The Immaculate Recall

Say "Toyota" and "recall" in the same sentence all of a sudden, and you're sure to get a conversation started.

We'll see how the current recall plays out for the world's largest automaker. In the meantime, I'd like to share the lesson of another Toyota Corporation recall, this one from 1989.

At that time, Toyota had just introduced a new division, Lexus, with the express goal of redefining the very meaning of luxury car and of "made in Japan." Now, at that time Japanese cars were popular for their fuel efficiency and, sure, reliability - but luxury? The very notion had auto executives in the US and Germany in hysterical fits of laughter, and much of the buying public shared their skepticism.

Still, within a few months Lexus had managed to sell 8,000 of its LS 400s. Then one American customer reported a problem with her cruise control. Shortly thereafter, another customer in a different city experienced the same problem.

Two faulty cruise controls out of 8,000 cars. Not the end of the world, right?

How you answer that question has everything to do with how savvy a businessperson you are. You see, the executives at Lexus weren't just trying to sell cars that quarter or that year: they were trying to redefine the national "brand" that was the Japanese automotive industry. To them, the question was never, "Will this problem blow over with minimal expense and (please-oh-please!) minimal bad press?" To the leaders at Lexus, the question from the very beginning was, "What will we do about this problem to show the world that no one does luxury like the Japanese?"

So, Lexus recalled every one of the 8,000 cars it had sold. Dealers drove to customers' houses and left customers a high-quality loaner car while the work was done. They returned repaired cars washed and detailed, with a full tank of gas and a present on the front seat - all, remember, for a faulty cruise-control: nothing more than a slight nuisance, when you think about it.

What's more, in the cases where the owner lived some distance from the dealership, a mechanic traveled to the customer's house with the new part and did the work there in his driveway. In one example, a customer had bought the car in Los Angeles and driven it to his home in Alaska, so a mechanic flew to Alaska to do the repair.

Short-term, this was way over-the-top: "Come on!" I can just hear some suits in Detroit and Stuttgart exclaiming. "They can't be serious!" But if there was any laughter, it was now tinged with more than a bit of nervousness. Because in this one heroic act Lexus did, indeed, show the world that the meaning of "luxury car company" would never be the same.

Foolish choice? For years, Lexus has held two proud distinctions: they are the perennial top choice of customers for "best service reputation." And they are #1 year in, year out, in luxury auto sales.

Was it worth it to spoil customers this rotten? Ask any savvy capitalist, she'll tell you: saving pennies on customer service will cost you dollars.


*****

I've heard this tale from several sources over my career, but my favorite version comes from Satisfaction (2006) by Chris Denove and James D. Power IV. I can't recommend their book highly enough.