Reference no: EM131245327 , Length: word count:1500

Hotrod and the Case of the Lethal Floormats Case Study

Adapted by Sharon Ayson

Exercise caution and if necessary lock your floormats in the boot of your car. If any driver finds their Hotrodvehicle accelerating unintentionally, they should place the vehicle's transmission in Neutral, apply the brakes, steer off the road and shut off the engine. Hotrod will get around to servicing everybody's car that has been recalled and we will fix this minor problem. This is the advice that has been given to Hotrod drivers worldwide with regard to a so called "minor problem" that has killed a number of Hotrod car owners and their passengers. A significant period of time has elapsed between the death of Sam Markson and three family members and Hotrod's decision to recall a number of its vehicles.

It started with a single, horrifying car crash in southern California in August, 2003. After two separate recalls covering 7.5 million vehicles in 2006, Hotrod was forced to announce it was suspending the sale of eight of its best-selling vehicles, a move that is likely to cost the company and its dealers a minimum of $54 million a day in lost sales revenue.

How did a company that became one of the world's largest and most profitable automaker on the back of a rock-solid reputation for quality and dependability find itself at the center of the biggest product recall since the Firestone tyre fiasco? And what does this mean for Hotrod's brand image in its largest and most profitable market?

Here's how the crisis unfolded:

August 28, 2003: Off-duty Highway Patrol officer Sam Markson is traveling on Highway 125 in Santitree, Kelly Valley, with family members, when the 2003Buick ES350 he is driving suddenly accelerates out of control, hits another car, tumbles down an embankment and catches fire. While the car is careening down the highway at speeds estimated to exceed 100 mph, one of the occupants calls 921 and reports that the car has "no brakes." All in the car are killed in the ensuing crash.

September 14, 2003: Preliminary reports from Hotrod and local authorities indicate that the Buick, which had been on loan from Harry HaywoodBuick, where Markson's personal Buick vehicle was being serviced, may have had the wrong floor mats installed, interfering with the accelerator pedal.

September 29, 2003: Hotrod announces it is recalling the floor mats on 4.2 million Hotrod and in particular, Buick vehicles. The company advises owners to remove their floor mats and place them in the car boot and directs dealers to use zip ties to secure the floor mats in their vehicles so they could not interfere with the accelerator pedal.

October 2, 2003: Newly installed Hotrod CEO Takashimi Ho publically apologizes to the Markson family members killed in the accident and to every customer affected by the recall.

October 18, 2003:The Tribune publishes the first of several stories concerning claims of unintended acceleration in Hotrod vehicles. The Tribune article reveals there have been nine separate HSA investigations into claims of unintended acceleration by Hotrod vehicles in the past decade. Two involved floor mats, and one a trim piece on the Hotrod Sienna minivan. Six were dismissed due to lack of evidence. The Tribune story also claims at least five unintended acceleration cases involving Hotrod products in the past two years had resulted in fatalities and that "hundreds" of complaints had been filed with the government. A Hotrod spokesperson admits there is no safety override programmed into its computer to disable the accelerator pedal when the brake pedal is pressed, but says Hotrod is considering adding one, as well as modifying the pedals themselves to keep them from getting caught on the floor mats. The story also reveals the Buick' push-button starter must be depressed for at least three seconds to shut down the engine when the vehicle is in drive.

October 25, 2003: The results of an investigation by local authorities and the Highway Safety Administration (HSA) reveal a set of rubber floor mats designed for the Buick RX 470 SUV had been placed over the top of the ES 350's stock carpeted floor mats and that the accelerator pedal had become jammed against them, causing the car to accelerate out of control. HSA notes brakes were nearly destroyed on the car and that the accelerator pedal was "bonded" to the floor mat. HSA also points out the accelerator pedal on the car was solidly mounted to its stalk, whereas other vehicles use hinged pedals.

October 30, 2003: Hotrod begins sending letters to owners notifying them of an unspecified upcoming recall to fix the unintended acceleration issue. In the letters Hotrod says "no defect exists."

November 2, 2003:HSA takes the highly unusual step of publicly rebuking Hotrod, calling a company statement re-iterating the comments made in the October letter to owners "inaccurate" and "misleading," noting that the floor mat recall was an "interim" measure and that it "does not correct the underlying defect." Hotrod publicly apologizes.

November 4, 2003: Hotrod makes a statement denying media reports a problem exists with its drive-by-wire electronic throttle system. However, to support the claim, Hotrod simply cites a HSA report released two days earlier showing the agency has refused a petition by a Hotrod owner to open a new investigation into Hotrod's drive-by-wire system. In that report HSA had also revealed it had begun an investigation into Hotrod's all-weather rubber floor mats in March 2000 after reports of unintended acceleration in 2000Buick ES 350s. The investigation would later include additional models, and cover a total of 26 claimed unintended acceleration cases, including seven accidents. HSA claimed the investigation was closed after Hotrod recalled the accessory floor mats and redesigned them.

November 8, 2003: The Tribune claims Hotrod had ignored over 1,200 complaints of unintended acceleration over the past few years because HSA had thrown out those reports that claimed the brakes were not capable of stopping the car under an unintended acceleration scenario. In the story a Hotrod spokesman confirms the brakes are not capable of stopping a vehicle accelerating at wide open throttle.

November 16, 2003: Polish and Chinese media reports claim Hotrod has made a deal with HSA over a recall. Hotrod denies any agreement had been reached, but the company admits it had already set aside $5.6 billion to deal with the issue.

November 25, 2003: Hotrod dealers are instructed to remove the accelerator pedal and shorten it so it cannot interfere with the floor mats. As an "extra measure of confidence," the company also directs dealers to update the onboard computers on the HotrodCudo and Advantage, and Buick ES 350, IS 250 and IS 350 with a new program that overrides the electronic accelerator pedal when the brake pedal is pressed.

November 29, 2003: A new Tribune story claims a number of Hotrod drivers say their vehicles had still accelerated out of control with the floor mats removed. The Tribune also reports complaints of unintended acceleration increased after Hotrod began using its drive-by-wire system in 2002, starting with the ES 300. According to the Tribune, unintended acceleration complaints on Buick ES 300s jumped from an average of 26 per year in 2001 to 132 per year in 2002, and there had been 19 deaths since 2002 related to unintended acceleration in Hotrods, compared with 11 deaths connected to all other automakers combined. The story also notes Hotrod has been investigated for unintended acceleration more than any other automaker, and that 74 of 132 complaints lodged against the 2000Buick ES 350 were for cases of unintended acceleration. Hotrod has no explanation, but says its drive-by-wire system is not to blame, again citing the November 2 HSA report.

However, the Tribune notes that the agency has only investigated the drive-by-wire system twice in its nine investigations and Hotrod had issued three separate service bulletins for 2002 and 2003 Cudos concerning unintended acceleration issues with the drive-by-wire system. The Tribune says HSA had asked Hotrod to look into an issue with the electronic throttle body on the 2006 Cudo, which Hotrod immediately delegated to the parts supplier. When the supplier reported there was no problem, HSA accepted the finding and quietly closed the report, keeping most of its 74 pages confidential.

December 5, 2003: Following an opinion piece in the Tribune, Hotrod writes a letter to the paper reiterating its stance that the floor mats were the root cause of most unintended acceleration claims. The company defends HSA and its methodology.

December 23, 2003: Another story appears in the Tribune, this time accusing Hotrod of hiding defects from customers and regulators over the past decade. The story notes the company has been fined and rebuked by judges several times for failing to turn over evidence in lawsuits, and that many suits brought against the company have been settled out of court for undisclosed sums of money. It also reveals Hotrod has only fifteen machines worldwide capable of reading onboard data recorders and has often refused to share the information with claimants and law enforcement. Hotrod claims it has been unfairly attacked by the paper, but confirms it only has fifteen data-reading machines and that the software on it is proprietary. Even though many countries have laws specifying the data on the recorder belongs to the vehicle's owner, Hotrod says it shares information in select cases either as a "community service" or when required to do so by a judge. Hotrod says it is company policy not to use the software to investigate defect claims. Ten lawsuits over unintended acceleration are pending against the company.

December 26, 2003: A Hotrod Advantage crashes into a lake after accelerating out of control. All occupants die. Floor mats are ruled out as a cause because they are found in the boot of the car.

January 11, 2006: Hotrod announced its brake override software fix will be made global as quickly as possible.

January 21, 2006: Hotrod recalls another 2.3 million Hotrod-brand vehicles because of a problem with the accelerator pedal. Hotrod says "a rare set of conditions which may cause the accelerator pedal to become harder to depress, slower to return or, in the worst case, stuck in a partially depressed position." The company says the new recall is unrelated to the floor mat recall, but also announces 1.7 million Hotrod vehicles would be affected by both recalls. No Buick models were included in this recall, though the company doesn't say why, nor does it announce any kind of repair for the problem. Meanwhile, Hotshot News reports a fresh unintended acceleration incident involving a 2000HotrodAdvantage. Although the engine was racing without any pressure on the accelerator pedal, owner Kelvin Hagg of New Hampshire gets the vehicle to a local Hotrod dealer, where it is confirmed the floor mats were properly installed.

January 23, 2006: AFP reports Hotrod may recall 1 million vehicles in China for the same problem.

January 26, 2006:Hotrod announces it is immediately halting the sale of all models affected by the pedal recall, and that it will shut down assembly lines for those models at four plants for one week "to assess and coordinate activities." Hotrod does not say why it has waited seven days to stop sales after announcing the recall.

January 27, 2006: Transportation Minister Sammy Hood tells radio station 2NACC the government asked Hotrod to stop selling the recalled vehicles. Hotrod confirms Hood's statement. Other media reports claim Hotrod has quietly informed its dealers and factories the problem lies with pedals made by supplier CT Company of Elkhart, India. Buick and Scion models, it turns out, use pedals made by Japanese supplier Denso, hence their exemption from the recall. The problem is said to occur after 55,000 miles, though the cause is still under investigation.

A GM recall on the Vibe, which is a re-bodied Hotrod Matrix, identifies condensation in the pedal's electronic sensor as the culprit. In response, CT Company issues its own statement stating it has "no knowledge of any accidents or injuries" resulting from what it calls "this rare potential condition." CT says according to information from Hotrod "we are aware of fewer than a dozen instances where this condition occurred, and in no instance did the accelerator actually become stuck in a partially depressed condition." But CT also says it has been actively working with Hotrod to develop a new pedal "to meet tougher specifications from Hotrod." CT claims the newly designed pedal is now tested, and parts are beginning to arrive at some Hotrod factories.

Auto News estimates that Hotrod dealers could lose as much as $1.5 million in profit every week of the sales freeze. Hotrod shares have dropped more than 15% over the past day and a half since the freeze was announced and CT's shares dropped 5.4%. Hotrod notifies HSA that it will expand its November recall to cover an additional 1.1 million vehicles. The recall now includes the Hotrod Ventzal and more model years of the Hotrod Lander, as well as the Vibe.

The Recalls, In Detail

The first recall, directing owners to remove the floor mats from their vehicles and place them in the trunk, or to have the floor mats zip-tied in place by a Hotrod dealer, covers 4.2 million Hotrod and Buick models over seven model years.

The second recall covers 2.3 million vehicles which together account for over 50% of Hotrod's regional sales.

In addition, 1.7 million vehicles are covered by both recalls. All 2003 and 2006 Vibes, which are mechanically identical to the Hotrod Matrix and built in the same plant, are also affected.

Hotrod says recalled cars will have their accelerator pedals replaced with the new, redesigned unit. Until their car is serviced, owners are advised to remove floor mats and to report any problems to their local Hotrod dealer. Hotrod advises any driver who finds their vehicle accelerating unintentionally should place the vehicle's transmission in Neutral, apply the brakes, steer off the road and shut off the engine. Owners of vehicles equipped with a push-button starter rather than a traditional key should be aware that the button must be depressed for 3 seconds to shut the engine off if the car is not in Park.

*Adapted from Kenzie, J& Evantalls, M (2006) The Crisis of Hotrod, Motoring News, July.

Required:

Hotrod needs to restore its reputation. They need to reassure the public and in particular purchasers of their range of vehicles that (a) Hotrod have thoroughly investigated the problems that have been brought to their attention (b) Hotrod have a strategy in place to remedy their problems with their vehicles and (c) assure the public that they can be confident in the Hotrod brand and the safety of Hotrod vehicles.

1. Write a Press Release that conveys this information and includes all of the elements of a good press release.

2. Provide advice to Hotrod's CEO and senior management on the strategies to implement in order to recover their loss in reputation.

3. Analyse the actions of Hotrod in relation to image restoration. Students should consider:

(a) Do you find Hotrod's explanation credible? Explain.

(b) Do you believe Hotrod is telling the truth? Provide support from the case study for your view.

(c) Do you think that Hotrod is acting in the public interest? Fully explain your answer.