toyotaGMlogoAs the US Department of Justice (DoJ) concludes a 4-year, billion dollar investigation into Toyota, Mary Barra, recently appointed CEO of General Motors (GM), has stepped into the firing line.

While Toyota is set to pay out a staggering $1.2Bn fine to the DoJ for covering-up fatal mechanical defects that caused their cars to ‘unintentionally accelerate’, GM recently announced a recall of 2.6 million cars with defects linked to 13 deaths. Their own cover-up began back in 2001.

The original intention of this post was a comparison of GM’s crisis leadership with that of Toyota’s during their damaging 2009 recall. However, with Toyota facing the largest criminal penalty ever levied against a car manufacturer, substantial recalls being announced almost daily (over 11 million vehicles so far this year) and GM being fined the maximum daily amount by the US National Highway Traffic Safety Administration, it has become clear that this is a much larger issue for the automotive industry as a whole.

With a spate of high-profile recalls in the past few years, heightened press coverage and tougher regulation being enforced across the sector, car companies can no longer be “too proactive” in their approach to timely issues management to prevent problems arising in the first place and then, if a recall is necessary, to ensure it is managed effectively. The industry must undergo a root and branch review of the way recalls are handled in the future, both operationally and strategically.

Crisis planners across the sector would do well to note Mary Barra’s swift and decisive action which has impressed observers and led analysts to suggest that any harm caused to GM’s stock price or reputation will be short-lived; this in spite of the fact that GM’s recalled models have been linked to considerably more deaths than Toyota’s.

So, what can Barra’s response teach the car industry?

People before Profits

During the 2009 recalls, Toyota was accused of dragging its feet; maintaining that certain models were safe and issuing recalls of those same models soon after. Recalls were sporadic, unexpected and spread across many months. Essentially, they chose to protect their brand rather than their customers; a move that U.S. Attorney Preet Bharara described as a “misguided and ill-advised effort at crisis management”. The truth is that the trust the public held in Toyota, and their reputation for safety and reliability, successively diminished after every recall, wiping $35Bn off their market value.

GM, on the other hand, has recalled four million vehicles in the first four months of Mary Barra’s tenure, at a cost of $1.3Bn. GM seems resolute in abandoning its cost-cutting image, concentrating instead on identifying problem cars and issuing recalls. Mary Barra’s ‘new’ GM is refocusing its brand values and emphasizing its commitment to consumer safety. It’s a costly tactic in the short-term, but when it comes to customer loyalty, brand image and reputation, it will surely pay dividends in the longer term.

Nature Abhors a Vacuum

Central to Toyota’s 2009 problems were a clear lack of leadership and a substandard communications strategy. The first media interview wasn’t conducted until five months after the initial recall was announced; the first press conference – and apology – didn’t happen until another month later. Senior management appeared to ignore the issue until it had reached breaking point.

So, the media sought other sources. At the height of the story, Toyota was the focus of 11% of America’s news. 106 out of the 108 articles examining the recall in the Wall Street Journal during February 2010 were undeniably negative and any crash involving a Toyota made headline news, even if it didn’t involve one of the defective models.

Toyota created an information vacuum. The media filled it. A lack of transparency was undoubtedly the main cause of Toyota’s downfall, and by mid-March, when their crisis management team finally got going, the damage was already done. Companies embroiled in crises must be open with the media, the public and other stakeholders and provide them with timely information.

Of GM’s crisis, Barra wrote, “Our Company’s reputation won’t be determined by the recall itself, but how we address the problem going forward” and, at least up until now, she seems to be following her own advice. From the beginning she has aimed to be the human face of GM’s response. Her commitment in getting to the root cause of the recalls and engaging with the public, press and government has stood both GM and its reputation in good stead. Barra’s visibility throughout the crisis has been praised and she has done a good job in exemplifying empathetic and repentant leadership – apologising immediately and launching an internal investigation to discover who knew what and when.

Her smartest move, however, has been to draw a line between pre and post bankruptcy GM. Cover-ups and cost-cutting are being sold as the hallmarks of pre-bankruptcy GM, while the ‘new’ GM is a beacon of hope. The new GM will fix this. The new GM wouldn’t let this happen. The new GM is more safety conscious. Oh, and the ‘new’ GM cannot be held legally responsible for ‘old’ GM’s mistakes.

A good reputation and strong brand image might not protect you in a court of law and GM certainly has a number of culpability questions to answer but it seems as though Barra has managed to navigate the reputational pitfalls that Toyota fell in to. With a strong communications strategy, a CEO not afraid to take accountability and a willingness to put people before profits, trouble-prone GM might just get through this relatively unscathed. Time will tell.