Toyota's Tylenol moment: Can it recover its reputation after recalls?

Toyota suspended sales of eight models involved in a recall for a sticking accelerator pedal. The company said it will halt sales so it can figure how to fix the problem. Can the company recover its reputation?

Updated: Toyota is now facing a Tylenol moment and it remains to be seen whether it can recover.

In 1982, Johnson & Johnson pulled its Tylenol products off the shelves over safety concerns. At the time, the handling of Tylenol won praise. Tylenol sales tanked, but then recovered. The 1982 recall is now a widely used case study.

On Tuesday, Toyota suspended sales of eight models involved in a recall for a sticking accelerator pedal. The company said it will halt sales as it figures out how to fix the problem. The issue in both the Tylenol and Toyota cases: Customer safety. What remains to be seen is whether Toyota can navigate the tricky terrain it faces.


One key difference in the cases: Johnson & Johnson was a victim---Tylenol capsules were replaced with cyanide laced ones by someone. Toyota's own manufacturing processes and engineering are the problem in the sticking gas pedal case. In addition, Toyota hasn't been able to come up with a fix.

Gas pedals that stick are an obvious safety issue. Toyota on Jan. 21 recalled 2.3 million vehicles. Before that Toyota wrestled with a gas pedal-floor mat issue.

In its statement, Toyota said that the recall and suspension of sales is "confined" to the following models:

  • 2009-2010 RAV4,
  • 2009-2010 Corolla,
  • 2009-2010 Matrix,
  • 2005-2010 Avalon,
  • Certain 2007-2010 Camry,
  • 2010 Highlander,
  • 2007-2010 Tundra,
  • 2008-2010 Sequoia.

Those cars represent a big chunk of the Toyota line-up and profits. Toyota's Prius, Tacoma, Sienna, Venza and others aren't affected.

So now comes the Toyota balancing act. If it finds the cause quickly, rectifies the problem and communicates with customers well perhaps Toyota can regain trust. If Toyota screws it up, Ford, Honda and Nissan will gladly take Toyota customers. Toyota's move can also affect values of car leases and trade-ins. Will Toyota have to make its customers whole?

Simply put, Toyota is facing a Tylenol moment and how it fixes the problem and manages communications from here will determine its future.

Update: Investors are obviously concerned about Toyota's prospects and profit potential after its recalls. A quick look at American Depository Receipts of Toyota:

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