David Zalubowski | AP
Just as Toyota announced its latest in a long line of recalls -- 2.17 million more vehicles added Thursday to a 2009 recall for accelerator pedals that could get jammed under floormats -- the company was also launching a new advertising campaign. Hoping to put the nightmare of recalls in its rear-view mirror in 2011, the Japanese automaker will be using its strong financial position to try and drown out this and other issues that still dog the brand.

The "#1 For A Reason" campaign Toyota kicked off this week is meant as a reminder of Toyota's long-held accomplishments. The ads will feature Camry, Corolla, Prius, RAV4 and Tacoma with messages like Camry as "the number-one selling car in America" and the Corolla as "the best selling car of all-time" with 8.6 million sold since it went on sale in the U.S. in 1966. Prius will be flagged as having the best fuel economy of any car in the U.S.

The campaign will run through March at the same time the company is advertising zero-percent financing, plus heavy discounts on some of those models, like $1,750 off on the Camry, which is on top of dealer discounts that have the Camry's real pricing within about $100 of the dealer's invoice cost. "For three consecutive years, people have purchased more Toyota vehicles than any other brand," said Bob Carter, group vice president and general manager of Toyota Division for Toyota Motor Sales, U.S.A. "We look forward to maintaining this momentum in 2011 as we continue to focus on fuel efficiency, value, quality and safety."

There has been some good news for Toyota recently. Sighs of relief could be heard from every Toyota dealership in the U.S. when on Feb 8, the National Highway Traffic Safety Administration said it could find no issues with the company's electronic systems that were accused of playing a role in sudden acceleration accidents and fatalities. But Despite Toyota's vindication, which nevertheless said that accidents had been affected by a mechanical problem with the gas pedal and or floor mats that got caught up in pedal mechanisms, Toyota is facing several other issues that will challenge its leadership and culture: Some of its top selling vehicles are still being criticized for shoddy interior design and dull exterior styling; its truck business remains moribund; and the United Auto Workers is said to be planning an assault on what it views as a weakened company, one that is now ripe for organization.

Still Top Dog

Marketing experts view the new ad campaign, combined with a parallel corporate ad promoting Toyota's technology, innovation and American plants, as diversionary. "Toyota for over a year has had a steady drumbeat of negative headlines and chatter questioning the core of its brand value," says marketing and social media consultant Dennis Keene. "They are going to spend some time and big money reminding people that they are winners, not losers, and people tend to associate themselves with winner brands."

Surveys done by BrandIndex, a marketing firm that tracks public perception of brands, show Toyota's image has somewhat rebounded from its lowest points reached during the recall crisis, but it has a way to go. In February and March of 2010 when recalls and government inquiries were spiking negative headlines and TV news coverage, BrandIndex says Toyota's standing among automakers had dropped from No. 1 to third-from-last. Now, the automaker ranks 16th out of 28 brands among in-market car shoppers in terms of perception of quality, value, reputation, impression, satisfaction and recommendation.

Toyota has also played an aggressive and savvy digital marketing game for a year that has probably helped contain fallout from the recalls. Through aggressive search term buying and coding of its own corporate-generated material, Toyota's own web content defending itself has routinely led Google searches on "Toyota Recall."

New Sheet Metal

Toyota plans to introduce seven new or refreshed vehicles during 2011, including a new Camry, Prius V wagon, Yaris and Scion iQ minicar. Toyota is counting on these, especially a new Camry, to close the gap in its market share losses last year. Toyota's share dropped from 14.3% in 2009 to 12.8% last year despite heavy incentive spending.

One of the things critics and customers will be looking for in the new Camry is whether Toyota is investing more in its interiors. Ford, GM, Hyundai and Kia, in particular, have invested in making interiors of cars like Ford Fusion and Hyundai Elantra and Sonata look and feel look cars costing $10,000 more. While this has attracted buyers to the competition, interiors of some of today's Toyotas suffer from a culture at the company dominated by purchasing managers who cheapened materials in Toyota's high-volume vehicles like Camry, Corolla and Yaris. "Interiors are becoming a huge point of differentiation and satisfaction, and some of Toyota's, not Lexus's, pale in comparison with their rivals," says Rebecca Lindland of IHS Global Insight.

Indeed, the Camry, which saw sales fall by 7.5% last year, has been criticized for cheap looking plastics and poor fit and finish.

Toyota is also trying to reinvigorate its Scion brand, which started off strong in 2002 and 2003 with good marketing and a quirky product line, but has declined in recent years as the company has seemed lost when it comes to design that attracts young buyers. Later this year, it will roll out the iQ mini-car and a new sports car in the hopes of kick-starting the brand aimed at young car buyers and those who like to accessorize their vehicles.

Toyota will introduce two more Prius-branded vehicles this year to try and capitalize on its reputation for hybrids. It far outdistances rivals in hybrid sales, and the company sees the Prius brand as key to restoring lost confidence.

Toyota pickup truck business went South with the U.S. economy, but its weakness seems more serious than that. Sales of the Tundra pickup, which Toyota launched with much ballyhoo to take on Ford's truck leadership, were just 93,309 last year, less than half what the company planned for at its Texas assembly plant. A new Tacoma mid-sized pickup will come out this year, but will face stiff price competition as Ford and Dodge wind down sales of their Ranger and Dakota products.

Labor Tries Again

Toyota leads all foreign-owned automakers in U.S. production. The company has plants in Kentucky, Indiana, West Virginia, Texas and Missisippi. The only experience it has had with unionized labor in the U.S., though, has been the NUMMI plant in Fremont, Ca., which had been jointly owned and operated with General Motors until it shut last year. (The plant is being re-opened by Tesla Motor with a financial stake purchased by Toyota.)

This could change, as the U.A.W. appears ready to target Toyota in 2011. The union has long tried to organize foreign-owned plants like Nissan, Honda and Mercedes, but failed. Union officials, who have not formally announced that Toyota will be their target, say privately that they think Toyota will not want to be seen as denying workers if they want to stage a vote for unionization amidst so much bad publicity around its recalls, as well as tens of millions it has been spending on advertising its U.S. manufacturing.

Coming off two years in which it has had to surrender many benefits and wage advantages with General Motors, Ford and Chrysler, the UAW needs a victory. But it won't be easy. Toyota's U.S. workers make about $50 per hour and don't get laid off even when Toyota sales lag. By contrast, GM's UAW workers are now making about $28 an hour. So, even if the UAW can get a Toyota plant to hold a vote, it may not win.

Financial Outlook: Positive

When the U.S. government issued its report that it could not find any problems in Toyota's electronics that may have cause incidents of sudden acceleration, Toyota shareholders let out a huge sigh of relief. A reverse finding could have triggered a recall of tens of millions of vehicles worldwide -- ten million or more in the U.S. alone by some estimates. That was part of the reason that Toyota has been sitting on nearly $48 billion in cash and short-term investments as a "rainy-day fund." By comparison, that's more than twice the cash Ford has.

Toyota stock has climbed 12 percent since the company lifted its annual profit outlook on February 8, when it got the favorable ruling from the U.S. government. Its market capitalization is up to $146 billion, roughly three times that of GM and Ford.

The biggest drag on Toyota's fortunes may not be its tarnished image at all, but a strengthening yen. The Japanese yen is trading not far above 80 to the dollar, close to a record high set more than 15 years ago. A strong yen hurts the profits of cars built in Japan and sold in the U.S., and it depresses the value of earnings made in the U.S.

Toyota says it figures to earn around $6 billion this year. That would be worthy of celebration at Ford or GM, but it is less than a third of the record $20.4 billion it made in the year ended March 2008. The automaker says currency valuations are the biggest contributor to the hit to earnings.

Looking Forward

President Akio Toyoda took the reigns of the company last year amidst the company's recalls. He acknowledged that the company's culture, which long focused on quality and reliability, had been sacrificed by previous managers in favor of higher global sales. It is his intent to get the company back on track.

In April, Toyoda, a member of the company's founding family, is expected to introduce a new "2020 Vision" for Toyota, which is intended to put the company on a road back to its reputational heyday, and play down global sales leadership in favor of quality and innovation leadership. Toyoda is a self-professed driving enthusiast, and the hope among many Toyota executives and dealers that his passion will translate into more interesting and higher quality designs.

"We were damaged a lot," Toyoda said on the sidelines of last month's North American International Auto Show. "But I think we are getting on the right track."


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