Recall pushes Toyota to tipping point

By Paul A. Eisenstein
|  Tuesday, Feb 2, 2010  |  Updated 7:30 PM CDT
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Recall Pushes Toyota to Tipping Point

With Toyota’s reputation for building safe, reliable vehicles in tatters, competitors including General Motors and Ford have moved in, hoping to regain lost ground.

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What a difference a year makes. As the otherwise dismal 2009 got under way for the auto industry, it looked like Toyota, the new global sales leader, was in the driver's seat. But 12 months later, the hobbled Japanese giant is looking a lot more like the walking wounded.

Few could have anticipated the problems that have befallen the Japanese maker, which ended 2009 with a record recall that was expanded in January, leaving millions of customers waiting for word on when they can get potentially sticky gas pedals repaired.

With Toyota’s reputation for building safe, reliable vehicles in tatters, competitors have taken aim, hoping to gain lost ground. Among the makers who see an opportunity to take market share from their Asian nemesis are General Motors, Ford and South Korea’s Hyundai.

“This is embarrassing for us having this kind of recall situation, but it doesn’t mean we’ve lost our edge on quality,” Toyota Motor Sales USA President Jim Lentz told reporters this week. He acknowledged, however, that the reputation for quality is the “cornerstone” of the brand’s enviable presence in the U.S. market.

Toyota on Tuesday reported a 16 percent drop in U.S. sales last month, posting its worst result in 12 years, after taking the highly unusual step of halting sales on eight models with the defective part. GM and Ford were among the brands that posted double-digit gains in January.

Like every manufacturer, Toyota has had to deal with recalls over the years, but never have they been so large nor with such potentially life-threatening problems. In October, the maker announced it would recall 3.8 million vehicles due to “carpet entrapment,” the possibility that  loose floor mats could jam their accelerator pedals, as appeared to happen in an accident that killed a California Highway Patrol officer and three members of his family.

 

At the time, Bob Carter, Toyota division general manager, insisted that complaints about other potential causes of so-called “unintended acceleration” were “unwarranted speculation.” But the company now admits that even then it was beginning to receive credible reports that gas  pedals could stick on their own. That finally led to the latest recall announced Jan. 19 and then expanded even further. Initially Toyota said the recall would affect another 2.3 million vehicles, but that number has grown to 4.5 million in recent days, while the first recall’s tally has jumped to 5.3 million.

Complicating matters, Toyota has taken the highly unusual step of advising dealers not to sell eight of its more popular models, which together account for about 4,000 units of volume daily. And it has idled five North American plants for at least a week until replacement parts can be shipped to the factories.

GM was first to fire a salvo at its archrival, which displaced the humbled American maker as global sales king at the end of 2008.

 

GM spokesman Tom Wilkinson said the company's dealers "were getting inundated” with calls from Toyota owners looking to trade in. So the Detroit maker sweetened the pot with an offer for any potential customer trading in a Toyota. GM buyers can get either $1,000 in cash, $1,000 off lease payments or a zero-interest, 60-month loan. The program, which began last Wednesday, runs through the end of February.

It has been more than a bit controversial with some industry executives considering the sales grab a cheap shot. Toyota executives, they note, supported General Motors last year when the big American maker needed a massive government bailout to survive.

But some inside GM feel that were it not for Toyota, GM wouldn’t have been in trouble in the first place. And besides, said spokesman Wilkinson, “Carmakers are always looking for a competitive advantage.”

GM’s strategy was quickly copied by a number of rivals, including Ford and Hyundai.

In years past loyal Toyota customers might simply have waited until the hold on sales of the eight affected products was lifted, but that seems less likely now, due to the severity of the  problems and uncertainty over a fix. And there are some customers who simply cannot wait, perhaps because they have vehicles coming off lease that need be replaced immediately, or because they are driving a clunker that won’t make it to the end of winter.

And if quality is a key driver, the fact is that the gap among manufacturers has been narrowing significantly in recent years, said Dave Sargent, director of automotive research at California-based J.D. Power and Associates. Indeed, more than a few recent studies have found Toyota slipping behind. GM’s Buick brand recently topped the Toyota's luxury Lexus line in J.D. Power’s long-term reliability study.

Meanwhile, the highly influential Consumer Reports has praised Ford for delivering “world class quality” on a par with the best imports, while GM’s newest models, such as the Chevrolet Malibu sedan and Equinox crossover also were singled out.

 

That’s something General Motors has been actively telling customers in a recent series of TV commercials that skip the serene driving shots in favor of direct comparisons, often against Toyota.

This is "absolutely" an opportunity for GM and Ford, said Power’s Sargent. “They stand to gain significantly from this. Their images are clearly improving, and for each and every Toyota model affected by the recall, they have a direct competitor available.”

For his part, Toyota’s Lentz declined to forecast the potential impact of the recall on the company’s sales and market share, but neither did he deny that the company could be at a tipping point.

“It all depends on how well we take care of the customers” with the two recalls, Lentz said. “If we do well, the impact will be minimal, so the heat is on us to do this well.”

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