Toyota Quality Reputation May Be ‘Finished’ on U.S. Sales Halt
Jan. 28 (Bloomberg) -- Toyota Motor Corp.’s image as the highest-quality automaker may have been permanently tarnished after an accelerator-pedal defect halted sales of the models that account for more than half its U.S. deliveries.
Toyota’s “reputation for long-term quality is finished,” Maryann Keller, senior adviser at Casesa Shapiro Group LLC in New York, said yesterday in an interview. “People aren’t going to buy Toyotas, period. It doesn’t matter which model. What’s happened is sufficient to keep people out of the stores.”
A Toyota dealership in Denver
Losing that aura would undercut a decades-long campaign to promote reliability and safety. Backed by U.S. suppliers and 100,000 dealership employees, that effort propelled Toyota to No. 2 in U.S. sales and helped the Japanese company wrest the title of the world’s largest automaker from General Motors Co.
Toyota’s American depositary receipts fell the most in more than a year, and GM added incentives to woo owners of the 2.3 million U.S. autos including the top-selling Camry and Corolla being recalled to fix a flaw blamed for sudden acceleration. Late yesterday, Toyota extended the recall to Europe.
The Toyota factory in Alabama
U.S. sales of eight models are being suspended after last week’s recall, and five North American plants are being idled, Toyota said Jan. 26. That followed a 4.3 million-unit recall in 2009 for a related problem tied to floor mats.
“This is going to have severe ramifications for Toyota,” said John Wolkonowicz, an analyst at IHS Global Insight in Lexington, Massachusetts. “The Teflon seems to have evaporated.”
Recall History
Two Toyota recalls in three months compounded concern that quality may have slipped after a decade of North American expansion. The company’s 1,460 U.S. Toyota and Lexus dealers and hundreds of North American suppliers are awaiting word that engineers have found a solution for the pedal defect.
While Toyota City, Japan-based Toyota is aware that its reputation for quality may be endangered, “this is a customer safety issue,” said Irv Miller, U.S. group vice president for corporate communications.
Miller said he wasn’t aware whether the decision to halt production was made by President Akio Toyoda. “He is certainly aware of the issue,” Miller said.
Along with Camry and Corolla, Toyota’s recall covers the Avalon sedan and Matrix hatchback; RAV4, Highlander and Sequoia SUVs; and Tundra pickups. Also included is the Pontiac Vibe, a version of the Matrix built at a joint Toyota-GM plant until last year.
Weekly Fallout
Global Insight estimated that Toyota would lose 20,000 vehicle sales a week as long as it ceases selling and producing the eight models.
U.S. sales of the affected Toyota vehicles totaled 998,744 in 2009, according to researcher Autodata Corp. of Woodcliff Lake, New Jersey. Wolkonowicz said the models accounted for 70 percent of Toyota brand sales and about 56 percent of overall U.S. sales when Lexus is included.
Toyota’s American depositary receipts fell $7.01, or 8.1 percent, to $79.77 yesterday in New York Stock Exchange composite trading for the biggest decline since Nov. 6, 2008.
Stopping sales of some models will cut Toyota’s offerings as U.S. consumers begin returning to dealer lots after last year’s slump. Toyota posted a 32 percent gain in December U.S. deliveries, topping the industry’s 15 percent increase, and will report January totals on Feb. 2. On Feb. 4, Toyota will release earnings for its fiscal third quarter ended Dec. 31.
‘Short-Term’ Sales
“This is detrimental to short-term Toyota vehicle sales,” said Earl Hesterberg, chief executive officer of Houston-based Group 1 Automotive Inc., which operates 13 Toyota dealerships.
Wolkonowicz, the Global Insight analyst, said the fallout for Toyota may not end soon. The U.S. was Toyota’s largest market through 2007, contributing half or more of global operating income. Toyota trails only GM in U.S. sales and surpassed the Detroit-based automaker’s global total in 2008.
“This is the biggest crisis in the auto industry since the bankruptcies of GM and Chrysler,” he said. “Toyota is not going to be able to contain this problem in a short period of time. It’s going to drag on and linger, unlike the bankruptcies of GM and Chrysler last summer.”
The automaker retained the top spot in June in J.D. Power & Associates’ survey of initial quality and topped Consumer Reports magazine’s annual survey of automotive brand perceptions this month. Still, Toyoda already was under pressure to improve quality since he took the helm in June, and the latest setbacks probably will add to the strain as competitors including South Korea’s Hyundai Motor Co. narrow Toyota’s lead.
Toyota Probe
Toyota continues to investigate the pedal-related flaw reported last week and doesn’t yet have figures on any related accidents, injuries or fatalities, said Brian Lyons, a spokesman. The company is aware of at least five deaths related to the floor mat-related recall from November, he said.
Last week’s recall involved a potential flaw in pedal parts made by CTS Corp. that could, “in rare instances, mechanically stick in a depressed position or return slowly to the idle position,” according to Toyota.
“CTS has been actively working with Toyota for a while to develop a new pedal to meet tougher specifications from Toyota,” the supplier said in a statement on its Web site. The newly designed pedal is now tested and parts are beginning to ship to some Toyota factories.”
Toyota accounts for about 3 percent of annual sales at Elkhart, Indiana-based CTS, according to the company. Vehicles with pedal parts from Toyota-affiliated Denso Corp. weren’t included in last week’s recall.
Consumer Response
“This is a very rare occurrence, incidents of sudden acceleration, but because Toyota’s had made multiple actions related to it, the perceived image is they don’t have a handle on it,” said Jake Fisher, senior auto engineer for Consumer Reports. “They’ve been trying to be proactive, but that’s probably not what consumers will draw from this.”
Bill Visnic, senior editor at consumer researcher Edmunds.com, said shoppers may not differentiate between the Toyota autos on the recall list with those still available on showroom floors.
“It’s definitely going to put a damper on the entire atmosphere around a dealership,” he said. “This is a real test of the strength of the brand.”
At Santa Monica Toyota in suburban Los Angeles, General Manager Billy Rinker said he received about 15 customer calls early yesterday about the recall.
‘Perfect as Possible’
“I don’t think they lost” the reputation for quality, Rinker said of Toyota. “Toyota wants to be as perfect as possible so they are fixing it.”
News of the recalls was “scary,” said Prius owner Caroline Schkolnick, 51, of Beverly Hills, California, who was having her car serviced in Santa Monica. She reported no problems with her hybrid, which was covered by the November floor-mat recall, and said she isn’t worried about the pedals.
“There were mistakes and I respect them for fixing them,” Schkolnick said.
Toyota may be “overreacting” in suspending sales and production, said Mickey Anderson, president of Performance Auto Group in Omaha, Nebraska, which owns three Toyota stores and two Lexus outlets.
“Probably, that’s the right thing to do,” Anderson said. “While this will be a burden for Toyota and the dealers, it is absolutely the most proactive way to take care of the customers.”
To contact the reporters on this story: Alan Ohnsman in Los Angeles at [email protected] ; Mike Ramsey in Southfield, Michigan, at [email protected]
Jan. 28 (Bloomberg) -- Toyota Motor Corp.’s image as the highest-quality automaker may have been permanently tarnished after an accelerator-pedal defect halted sales of the models that account for more than half its U.S. deliveries.
Toyota’s “reputation for long-term quality is finished,” Maryann Keller, senior adviser at Casesa Shapiro Group LLC in New York, said yesterday in an interview. “People aren’t going to buy Toyotas, period. It doesn’t matter which model. What’s happened is sufficient to keep people out of the stores.”
A Toyota dealership in Denver
Losing that aura would undercut a decades-long campaign to promote reliability and safety. Backed by U.S. suppliers and 100,000 dealership employees, that effort propelled Toyota to No. 2 in U.S. sales and helped the Japanese company wrest the title of the world’s largest automaker from General Motors Co.
Toyota’s American depositary receipts fell the most in more than a year, and GM added incentives to woo owners of the 2.3 million U.S. autos including the top-selling Camry and Corolla being recalled to fix a flaw blamed for sudden acceleration. Late yesterday, Toyota extended the recall to Europe.
The Toyota factory in Alabama
U.S. sales of eight models are being suspended after last week’s recall, and five North American plants are being idled, Toyota said Jan. 26. That followed a 4.3 million-unit recall in 2009 for a related problem tied to floor mats.
“This is going to have severe ramifications for Toyota,” said John Wolkonowicz, an analyst at IHS Global Insight in Lexington, Massachusetts. “The Teflon seems to have evaporated.”
Recall History
Two Toyota recalls in three months compounded concern that quality may have slipped after a decade of North American expansion. The company’s 1,460 U.S. Toyota and Lexus dealers and hundreds of North American suppliers are awaiting word that engineers have found a solution for the pedal defect.
While Toyota City, Japan-based Toyota is aware that its reputation for quality may be endangered, “this is a customer safety issue,” said Irv Miller, U.S. group vice president for corporate communications.
Miller said he wasn’t aware whether the decision to halt production was made by President Akio Toyoda. “He is certainly aware of the issue,” Miller said.
Along with Camry and Corolla, Toyota’s recall covers the Avalon sedan and Matrix hatchback; RAV4, Highlander and Sequoia SUVs; and Tundra pickups. Also included is the Pontiac Vibe, a version of the Matrix built at a joint Toyota-GM plant until last year.
Weekly Fallout
Global Insight estimated that Toyota would lose 20,000 vehicle sales a week as long as it ceases selling and producing the eight models.
U.S. sales of the affected Toyota vehicles totaled 998,744 in 2009, according to researcher Autodata Corp. of Woodcliff Lake, New Jersey. Wolkonowicz said the models accounted for 70 percent of Toyota brand sales and about 56 percent of overall U.S. sales when Lexus is included.
Toyota’s American depositary receipts fell $7.01, or 8.1 percent, to $79.77 yesterday in New York Stock Exchange composite trading for the biggest decline since Nov. 6, 2008.
Stopping sales of some models will cut Toyota’s offerings as U.S. consumers begin returning to dealer lots after last year’s slump. Toyota posted a 32 percent gain in December U.S. deliveries, topping the industry’s 15 percent increase, and will report January totals on Feb. 2. On Feb. 4, Toyota will release earnings for its fiscal third quarter ended Dec. 31.
‘Short-Term’ Sales
“This is detrimental to short-term Toyota vehicle sales,” said Earl Hesterberg, chief executive officer of Houston-based Group 1 Automotive Inc., which operates 13 Toyota dealerships.
Wolkonowicz, the Global Insight analyst, said the fallout for Toyota may not end soon. The U.S. was Toyota’s largest market through 2007, contributing half or more of global operating income. Toyota trails only GM in U.S. sales and surpassed the Detroit-based automaker’s global total in 2008.
“This is the biggest crisis in the auto industry since the bankruptcies of GM and Chrysler,” he said. “Toyota is not going to be able to contain this problem in a short period of time. It’s going to drag on and linger, unlike the bankruptcies of GM and Chrysler last summer.”
The automaker retained the top spot in June in J.D. Power & Associates’ survey of initial quality and topped Consumer Reports magazine’s annual survey of automotive brand perceptions this month. Still, Toyoda already was under pressure to improve quality since he took the helm in June, and the latest setbacks probably will add to the strain as competitors including South Korea’s Hyundai Motor Co. narrow Toyota’s lead.
Toyota Probe
Toyota continues to investigate the pedal-related flaw reported last week and doesn’t yet have figures on any related accidents, injuries or fatalities, said Brian Lyons, a spokesman. The company is aware of at least five deaths related to the floor mat-related recall from November, he said.
Last week’s recall involved a potential flaw in pedal parts made by CTS Corp. that could, “in rare instances, mechanically stick in a depressed position or return slowly to the idle position,” according to Toyota.
“CTS has been actively working with Toyota for a while to develop a new pedal to meet tougher specifications from Toyota,” the supplier said in a statement on its Web site. The newly designed pedal is now tested and parts are beginning to ship to some Toyota factories.”
Toyota accounts for about 3 percent of annual sales at Elkhart, Indiana-based CTS, according to the company. Vehicles with pedal parts from Toyota-affiliated Denso Corp. weren’t included in last week’s recall.
Consumer Response
“This is a very rare occurrence, incidents of sudden acceleration, but because Toyota’s had made multiple actions related to it, the perceived image is they don’t have a handle on it,” said Jake Fisher, senior auto engineer for Consumer Reports. “They’ve been trying to be proactive, but that’s probably not what consumers will draw from this.”
Bill Visnic, senior editor at consumer researcher Edmunds.com, said shoppers may not differentiate between the Toyota autos on the recall list with those still available on showroom floors.
“It’s definitely going to put a damper on the entire atmosphere around a dealership,” he said. “This is a real test of the strength of the brand.”
At Santa Monica Toyota in suburban Los Angeles, General Manager Billy Rinker said he received about 15 customer calls early yesterday about the recall.
‘Perfect as Possible’
“I don’t think they lost” the reputation for quality, Rinker said of Toyota. “Toyota wants to be as perfect as possible so they are fixing it.”
News of the recalls was “scary,” said Prius owner Caroline Schkolnick, 51, of Beverly Hills, California, who was having her car serviced in Santa Monica. She reported no problems with her hybrid, which was covered by the November floor-mat recall, and said she isn’t worried about the pedals.
“There were mistakes and I respect them for fixing them,” Schkolnick said.
Toyota may be “overreacting” in suspending sales and production, said Mickey Anderson, president of Performance Auto Group in Omaha, Nebraska, which owns three Toyota stores and two Lexus outlets.
“Probably, that’s the right thing to do,” Anderson said. “While this will be a burden for Toyota and the dealers, it is absolutely the most proactive way to take care of the customers.”
To contact the reporters on this story: Alan Ohnsman in Los Angeles at [email protected] ; Mike Ramsey in Southfield, Michigan, at [email protected]
