In Trouble Over Soviet Deal : Sales Fall as Toshiba Feels Sting of U.S. Consumers

Toshiba Corp., stung by criticism in Congress for the sale of strategic equipment to the Soviet Union, may also be starting to feel the sting of American consumers, the company confirmed Tuesday.

Sales by the U.S. subsidiary of embattled Toshiba have fallen in the last month, as much as 20% from the month before in one division, spokesmen said.

“We are feeling the effects in all four of our divisions,” Nobuo Ishizaka, chairman and chief executive of New York-based Toshiba America Inc., said. Is the U.S. criticism of Toshiba’s parent company directly to blame? “That is what I want to ask,” Ishizaka said. “I suppose so, but I’m not sure.”

This week, the company staged a public relations blitz that included full-page advertisements in about 60 newspapers apologizing for what happened, but that didn’t stop criticism of Toshiba. There were more sharp remarks aimed at the company in Washington on Wednesday.

A subcommittee of the House Armed Services Committee approved a bill that would ban the sale of Toshiba products at post exchanges on U.S. military bases. About $23-million worth of Toshiba consumer electronic products were sold last year at the stores on military bases, officials said.

The subcommittee chairman, Rep. Dan Daniel (D-Va.), said that the response of Toshiba executives has been inadequate. The full-page ads added “insult to injury,” he said.

And, Tuesday, the Senate passed a trade bill that includes a ban on Toshiba’s doing business in the United States for up to five years.

U.S. criticism has centered on actions by Toshiba Machine Co., a subsidiary 51% owned by Toshiba. In 1984, Toshiba Machine sold to the Soviet Union and installed computer-guided milling machines for use in making near-silent submarine propellers.

Two Officers Resigned

As a result of the furor in the United States, the two top officers of Toshiba in Japan resigned.

Among the hardest hit of the Toshiba divisions is its industrial electronics business sector in Irvine. There, sales of its telephone systems and lap-top computers are off about 20% over the last month, compared to the previous month, said Dennis Eversole, vice president of finance. “Over the next year,” he said, “the impact could be very significant to our business. Our perception is that it probably has not reached bottom yet.”

Also, sales of Toshiba’s consumer products, such as video cassette recorders and compact disc players, are down more than 12% over the last two months, compared to the two previous months, said Jay Yancy, vice president of sales for consumer products at Toshiba America. “We were on the verge of doing $1 billion in consumer electronics business this year, but now that won’t be reached,” he said.

Toshiba sells more than $2 billion in goods in the United States annually.

‘Doesn’t Seem to Phase Them’

In Southern California, however, some retailers who carry the Toshiba brand say sales have not slumped. “I thought for sure (sales) would be off,” said Corrine Chacon, an electronics saleswoman at the May Co. department store in Montebello, where Toshiba sales have not dropped. “You tell customers about it,” she said, “and it doesn’t seem to phase them. It bothers me more than it does them.”

But, at the Broadway department store in the Del Amo Fashion Center in Torrance, salesman Peter Jebo said his customers have told him that “they would not have bought Toshiba because of what has happened.” But Jebo said he has little to lose--his store does not carry the brand.

Indeed, getting dealers to continue to carry the Toshiba brand may be one of Toshiba’s biggest headaches. “This is the height of the planning period for the fall, and a number of our dealers’ orders are on hold,” Yancy said. “But, so far, at least, there have not been a rash of cancellations.”

In the full-page ads nationwide on Monday and Tuesday, the company said, in an open letter, that it was sorry for its actions.

“Toshiba Corporation extends its deepest regrets to the American people,” said the headline on the letter, signed by Joichi Aoi, president and chief executive of Toshiba Corp. The letter said that Toshiba Corp. “shares the shock and anger of the American people, the Administration and Congress at the recent conduct of one of our subsidiaries, Toshiba Machine Co.”

Points to Resignations

The letter, which was mostly composed by Toshiba’s law firm, pointed out also that both the chairman and president of Toshiba Corp. have resigned since the disclosures. “For the Japanese business world, this is the highest form of apology,” the letter said.

Executives at Toshiba and its U.S. subsidiary had haggled over the contents of the letter for nearly 10 days, said David Houlihan, a partner at Toshiba’s Washington-based law firm, Mudge Rose Guthrie Alexander & Ferdon.

“The hardest task was getting the people in Tokyo to sign off on things that were not even in their native tongue,” Houlihan said. “And executives became extremely cautious anywhere that the letter mentioned the U.S. government.”

Toshiba’s apologetic letter, which was placed in newspapers by its New York advertising agency, Calet, Hirsch & Spector Inc., was written mostly as a result of pressure from Toshiba’s U.S. employees and dealers. “Nobody even thought about it early on,” said Houlihan. “But the impetus became so strong that something had to be done.”

At first, the company considered placing the letter exclusively in industry trade journals. “Then, the whole thing began to blow out of proportion,” Houlihan said. “And there were thousands of American employees who were troubled by the silence.”

Sharply Criticized

Although the ad received sharp criticism on Capitol Hill Tuesday, advertising industry executives are generally impressed with Toshiba’s effort.

“It’s a step in the right direction,” said William E. Phillips, chairman of the Ogilvy Group Inc., the New York holding company of four large ad firms. “Obviously, they can’t do much more than convey their apologies,” he said.

“Toshiba is doing what we all wish politicians would do when they do something wrong--apologize,” said David Finn, chairman and chief executive of Ruder Finn & Rotman Inc., the New York public relations firm. “There’s not much more you can ask of them.”

Although he is no fan of apologetic advertising, Leonard Pearlstein, chairman of the Los Angeles ad firm Keye/Donna/Pearlstein, says that this ad was necessary. “Apologetic ads inform people that there was a problem that half of them didn’t know about in the first place,” he said. But, in this instance, he said, “the problem was so serious that they had to run it.”

But Pearlstein was not impressed with the tone of the ad, which, he said, was too formally written. “Sincerity is the most important attribute in an ad of this type,” he said. “I wish they had done it the way the Lee Iacocca ad was written,” he said.

His reference was to a national advertisement that Chrysler Corp. ran earlier this month, following a federal indictment that charged the company with disconnecting odometers during the testing of some new cars. The ad, which was signed by Iacocca, promised: “This is a mistake we won’t make again at Chrysler. Period.”

It is no surprise that Toshiba executives studied the Iacocca ad before running their own. “But I wonder,” said Ishizaka, “if there was as much curiosity when Mr. Iacocca ran his ad as there is now that we’ve run ours?”