When it comes to corporate disasters, the problems with Toyota’s gas pedals is a doozy. From a PR perspective, this one ranks right up there with Union Carbide (Bhopal), Johnson and Johnson (Tylenol), and of course Ford/Firestone (Explorer). Which makes it all the more curious as to how Toyota seems to be dragging their feet in their response to the problem.

I’ve done some writing for TheTruthAboutCars.com (an excellent site if you’re interested in…well…the TRUTH about cars), and I’ve been monitoring their take on the Pedalgate thing. As usual TTAC goes beyond the hype and headlines, and investigates what’s REALLY going on. Seems that Toyota uses two designs for their pedals, from two manufacturers. To be fair, Toyota designs them, then farms out the manufacture to contractors. But what’s ironic is that one design (made of plastic) is trouble-free, and the other (metal) one is fraught with problems. Even more interesting is that there’s plenty of evidence that these problems date back to 2007 or 2008, and that Toyota has known about the problems since they began.

There are two questions here. The obvious one is “What did Toyota know, and when did they know it?” The less obvious one (to non-marketing types) is “Why isn’t Toyota being pro-active in their response to this problem?” So far, Toyota’s response has been positively tone-deaf. After an initial, aggressive move to stop production/sales of affected models, Toyota’s made one wrong-headed move after the next.

If Toyota wants to either turn lemons into lemonade – or at this point, at least do no (further) harm to their rep, they need to meet this thing head-on. For instance, stop screwing around with trying to repair or modify the pedal design that doesn’t work, and just replace all the existing faulty designs with the model that’s trouble-free. Next, they need to mount an aggressive PR campaign to explain what they are doing, and why they are doing it. A forensic examination of their design processes wouldn’t hurt either. And finally, they need to look at what they can do to keep current customers from becoming former customers. Maybe free scheduled-maintenance for the next three years, if done at a Toyota dealership. Or a gas card. Something. Something that says “we’re sorry we screwed up, and value our customers more than our bottom line.”

Will Toyota get it? I’m frankly not sure. Given their rep for savvy marketing, I never thought any problem like this would have gotten this far down the path of cluelessness. But it has. And as the de facto industry leader, the way they ultimately deal with this problem will cast a long shadow over the automobile biz as a whole. Toyota…the next move is yours.

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Addendum: Just after I posted this blog entry, Obama’s Secretary of Transportation claimed that he’d “misspoken” earlier in the day, when he advised Toyota owners of affected vehicles to NOT drive them, but demand repairs from their dealers. Nice to know that the Obama Administration’s responses to a national crisis is consistently ambivalent.

I’m also told that the new rules on blogging mean I need to disclose any connections I might have to Toyota. I have none, unless you count owning a RAV4 back around 1996 for all of about 6 months, and dating someone who drives a Camry. I own no stock in Toyota – or any other automobile company for that matter – and I am not a compensated spokesman for any company with any connection to Toyota. So there.

There’s a reason, a believe it or not, it’s not “executive incompetence.”

It’s Congress.

Yup. That’s right. Congress. Just like in the mortgage crisis, where the same guys (Frank, Dodd, et all) who were responsible for creating the mess were charged with fixing it (rather like putting a rapist in charge of the sexual crime suicide hotline), Congress is now in charge of saving the auto industry it screwed up. Doubt me? Read on…

No matter what you think of American automobiles – or the Big Three automakers – you gotta admit that they do one thing really well – build big vehicles that can haul a lot of people or stuff, and do it with a relatively large amount of style. But they also make a bunch of wanna-be econo-boxes that few people are lining up to buy – cars that do not compete with their Asian and European import cousins. Why? Congress.

Here’s the deal – the capitalist, free-market system has built-in checks and balances that automatically encourage car makers to make more of the vehicles people want, and make fewer of the ones that are not in demand. (Hint: it’s called the “Law of Supply and Demand.”) Make a hot vehicle (like the Wrangler Unlimited)? You do your best to ramp up production to meet demand. You make more, you sell more, and everybody’s happy. Make a dog (like the Jeep Commander)? Don’t make too many, or you’ll have them stacked up on dealer lots, forcing them to deeply discount them to move them out – which devalues your brand.

Problem is, when you have a group – any group – essentially put their finger on one side of the scales the represent supply and demand, you gunk up the system and prevent it from responding to consumer demand. Case in point: CAFE standards.

Some time back, ecology-minded activists successfully persuaded the Feds to mandate fuel economy levels. Realizing that what they were asking for (all vehicles sold to meet fuel standards) would mean that the Big Three would not be able to make vehicles that were in demand (trucks, SUVs, big sedans), the U.S. automakers got the law jiggered so that they could make the stuff they could sell as long as they would offset those fuel-inefficient vehicles with others that were fuel-efficient. The result has been an unmitigated disaster. Here’s why. Let’s say I make a truck, an SUV, a big land-yacht, a sports car, and a coupe. I sell a lot of trucks, SUVs, and land-yachts, a fair number of sports cars, and a couple of coupes. The Feds come in and tell me that I have to meet fuel standards. Based on current technology, there’s no way I can do that. So I make a deal – I’ll create an econo-box and promised to build one of those for every two fuel-inefficient vehicles I build. That way, I’m effectively raising my overall fuel efficiency ratings, while still making it possible to sell vehicles that people want to buy.

First problem, the Feds don’t want me to import these econo-boxes, so I can’t simply make a deal with a competitor to re-badge one of their big-sellers. No, the Feds want me to make the econo-boxes domestically, and they insist I do it in one of my union factories – which adds $1,500 to the total of every one I sell. I have no experience building cheap rides, so frankly, my econo-boxes are not well-designed, well-made, or, well…desirable. So they sit on lots, rusting, while I sell trucks, SUVs and land-yachts. SInce they don’t sell, they become an albatross around my neck, driving up my operating costs, and making it much more expensive for me to sell my trucks and SUVs.

Now, some argue that the Big Three would never agree to make fuel-efficient vehicles. Not so. If they sell, they’ll build them. In fact, when the last gas crunch happened, Detroit moved to make smaller vehicles. On their own. That’s the solution – let the companies respond to demand. Problem is, the Eco-Nazis saw that public wouldn’t voluntarily buy the small cars (when gas was at $1.25 a gallon, why bother?), so they needed to force them to do so. The only way to accomplish that socialistic goal, is to force manufacturers to build what they saw as the way to “save the world.” So the next time you see a tree-hugger, thank them for bringing our economy to it’s knees. (Sadly, they’ll probably think that’s a good thing.)

While the Big Three management has been clueless, unresponsive, and downright boneheaded, they had a lot of help. From the very people now trying to “save” the industry (read: “Nationalize it”).

Be afraid. Be very afraid. For the industry is littered with the names of brands who were run by the government: Yugo. Lada. Gaz. And if you’ve never heard of these brands, trust me in that there’s a good reason. In order to save the U.S. auto industry, the only thing that will work is to do the one thing that the government will never do – take off the handcuffs, drop the CAFE standards, and let them build the vehicles that people actually want to buy.

Let’s say you’re in the market for a car. You lust after a new one. Doesn’t matter what brand or what model. You buy it. As you drive it off the lot, it automagically loses about 20% of it’s value, simply by moving from the “new” to “currently owned/technically used” column. Say your new vehicle costs $30K, not an unusual amount for a new whip. You’ve put down 20% of the cost of the vehicle, either by trade in, down payment, or both. You plan to finance $24K. Fair enough, but when you drove it off the lot, it lost 20% of it’s value. At this point, you’ve paid $6K for the privilege of driving some new wheels. Hope you’re happy. If you’re not, let me acquaint you with a new term to add to your lexicon: under water. This is the phrase lenders use when you owe more than the item you financed is worth. If you go to trade it in on something you like better, you’ll pay for that mistake for, oh, let’s say the next ten years or so.

My wife drives a Jeep Liberty. Her payments are around $523 per month, give or take. She’s got 24 months left on the loan. 24 x 523 = $12,523. We called the finance guys to get a payoff amount. It was less than $9K. That means that, unless we pay off the car early, we’ll end up paying the finance company a whopping extra $3,552. 

That’s a lot of interest, just to be able to make a monthly payment. The sad part is, the vehicle is worth about $12K if we were to sell it, and just $10K as a trade-in. In other words, we’re under water on the Liberty. 

Here’s a poser for you: given that it makes absolutely no financial sense to buy a new car (and financing any car is essentially not any different than cutting a hole in the bottom of your pocket and letting your pocket change dribble out) why would anybody want to buy a new car? 

I’ve been driving a used Wrangler for years. Bought it in 2001. It had 82,000 on it. I’ve got about 132K on it, and considered selling it, so I could buy a 4-door Wrangler (see – I’m a sucker, too). The amount I can get for it is within a couple of hundred of what I paid for it. Effectively, that means I’ve been driving a car for free for the past seven years (not counting very minor repairs, a new set of tires, gas and insurance, all of which I’d have to pay for any vehicle). Not a bad deal. 

So I ask you, how solid a business model can you possibly have if you’re entire business model depends on gullible consumers that have no clue about what it really costs to buy that car? It gets worse. What if a majority of those that buy new cars suddenly realized that they’d be much better off buying used? In order to keep a steady supply of used cars, car manufacturers depend on people ditching their current rides and upgrading to a new buggy every four to five years. If the public wises up, where will the newish used cars come from? 

As the economy gets even worse, how will car manufacturers attract new car customers? Think of it – they are trying to get Congress to prop up a business model where, even if they built cars we wanted to buy, at a price that was competitive, they are still dependent on stupid people…or at the least people willing to make a stupid decision. 

Obviously, when your entire industry is pulling one massive Blanche DuBois (dependent upon the kindness of strangers), you gotta have a gimmick. Enter marketing. 

Without marketing, the entire automotive industry is toast. Knowing that, it’s about time that ad agencies, TV networks, newspapers, et cetera might want to point that out to the new car dealerships. Maybe if they started looking at marketers and ad agencies as lifelines and saviours, instead of as necessary evils.