In Depth February 11, 2010, 5:00PM EST

How Detroit Can Gain from Toyota's Recalls

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"I DON'T WANT TO BE THAT STATISTIC"

In January, Toyota's U.S. market share fell from 17.9% to 14.1% (though that was partly because it stopped selling several models). That month, Ford grabbed 16.7% of the market, up from 14.2% the previous year. Farley says Ford has been doing better lately in some regions where Toyota has long ruled the road. Although GM is in the midst of cutting its brands from eight to four, its market share jumped from 19.5% to 21% in January. If it expects to extend those gains, it will have to win over more people like Homer Benavides. The 37-year-old engineer was negotiating to buy a Toyota Sequoia in suburban Chicago when he heard the SUV was being recalled for a sticky accelerator. "Toyota produces millions of vehicles and only a fraction have the problem," says Benavides, whose wife is expecting twins. "But I don't want to be that statistic." Benavides plans to buy a Chevy Tahoe instead. Stealing back some Toyota owners who drive trucks and SUVs may be GM's best play at first, since Chevy and GMC won over those buyers long ago.

Toyota has long dominated the boomer market, and it won't be easy for Ford and GM to woo graying consumers. "There's a large group of boomers whose opinion of Toyota is very high," says Dan Gorrell, president of AutoStratagem, a California consulting firm. "They'll be unaffected by this."

However, Detroit could reel in Generation Y, which likes Toyota but is less loyal than older buyers. Ford, in particular, has an opportunity thanks to Mulally's focus on small, zippy cars such as the Fiesta and Focus, which compare favorably with such Gen Y faves as the Honda Civic and Mazda3. GM, for its part, may have more luck with the next generation. According to a survey by Strategic Visions, a market research firm in San Diego, American kids aged 12 to 16 aspire to own muscle cars such as the Ford Mustang and Chevy Corvette.

There is a lot of pent-up demand out there, and as the economy improves there will be more opportunities for Detroit to make its case to Americans. But consumer psychology has shifted over the past couple of years. Americans have not simply become less brand loyal. Buffeted by financial forces beyond their control, they are ornery and disinclined to trust corporations—especially those that make lavish promises. Ford has momentum, but its success is a recent phenomenon. The company still needs to prove itself. "We're very suspicious, our confidence is shaky, we're not feeling very good," says Faith Popcorn of the marketing consultancy BrainReserve. And GM will have to tread especially carefully. American taxpayers won't soon forget that the U.S. government bailed out the company, a policy that proved to be very unpopular even though it saved thousands of manufacturing jobs.

It's not as though Detroit has the highway to itself. Honda, Nissan, Hyundai, Kia, and others could also pick up new customers. That's why GM and Ford can probably forget about making a patriotic appeal to "buy American." Buyers arrive at dealerships armed with detailed pricing data they found on the Web, and if Hyundai has the best combination of features and price, they'll drive a Hyundai. "Americans are forward-looking," says Nancy Koehn, who teaches history at Harvard Business School. "Instead of waving an American flag, I could see Ed Whitacre walking through the plant, passing a mechanic, saying, 'We've made some mistakes, we've learned from the past, but here's how we're getting better, working on making America strong.' " Koehn says Americans like feeling they're helping the country progress, not just boosting U.S. companies.

As Whitacre and Mulally have surely not forgotten, Toyota remains a force. No one can argue that the company handled its recall crisis with aplomb. And given its internal problems—overexpansion has stretched its resources—the odds of it stumbling again are high. But once Toyota gets past the current round of recalls, it can be counted upon to rev up its marketing machine. The company has done a remarkable job in recent years of embedding itself in the American culture. Toyota employs nearly 40,000 Americans in six states, mostly in the South, and as it has proven for 40 years, it knows how to make cars that Americans want to buy. Spokesman John Hanson says the carmaker can win back confidence by handling the recall well and fixing its quality problems.

The comeback campaign has already begun. During the Super Bowl post-game show, Toyota aired a commercial that waxed nostalgic about its long years of manufacturing reliable cars in America. It's the kind of pitch that appeals to loyal customers like Brian Yamashita, 47, who works in tech support in Orange, Calif., a Toyota stronghold. He just plunked down $17,000 to buy a 2010 Corolla. Before that, he drove a '98 Tacoma pickup for 238,000 miles. His mother drives a Lexus. He figures the Japanese automaker will figure out its quality issues and his car will be fine. Would he buy another? Absolutely. "I have faith Toyota will get it resolved," Yamashita says. "With any industry, whether it's cars, hamburgers, or spinach, there will be problems. I could do a lot worse with other manufacturers."

In other words, Detroit's window of opportunity won't stay open for long. "If you're going to grab market share from Toyota," says Consumer Reports' Champion, "you have to do it in the next nine months." GM and Ford can't count on Toyota to keep kicking the ball into its own goal. They will have to convince people their cars are worth buying because they are sharply designed, reliable, and fun to drive. If they do that, they might just find a way to turn one big break into a streak of good luck.

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Toyota on the Potomac

As the Japanese automaker hustles to complete an orderly recall of millions of vehicles, it is mounting an image-restoring counteroffensive. In Washington, reports Politico.com, the company is ramping up its already considerable lobbying operation in an attempt to head off a political backlash. Politico cites Senate records showing that "Toyota (TM)-related entities spent $4.1 million on lobbying last year—and $35.2 million during the past decade."

To read the story, visit http://bx.businessweek.com/toyota-motor-corp/reference/

Welch is BusinessWeek's Detroit bureau chief. Naugton is a reporter for Bloomberg News . Helm is marketing editor for BusinessWeek in New York.