consumers expect their vehicles to be repaired to the “exact” pre-loss condition. Nearly 90% expect to have OEM or “the best” parts available used to repair their vehicle. Most consumers want the right to select which parts are used for repair, and believe that OEM parts are typically higher quality. However, most don’t know that non-genuine, lower quality parts can be used to repair their vehicles in the event of a collision.

What else don’t consumers know? How about the fact that when they are involved in a vehicle accident and their insurance company tells them to “take your vehicle to xyz body shop”, the insurance company has already completed the arm wrestling to ensure that the shop will comply with insurance company “part use” policies. This is typically where the customer gets sold a bill of goods about the quality of “alternative” parts – they mean non-genuine. Or, even better, they aren’t even told the repair parts are non-genuine.

The myth of the high quality aftermarket part - To dispel consumer concerns over low quality product, collision industry trade groups have developed “certification methods” for identifying “quality” collision parts manufactured by companies in Taiwan. Most of these efforts are nothing more than fancy acronyms like “CAPA certified” with no teeth for making any real or sustainable part quality improvements.

For example, Keystone/LQK (LQK is the largest supplier of non-OEM and salvage parts) has come up with the collision industries latest “quality” acronym, “AQRP” or Assured Quality Replacement Parts. Based on press releases and company comments about the program, Keystone/LQK appears to have jumped into the pocket of insurance companies to help push greater use of alternative parts onto collision claims.

Interestingly, research by Collision Week shows that few body shops (less than 7%) willingly use non-OEM parts, because of their concerns about poor quality and safety. Hey, what do those guys know anyway? Quality is a thing that is now legislated or outsourced … it’s not personal anymore.

The myth of Keystone/LKQ high service levels - For years we’ve heard the myth that fast delivery performance and high fill rates, provided by companies like Keystone/LKQ to their body shop customers, drive down collision repair costs for consumers. However, according to latest NASPC Parts Manager Satisfaction Survey this just ain’t happening.

While Keystone/LKQ was listed as a Top-4 non-OEM supplier by dealers, we see that very few dealers actually prefer buying from Keystone. While the non-collision aftermarket (AM) suppliers (NAPA, Carquest, O’Reilly) clearly excel in order-to-delivery time (OTD), Keystone excels at bupkis (i.e., nothing). So why would body shops purchase from a poor supplier … unless they were being forced to?

So what do we do about it? From the consumer’s perspective, we’d love to pull a “Network” and have everyone yelling “I’m mad as hell and I’m not going to take it anymore.” Realistically, however, until a consumer crusader like Ralph Nader steps forward to unclothe the Insurance Industry Emperor and educate consumers about the use of low-quality parts in collision repairs, the aftermarket parts companies will continue to capitalize on the uninformed consumer. And body shops will continue to be required to purchase lower quality parts from the poor service provider.

From the OEM’s perspective, the unwary consumer needs the information required to defend him or herself. As a consumer in our collision focus group said, “If I knew better, I would make an educated decision.” As long as the battle continues to be fought in the back hallways of court rooms and political offices, “what’s best for the consumer” will never include the customer voice. An aggressive marketing and communication effort is necessary for broad change:
  • Aggressively pursue organized lobbying efforts to promote laws of full disclosure of part use, both when writing the insurance policy and at the time of repair.
  • Conduct ongoing “voice of the consumer” research and use it to “show ’em the facts”.
  • Get the word out by organizing broad consumer awareness efforts – using every means possible, educate the millions of customers – elementary school begins at your owners’ centers.

Afterward: What About Medium and Heavy Truck? The focus of this blog is primarily on light vehicles, but the concepts discussed are relevant for big trucks as well. Depending on the source, Carlisle estimates the collision parts market for heavy truck to be about $2.8 billion a year in replacement parts and that total accidents range from 150,000 to 225,000. The impact of the insurance industry on decision-making is less significant at this time. Owner Operators generally buy insurance and face many of the same challenges with their insurers as car owners do. Although, due to the complexity of trucks and the need to get them on the road quickly, relationships between adjusters and body shop managers still impacts parts sourcing. It is not all cost driven like auto. Furthermore, many fleets are self insured and thus there is no third party in the decision-making process. So far, DRP (Direct Repair Provider) shops are rare in heavy duty body shops. Notwithstanding all these differences, in 2009 Carlisle measured salvage and aftermarket market share of body shop repairs for a major Class 8 truck OEM over a three-year period. We found OEM share shrinking, while salvage is growing. We believe insurance practices are a key driver of this trend.

Wednesday, February 10, 2010

Do Not Read This Blog! We’re Talking About Service Retention Again

A favorite pastime of the media is to bash unscrupulous dealers for bilking bambi-eyed customers during vehicle repairs. The real problem isn’t that dealers are generally dishonest; it’s mostly that they are inept at dealing with highly suspicious customers. Folks just love non-dealer repair facilities. What’s the difference? You go to a dealer for a $29 quick lube and get fried when it costs $35. So, next time you go to Jiffy Lube for a $27 quick lube. The guy comes to the waiting room with a bunch of dirty parts looking like he feels sorry for you. You end up spending a hundred and a quarter and still hate the dealer. Next, you go to some social media site and ding ‘em. Try a different Quick Lube next time. Dealer? No way! Go figure. All OEMs want to increase their service retention and many go after this cup of gold with a frenzy of activity. A few years pass. You look back and find that your service retention strategy was really a service detention strategy. Chop chop and start again. Maybe not.


We’ve been tracking the numbers in Market Watch and it looks like one of the domestics is pulling away from the pack in service parts sales improvement (looking at parts sales per vehicle in operation). Given melting vehicle sales, the only way to do this is to increase service retention (SR). For most other OEMs, tracking SR improvement is like watching glaciers grow. You know what I mean. To make meaningful improvements in SR you need to do a whole bunch of things, and it is nearly impossible to parse out the incremental benefit of each strategy element. The ultimate measurement of success is selling more parts per unit in operation. That can be measured … and, more importantly, understood.

Ok, we’ve talked about that before. We’ve also talked about online social media. Information on the internet impacts how you buy and care for your cars, pickups, Class-8 trucks, tractors, and backhoes. Customers go to the internet for information that they consider to be “independent.” They cull data that influences what they buy, what they think, and how they act. Based on a DriverSide RL Polk white paper (“Service Marketing 2010”), 74% of consumers choose companies and brands based on what others say on-line about their customer service experience. Wow. But, not at all surprising.

Web-sites like DriverSide pose the risk of disintermediation of the vehicle owner from the dealer/distributor/OEM. This is neither good nor bad; it is merely inevitable. Vehicle sales lead generators did this during the dot-com days … until OEMs realized they needed to control dealer sales leads through their own web portals. New social media sites are popping up everywhere – customers can “vote” satisfaction using a simple 1-5 point survey … for health care providers, restaurants, retail stores; you name it. Verbatim comments make the customers’ experiences even more credible. As younger customers move into their vehicle buying/servicing years, social media rankings will become more critical. This group is skilled at using and sharing its collective voice through the internet.
Time out: A lot of our core beliefs are based on OP (Old People) skills and values. This is certainly not the future. Inevitably OPs will cede to YPs (Young People), and web-adept folks will be buying cars, pickups, tractors, combines, heavy trucks, and backhoes. They will service that stuff, too. OEMs need to get their arms around this and control the process through their own web strategies.
Next, let me give you the good news. In preparing the white paper, DriverSide conducted mystery shops at over 200 service providers. They found that dealers were the most professional and most willing to provide exact prices. Half of the independents were rude to callers and most likely to refuse to provide a phone quote.

Hey, this looks like we are already in the promised land!

Not really. Those were just the impressions of the researchers. Customers actually felt quite differently. Service customers seem immune from rudeness and ambiguity, and most believe that the locally owned independent repair centers provide more value than dealers.

In the past, we’ve talked a lot about “Trust, Value, Cost, and Convenience.” Franchised dealers/distributors, unfortunately, have a huge reputational deficit to overcome. Customers expect dealers to be dishonest, and this constantly gets reinforced. OEMs do not do enough to dispel these negative impressions.

Again, the white paper researchers did their homework and the mystery shop data showed that 71% of all repair facilities, independents and dealers alike, over-quoted nationally published repair times. Everybody is guilty of this sin.

But, what did real customers think? They thought dealers were four times more likely to overcharge than the locally owned independent garage. Worse yet, they often felt that the local independent provided higher quality repairs.

Depressing, but we’ve heard this before.
Time out: Let’s summarize what we know about dealer service:
  1. There’s no apples-to-apples evidence that proves dealers are more expensive than IRFs (independent repair facilities). To the contrary, we’ve seen evidence showing dealers are less expensive in things like scheduled maintenance.
  2. Dealers generally have higher labor rates than IRFs and proudly boast this on their repair orders so that customers have proof that dealers are gougers and more expensive. Hey, techs cost more than plumbers, and I’d change my plumber if I could find a good one that was cheaper.
  3. Dealers generally have lower repair parts costs than IRFs – customers have little or no point of reference for these costs, because they don’t even know what the parts are for in the first place. So, who cares?
  4. Customers are loyal to their channel choices. If they are dealer-loyal; they love their dealer. If they love their IRF, well, they love the whole family of independent garages that are within 15 miles of where they live.
  5. Everybody knows dealers cost more. People do not let the facts get in the way of common knowledge. The myth needs to be un-learned, and nobody’s doing much about that.
  6. IRFs are owned and run by the little guy – generally accessible, often personable, and usually hard-working. The underdog. Americans love this.
  7. Making a local IRF successful is the proud accomplishment of some go-getter entrepreneur. To Americans this is admirable. We will give an entrepreneur the benefit of the doubt.
  8. Americans cut no slack for dealers. Maybe that’s because memories of our last dealer visit involve an F&I guy pushing us to buy clearcoat and an aftermarket remote starter for our newly purchased car.
Fixing service retention at most OEMs requires a new end-to-end strategy that recognizes that much of the problem lies with the ends. Here, the means justify new ends. On one end we have the dealer/distributor service advisor who is just following the blueprint, packaged so nicely by corporate. Flap A gets inserted into slot B – remember the Chrysler 5-Star key tosses? Great commercial. We see this in the whitepaper’s researcher comments. Dealers stick to the script and do a professional job on the phone. The big problem is that the script is wrong for the competitive environment and for a customer-base predisposed to dealer distrust.

On the other end is the OEMs’ social media strategy. We have simplistically tried to assess just the educational content of OEM websites in prior blogs. The scale spans from 0 to 160, with median scores at 80. Social media implications for our industry are a lot more complex than the scores we assigned. But, it’s a start.
Time out: DriverSide’s whitepaper is just saying stuff we already know.
  1. DriverSide’s white paper clearly shows that customers have negative impressions of dealers/distributors. This confirms prior knowledge.
  2. But, we know that many of these impressions do not represent the facts.
  3. So, if we need customer impressions to change, then somebody’s got to take responsibility for this.
  4. And, it won’t be the independent aftermarket.

Because of the enormity of the challenge associated with improving SR, OEMs have responded with a barrage of initiatives. Doing a PDCA (plan, do, check, act) is pretty complicated and would result in a document that looks like Obama’s 2,000-page health care bill. Something like that can’t be legislated in Washington or in typical OEM management bureaucracies.

Bottom Line: OK, so what’s the 10-point program for transitioning from a Service Detention strategy to a Service Retention strategy?
  1. Before you start, you need to embrace the killer metric for success –increased parts sales per relevant unit in operation . If you sell more parts per unit of fleet, it means that you will sell more service. If you sell more service, that means more customers are coming back. Only satisfied customers come back, and they are the ones who will buy more whole goods.
  2. You need an integrated approach for managing all post-whole-goods-sale customer touches: parts, service, Telematics, sales, e-fulfillment. By the way, Ford is the industry benchmark here; they’ve quite brilliantly tucked all these touches under the President of Ford’s Customer Service Division (FCSD).
  3. You need to sell the right stuff that customers need and want: tires, brakes, batteries, state inspections, service contracts, quick lube, … stuff like that.
  4. You need service advisors who get it and can compete with local independent providers. They do not need to be just as good. They need to be better to overcome the customer predisposition to dealer incompetence.
  5. You need to train service advisors to follow the customer, not to follow some one-size-fits-all artificial prescriptive policy. They will need a healthy dose of un-learning.
  6. You need to understand your dealer capabilities and focus your efforts on dealers who can make a difference and want to, but don’t get it.
  7. You need to measure dealer progress in such a way that you can be both prescriptive and surgical with help and remediation.
  8. You need to beef up your field staff’s time spent in service operations. They will need to be trained.
  9. You need to get the most brilliant e-marketing executive that money can buy, because “once you build it, they will not come.” You will need to hold hands with customers and help them un-learn some common knowledge, and then lead them to an electronic promised land. You need an integrated strategy to capture, connect, and close … for selling service, for selling parts, for selling service contracts, for selling information and education.
  10. You need to manage success from one point of contact, rather than a dozen disconnected initiatives that get lost over time, or lost in the shuffle.

At this year’s NASPC we will have two sessions devoted to e-fulfillment. Make sure someone’s there.

Wednesday, February 3, 2010

Mixed Metaphors: Total Recall Redux, Dancing with the Stars, and Goodness Gracious Great Balls of Fire!

The spectacle of Toyota’s Total Recall is sort of like watching re-runs of the Audi 5000 sudden acceleration crisis from the 1980s. There are a lot of lessons out there that have been ignored by more than just Toyota. Toyota’s crisis is new territory for their team; their once impregnable brand can now be seen to have a certain fragility to it. Toyota customers buy Toyotas because they have the best quality. The bible, Consumer Reports (CR), tells them this. OK, does this CR-endorsed quality satisfy Toyota’s customers? No. “Satisfaction” with a mere material object is a foreign concept. Their loyalty is intellectual. And there’s the rub. How can Toyota’s customers solve the riddle of high quality and CNN’s/ABC’s/NBC’s/Fox News’ reports of questionable safety? We will see. Looking deeply into this fiasco, the news will not be so much about any nasty facts. Rather, the news will be all about how Toyota managers will dance through this crisis. Let’s hope we don’t hear, “you’re doing a heck of a job Jimmy.”


I’m sure Toyota Motor Sales’ president and COO Jim Lentz can identify with Arnold in Toyota’s version of Total Recall. It is hard to get by 5 minutes on cable news without an update – now they are building stories around Toyota being “safety deaf”, whatever that means. Broadcasters seem to be searching for those once-in-a-lifetime “you’re doing a heck of a job Brownie” moments.

Seeing the real action in this recall is a lot like watching Dancing with the Stars on the Wide World of Sports. We are watching Toyota dance using uncertain choreography. And, there’s the thrill of victory and the agony of defeat. Most baby boomers vividly remember how ski jumper Vinko Bogataj’s dreadful jump and crash became an icon for stunning failure. Don’ t remember many thrilling victories.

We have celebrated Toyota’s invincibility for the past 30 years, and now cable news is giving us a front row seat to be spectators, 50 times a day, of what the news seems to portray as their most stunning failure.

Time out: you know, CEOs need a simple 3x5 card to always remind them of a few things

If every motor vehicle CEO had this written on a 3x5 card, well, it would be more valuable than a Harvard MBA. Go ahead and write this down. No charge.

I was at VW headquarters on the Friday before they Danced with the Stars on 60 Minutes – November 23rd, 1986. They had done their homework and knew that the Audi 5000’s “sudden acceleration” problem was pretty much bogus. The Audi 5000 was an icon brand that changed how automobiles were styled (Ford Taurus did that second for the mainstream market). On November 21, 1986, I learned from the VW executives why 60 Minutes was not worth cooperating with or talking to.

Had to un-learn that one because that approach certainly didn’t work.

On the dance floor, Audi tasted the agony of defeat and ultimately had to change the name of the Audi 5000 in order to resuscitate it. Audi’s dance choreography was nearly as important as Tylenol’s – we all learned what not to do in a crisis.

Jim Lentz is now dancing with the stars and all of America is watching. The dancers everybody’s still talking about were on that Tylenol team, and they did pretty well: recalled everything, changed how products are packaged for the entire industry, and literally turned the agony of defeat into the thrill of victory. That’s one hard act to follow.

So, Toyota will be on the dance floor for a while. Others have been there and survived. In fact, Toyota is nowhere near the top of the list in “Total Recalls.” Ford, the darling of today’s US automotive industry, holds the top two spots.

Toyota’s crisis is not about some fundamental flaws. To the contrary, on the industrial side, Toyota is generally regarded as pretty much flawless – they have been in the role of teacher for the past 30 years. The Toyota Production System has been adopted by many others and is still considered best-in-class. So, they did not screw up in any of the fundamentals of manufacturing. On the wholesale side, Toyota dealers rank among the most satisfied in the industry. Maybe too satisfied – they make a ton of money and that’s pretty satisfying.

If Toyota has a soft underbelly it’s on the consumer side – Toyota customers suffer from acute schizophrenia. A typical Toyota customer is a mainstream “commodity” buyer who adores Toyota’s quality, but rates them less-than-average in customer satisfaction.

Consumer Reports subscribers rate Toyota’s brand as the best in the industry. It gets a score of 196 – more than twice the score of Lexus. Hummer is the worst with a score of 11. For the past few decades, CR’s subscribers have consistently rated Toyota products as having the highest quality and dependability, and they have shown up on CR’s top recommendation list for as many decades.

Time out: I used to be a CR subscriber. It is like a big commune of like-believing people. Sliderulers. The media loves CR, because they speak for millions of those kinds of people out there. They killed the Suzuki Samurai with rollover tests that nobody understands – you know, the test where they strap these giant outriggers on a car and make it look like a Hawaiian parade canoe. Then they do a slalom course. Hey, I only do stuff like that on weekends.

Brands are fragile affairs. The mighty Toyota brand has a certain fragility as well. Toyota’s customers don’t care about all that kaizen kanban muda jujitsu. Toyota’s consumers sit on a fairly narrow reputational foundation of world-class quality. That was okay up until recently. Now the struggle for all of Toyota’s middling satisfied customers is how to reconcile quality with concerns about safety. Who cares about vehicle dependability when everybody on TV is hinting that the dang things aren’t safe? It’s not like Toyota’s customers are coddled, or even want to be coddled. They want, they demand, quality. It is that simple. … And, of course, safety.

Too bad Toyota is not more like dead-brand-society Saturn, with customers who love them. Or, maybe, it’s vice versa.

Most icon brands will inevitably face a crisis in their lifetimes. Sometimes the crisis will kill them. Other times it is just a stupid business model. Good managers need to avoid all of the usual suspects (no cyanide, no fireballs, none of that sort of stuff) and to anticipate crises of different sorts. They need practice/experience and coaching, or extraordinary insight. Toyota’s last real crisis was in the 1970s with Toyopet, so there has not been much opportunity for practice. Experience is pretty important, and the lack of it is working against Toyota.
  • Toyota lost its ride ‘em cowboy brilliant and decisive American leaders/managers over the years. Bob McCurry was the first cowboy who put Toyota on the map. Jim Press was the last of this breed – he’s more like Bonanza’s Ben Cartwright. It has been easier for Toyota to become more Japanese since Jim Press left … relying more on consensus in decision making. It is hard to get consensus agreement on what to do at tomorrow’s news conference; especially if the consensus management nexus is in Japan.
  • 2009’s recession forced a lot of belt tightening – you know, early retirements and stuff like that. So, we are all left with a younger team with less experience. Toyota is no exception.
  • Listening to industry insiders, it seems that the Japanese government has been pressuring Japanese companies to eliminate/reduce overtime for a couple of years. Prior to this, when new vehicle project designs were up for bid, experienced Japan-based engineers and designers would win projects because they could underbid the outsiders by “hiding” hours/costs to develop vehicles. They would low-ball bid projects using 7-8 hour days (5 days a week) … and then the team in Japan would work 12-hour days to make budget. It was not only Toyota that lost in this unintended system dynamic that replaced hard-working seasoned product development staff with globalized newbie-ness and ineptitude.
  • There are some lessons from anybody who has been at the top of the heap. You can be: (1) the biggest player, (2) with the best quality, and (3) have the highest safety. Pick any two, and choose wisely.
That leaves coaching and extraordinary people. … OK, extraordinary people. Let’s cross our fingers and hope Toyota gets out of this alive. We still have a lot to learn from this incredible company.

Bottom Line: With product liability costs/reserves in the US market coming in at a couple of thousand dollars per unit for the high quality OEMs … it might make some sense to throw in another $20-$30 per unit to avoid those great big brand-killing, tort attracting, fireballs. And …
  • Learn from others; get the Tylenol guys on the phone.
  • Dance like Fred Astaire rather than die in the agony of defeat – complete transparency is key – communicate, communicate, communicate.
  • Show A LOT of action.
  • Get someone new and important who can talk politics in Washington fast; having the Government on your side is not a bad thing.
  • Convincingly tell the consumer it is going to be OK, their safety is Toyota’s #1 priority.
  • Get the facts straight, and get them out in public for everyone to see – think about the GM guys who acted like forensic scientists with their pickup truck fire debacle.
  • Move fast, show progress, show the world happy vehicle owners getting their vehicles fixed to “only the standards Toyota offers; no compromise.”
  • Hey, it might make even sense to keep some of the old dogs around just in case there’s another crisis.