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Congress to Probe Toyota Recalls as Impact Spreads Around Globe

Friday, 29 Jan 2010 07:30 AM

Toyota Motor Corp. faced scrutiny from Congress over its biggest-ever safety recall as investors, suppliers and consumers weighed the impact of an unprecedented halt in U.S. production by the No.1 automaker.

Toyota's recalls due to problems with unintended and dangerous acceleration comes at bad time for the industry as it struggles to lure buyers back to showrooms after a sales slump that helped drag U.S. rivals General Motors and Chrysler into bankruptcy.

House Energy and Commerce Committee Chairman Henry Waxman said he would hold a hearing next month to consider "how quickly and effectively" the car maker responded to complaints about sticking pedals and slipping floormats.

"Like many consumers, I am concerned by the seriousness and scope of Toyota's recent recall announcements," Waxman said in a statement.

The unusual action by the U.S. government comes just hours after the Toyota recall for accelerator problems was widened to include China and Europe.

Toyota this week suspended North American sales and production of eight models including its best-selling Camry after pressure from regulators.

Japan's largest company, studied for its devotion to quality, could recall about 8 million vehicles in North America, Europe and China — more than the number of cars and trucks it sold worldwide in 2009.

In Tokyo, some worried about the knock-on effects to Japan's image and economy.

"If Toyota has hard times, there's a high probability that also Japan will," said Takeo Namekata, a 62-year-old office worker. "Particularly, trade will suffer."

Suppliers were expected to see some fallout.

"Toyota has a very close tie with its hand-picked suppliers. It's like a parent in a big family and the children actually depends on Toyota for a living," said Kevin Chen, president of Gasgoo.com, a major Chinese B2B auto parts trading platform.

"If Toyota gets the flu, its suppliers will also be sneezing."

International supply companies were most at risk, said Tatsuya Mizuno, President of Mizuno Credit Advisory.

"Of course, there will be negative implications. But if the company recognizes that this problem was caused because of international parts-suppliers, then it's conceivable that they could switch to Japanese parts-suppliers," he told financial television service, Reuters Insider.

India's Amtek Auto, which supplies some parts to Toyota in the United States, did not expect a major impact from the shutdown there.

"Our exposure to the U.S. has already come down by 50 to 60 percent in the last one year due to the slowdown and recession," said Finance Director Santosh Singhi. "Toyota recalls have been happening over a period of time so we have been prepared for shut-downs."

Analysts have estimated the sales halt could cost Toyota at least 50 billion yen ($556 million) in operating profit a month, almost as much as it made in the September quarter.

The impact will also depend on whether Toyota's famously loyal customers begin to abandon the brand, an issue hotly debated on blogs and online forums.

"I know in the next year or so, I am going to have to look at buying another car, and I am likely to buy used," said one reader of The Consumerist calling themselves theblackdog.

"I don't think I could trust buying a used Toyota that was manufactured in 2005 or later, so I guess I will be scratching Toyota off of my list to look at."

Others, however, applauded Toyota's response.

"Although Toyota's reputation has been sullied since the recalls started taking place, the company is sending a message that it cares more about safety than income," wrote DREA on Business Pundit. "I bet that in the long run, this move will have been worth the risk."

Shares of Toyota have dropped 17.6 percent since January 21, when it announced it was broadening its recalls by a further 2.3 million vehicles. The stock ended down 2 percent in Tokyo on Friday.

Industry analysts and executives estimate that it will cost some $250 million in warranty costs alone to address the smaller of the two recalls underway in the United States.

The automaker also faces the fallout from the larger recall that began last year and was broadened this week for vehicles at risk of having floormats that can become jammed under accelerator pedals.

Then there are the still unknown costs for lost production, financial support to dealers and sales incentives the company has told its retailers it is considering in a bid to keep customers being wooed by rivals.

In addition, Toyota is certain to face lawsuits from people who claim injuries from the defects or class-action claims on behalf of consumers who will claim the crisis has damaged the value of their cars, analysts say.

In consultations with its dealers on Thursday, Toyota said it would take months to complete repairs on the recalled vehicles since it would send notices to affected customers in batches of ten thousand to avoid overrunning repair shops.

CTS Corp the manufacturer of the accelerator pedals that led to the sales half said on Thursday that it has completed work on a redesigned accelerator pedal and was rushing that fixed part into production for Toyota.

Cars sold in Toyota's home market of Japan use accelerators supplied by Denso Corp. Denso said it was still reviewing the situation and declined further comment.

© 2017 Thomson/Reuters. All rights reserved.

 
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Toyota Motor Corp. faced scrutiny from Congress over its biggest-ever safety recall as investors, suppliers and consumers weighed the impact of an unprecedented halt in U.S. production by the No.1 automaker. Toyota's recalls due to problems with unintended and dangerous...
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2010-30-29
Friday, 29 Jan 2010 07:30 AM
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