January 31, 2010 in Business

Toyota faces risk to its reputation

Automaker that has built strong following on its safety and reliability record now faces a crisis because of flawed acceleration system
Jerry Hirsch And Nathan Olivarez-Giles Los Angeles Times
 
Associated Press photo

Toyota models that have been withdrawn for sale, identified by a single windshield wiper pointing skyward, are seen at a storage lot for Keyes Toyota in the Van Nuys area of Los Angeles on Thursday.
(Full-size photo)(All photos)

LOS ANGELES – Since first importing cars to the United States more than five decades ago, Toyota Motor Corp. has slowly and steadily built itself into the world’s pre-eminent automaker, developing a strong reputation for technical expertise and reliability.

Now two major recalls and Tuesday’s decision to suspend making and selling eight models because of a safety issue puts Toyota’s gains at risk.

Unless it can quickly identify and execute a fix for the occasional, but sometimes deadly acceleration problems that have plagued its vehicle line, loyal customers such as John Whiffen of Malibu, Calif., will flee to other brands.

Whiffen, a longtime Toyota fan who prized the vehicles for their feeling of safety, began having sudden acceleration problems last spring with one of the two Highlander SUVs in the family, which also has a Lexus in the driveway.

But his dealer downplayed three incidents, and Whiffen continued driving it until a fourth incident in August sent his SUV over a curb and into a wall, causing $12,000 in damage.

This week, nearly six months later, he said, the dealer’s service department called to tell him the vehicle had no problems and checked out fine. For Whiffen, a retired orthopedic surgeon, it was the last straw.

“I thought Toyota was a very good company and built good products,” said Whiffen. “Now I wouldn’t even consider buying a Toyota in the future. This whole event tells me that they don’t value my life, and that means I should never buy another car from them.”

Rivals are already plotting to steal customers from Toyota.

GM said Tuesday that it will offer special leases, discounted financing and incentives to Toyota and Lexus owners.

In the near term, Toyota and its dealers stand to lose more than $400 million in sales, amounting to almost 27,000 vehicles, just from Tuesday through the end of the month, estimates Jesse Tropak, an analyst at TrueCar, a Santa Monica, Calif., auto sales and pricing information company.

The vehicles involved in the suspension account for almost 10 percent of U.S. annual auto sales, he said. And the timing is likely to send a majority of buyers to other brands.

“Buyers in January and February are typically purchasing a car because they have to, not because they want to,” Tropak said. “They are not going to postpone their purchase.”

Fixing the vehicles will likely cost billions of dollars more, but Toyota’s real expense will come in what it has to pay to keep its dealers and customers happy and to rebuild confidence in the brand, Tropak said.

Dealers are being hit especially hard. At Toyota of Huntington Beach, Calif., the suspended models account for half the sales and 65 percent of the revenue, said general manager Bob Miller.

At Toyota/Scion of Hollywood, Calif., general manager Don Mushin had no doubt the suspension would hurt his business – “About 78 percent of our inventory is affected by this sales stoppage.”

But the dealers were confident that Toyota would limit the damage and figure out a way to fix things quickly. Now, however, they have no information to give irate customers.

It may take Toyota some time to reach the owners in last week’s recall of 2.3 million vehicles, line up replacement parts and schedule appointments to fix the pedal assembly, said John Wolkonowicz, an analyst with IHS Global Insight in Lexington, Mass.

“They don’t have 2.3 million accelerator pedals in inventory. The supplier makes maybe 30,000 a week,” he said.

For the most part, Toyota’s recent quality problems stayed out of the limelight, known mainly to auto industry insiders and people who owned the affected vehicles, said Jeremy Anwyl, chief executive of Edmunds Inc., an auto information company.

The highly public news now, though, will start to affect buying decisions, especially as rivals take advantage.

Avis Budget Group Inc. said Wednesday that it removed about 20,000 Toyotas from its rental fleets. Enterprise Holdings took its Toyota and Pontiac Vibe vehicles out of service from its Alamo Rent A Car, Enterprise Rent-A-Car and National Car Rental chains. The Toyota-made Vibe is no longer in production but contained the same suspect pedal assembly.

“The real question is how Toyota moves forward. There are still a lot of questions that Toyota has not provided the answers to, such as what should owners do, what is the fix, when will the dealers be able to sell the cars again,” Anwyl said.

Tiffany Hsu and Ken Bensinger of the Los Angeles Times contributed to this report.


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