Toyota unable to hit the brakes on crisis
  • | Wall Street Journal | January 30, 2010 10:29 AM

Toyota Motor Corp.'s problems continued to mount Friday, as the auto maker said it was recalling 1.8 million vehicles in Europe and dealers said they were starting to feel the pinch after the company halted U.S. sales of eight of its top-selling vehicles.

A delivery driver unloads a Toyota Highlander from a truck at a dealership in Seattle on Wednesday.

In response to growing concerns among customers, Toyota is gearing up to run an "open letter" in major newspapers Sunday and Monday in the top 25 markets in the U.S., according to people familiar with the plan.

The ad will be one of the first attempts by Toyota to publicly address the crisis. Analysts have already begun to measure the initial impact on Toyota's sales. The company is also planning "an informative announcement sometime next week," spokesman Brian Lyons said., an automotive Web site, estimated Toyota's market share in the U.S. is likely to drop to 14.7% in January, its lowest level in four years. Toyota's market share stood at 18.2% in December.

Rivals Ford Motor Co. and General Motors Co., which have launched new initiatives targeting Toyota customers, said this week they expect a double-digit January U.S. sales increase.

On Friday, Toyota gave details of its European recall. It said its Aygo, iQ, Yaris, Auris, Corolla, Verso, Avensis and RAV4 models are all affected by the gas-pedal problem and the recall will affect some models made as far back as February 2005.

Including Friday's action in Europe, the Japanese company has now recalled 9.5 million vehicles since late last year over two issues—5.4 million for floor mat entrapment issues and 4.1 million for a sticky gas pedal problem. That is 22% more than the 7.8 million vehicles Toyota sold world-wide last year.

Toyota said late Thursday its engineers "have been working around the clock" to get a fix to the gas-pedal problem. The National Highway Traffic Safety Administration, which reviewed a proposed repair to the pedal Thursday, will provide an opinion on the repair that is crucial to getting the fix out to dealers and consumers, Mr. Lyons said.

Toyota is considering whether to repair the pedals of the 2.3 million vehicles that are on the road and in dealer lots or to replace the part entirely and could do a combination of both. "Our motivation is to get these vehicles fixed as soon as possible," Mr. Lyons said.

Restarting sales in the U.S.—its largest market—is key for Toyota. It is expected to report robust quarterly earnings next week thanks to its cost-cutting efforts, but analysts said extended troubles in the U.S. could derail its return to profits in the year ending March 31. Last year, Toyota posted its first annual loss in 59 years.

Toyota dealers in the U.S. say they are spending more time fielding calls from existing customers than tempting shoppers to buy unaffected vehicles. And that is hurting sales.

Earl Stewart, who owns a Toyota dealership in North Palm Beach, Fla., expects to lose sales of about 50 vehicles—or 20% of his business—this month because of the recall. Eddie Triplett, general manager of a Toyota dealership in Cleveland, Tenn., says sales will be off 15%. And Adam Lee, president of Lee Auto Mall in Maine, expects to sell only four or five new Toyotas in the last four days of the month versus 20.

"Monday and Tuesday were great days and then the world came crashing down," said Bob Page, who owns a dealership in Southfield, Mich. Following Tuesday's recall, "we didn't see a customer the next day."

Brian Johnson, an automotive analyst at Barclays Capital, expects Toyota to see its market share decline each week the shut down is in effect and it will modestly erode overall industry sales numbers as some buyers may wait for the safety issue to be resolved rather than jump to a competitor. Many Toyota dealers reported increases in January sales from a year ago even with the recall.

"The lasting effect is going to depend on how quickly and competently the issue gets resolved," said Mr. Johnson. "If it takes a month to fix, this could become their Ford Pinto and Chevy Corvair event" leading to a gradual loss of market share as competitors scoop up new buyers.

Ford Friday said it is funneling more money to dealers in hopes they boost advertising to grab Toyota customers. Ford sales analyst George Pipas said traditionally Ford has had a hard time stealing away Toyota customers, adding that only about 6% of new Ford vehicle customers had traded-in a Toyota.

Mr. Pipas expects industry-wide U.S. retail sales in January to fall 5% to 10% compared with January 2009. Part of that decline will come from the loss of about 20,000 Toyota sales.

In the meantime, Toyota dealers who have had to corral about half their stock, are struggling to sell the portion of their stock that is still for sale.

Mr. Triplett in Cleveland, Tenn., said he has about 70 cars on his lot that aren't for sale, and is pushing the 85 he has that are unaffected. "Seasonally speaking, January is always a tough month. This just made it harder," he said.