- Market Commentary -

February 2, 2010 (FinancialWire) (By Philip Holmes) — Never has a cherished brand taken a bigger hit in a shorter period of time than has Toyota Motor Corp. (NYSE: TM). But it’s worth remembering how another automaker, Germany’s Audi, fell from grace over the exact same issue 20 years ago, and how it has clawed its way back to North American respectability.

Audi was never as cherished by Middle America as Toyota. Its cars were viewed with some suspicion by the punters as small, unreliable, overpriced cousins to the more beloved Volkswagen and the infinitely more respected Mercedes. (That’s in the USA, mind.)

But Audi had, by the middle 1980s, built a solid image as a company of German engineering prowess. And whose large 5-cylinder luxury sedan, (called the 5000 in the US), had by then become a yuppie status toy.

The brand seemed poised for greatness, at least in affluent suburbia. That is, until people started roaring out of the wrong side of their garages behind the wheel of their out-of-control Audi’s. The culprit – as the TV program 60 Minutes delighted in telling the country – was unintended acceleration.

Audi then, like Toyota today, made the mistake of initially ignoring the problem, then blaming the phenomenon on something other than their brilliant engineering. In Audi’s case, the blame was placed on American women drivers, who failed to distinguish between the brake and accelerator pedals. Toyota, as we know, initially blamed loose floor mats.

Audi had a point: the pedals on the 5000 were closer together than was the norm on most passenger cars of the era. This was meant to accommodate “heel and toe” driving technique in stick shift models. The placement was, unfortunately, carried over to the automatic equipped cars.

Whatever the cause of the problem, the result for Audi was more than a decade in the American market doghouse. Only in the past few years has the brand regained the luster it had nearly achieved back in the 1980s.

Audis were nearly unsellable by the early nineties. This writer bought a 4-year old 500 turbo for just $1,900 at a dealer auction in 1990. The car barely had 50,000 miles on the clock, (and each and every subsequent act of acceleration was purely intentional.)

Of course, Toyota’s problems are much, much bigger than Audi’s. While Audi was never destined to be more than a niche player in the American market, Toyota grew to usurp GM’s title as the biggest seller of cars there. And while Audi owners put up with some extra trips to the shop (mostly electric faults), Toyota built its reputation on rock-solid reliability

Add to this the nagging suspicion that Toyota’s unintended acceleration might have an electrical, rather than mechanical origin. There are several class-action lawsuits claiming just that.

Electronic (or “fly-by-wire”) throttle systems were only on the drawing board in the eighties. Now, they are commonplace in many cars, including many Toyotas. Such systems eliminate the mechanical linkage between driver and engine, in favor of an all-electronic interface run by computers.

While these systems allow for better control over how power is distributed to the wheels, (they’re handy things to have in place when designing traction control systems, for instance), they open the door to fears of electrical glitches causing the car to become uncontrollable, Stephen King style.

Toyota vehemently denies that this is the case, and is now hard at work replacing accelerator pedals with new, improved versions. We’ll see what happens, but Toyota’s credibility was definitely hurt by its initial response to the crisis.

What it can learn from Audi’s mistakes is that an open, full investigation of the problem can do a great deal of good. Toyota can also take heart that even an arrogant, aloof response to a crisis can fail to kill a brand.

[Go to http://www.financialwire.net/?s=philip+holmes to see more commentaries by Philip Holmes.]

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