Saving Face: Toyota's Sticky Problem

Raul Quecada places a "No Sale" sign on a used Toyota vehicle. i i

Employee Raul Quecada places a "No Sale" sign on a used Toyota vehicle at a Toyota dealership in Alhambra, Calif., on Jan. 27, one day after Toyota Motor Corp. announced it would halt sales of some of its top-selling models to fix gas pedals that could stick and cause unintended acceleration. Nick Ut/AP hide caption

itoggle caption Nick Ut/AP
Raul Quecada places a "No Sale" sign on a used Toyota vehicle.

Employee Raul Quecada places a "No Sale" sign on a used Toyota vehicle at a Toyota dealership in Alhambra, Calif., on Jan. 27, one day after Toyota Motor Corp. announced it would halt sales of some of its top-selling models to fix gas pedals that could stick and cause unintended acceleration.

Nick Ut/AP

Toyota's gas pedal woes are turning into a full-blown crisis for the carmaker that could end up doing long-term damage to the sterling reputation it has painstakingly built up for several decades.

Not only did Toyota have to issue a recall of 2.3 million cars and trucks in the United States because of a potential problem with sticky accelerators, but it also suspended sales of the eight car models affected.

"It's stunning to hear this news about Toyota, which has built its reputation not on the driving experience or styling, but on its promise of unquestionable reliability," says Aaron Bragman, a research analyst in the automotive group at IHS Global Insight, a research firm. "Now to see that that's no longer the case, it's shaken a lot of people's opinions."

On Monday, Toyota executives announced that they had found a solution and that dealers should receive new parts to fix the problems by the end of this week. The company said some dealerships will remain open 24 hours a day to fix the problem, but it will still take weeks to repair all the affected models.

More On The Recall

In the United States, 2.3 million cars and trucks have been affected by Toyota's Jan. 21 recall. Those models are:

Certain 2009-2010 RAV4s
Certain 2009-2010 Corollas
2009-2010 Matrix
2005-2010 Avalon
Certain 2007-2010 Camrys
Certain 2010 Highlanders
2007-2010 Tundra
2008-2010 Sequoia

Toyota has said it will shut down production of the eight U.S. models during the week of Feb. 1. Sales also have been suspended, though the automaker said they can resume once the potential problem with sticky accelerators has been fixed.

Customers can visit www.toyota.com/recall or call the Toyota Customer Experience Center at 800-331-4331 for more information.

The Japanese automaker is embarking on a public relations offensive to convince customers that it is on top of the problem, which officials insist remains very rare. Toyota took out advertisements in newspapers around the country and sent a top executive out for a round of television interviews.

"We deeply regret the concern that our recalls have caused for our customers, and we are doing everything we can — as fast as we can — to make things right," Jim Lentz, Toyota's U.S. sales chief, said in a statement on Monday.

But this recall comes on top of an earlier problem in which floor mats were recalled in millions of vehicles because accelerators could get stuck on the mats. Some models are affected by both recalls.

With well over 5 million vehicles in the U.S. alone covered by the unrelated incidents, Toyota finds itself trying to fend off accusations that it has been slow to acknowledge and deal with the accelerator problems.

"Before today, they didn't do a great job handling it," Michelle Krebs, an analyst at Edmunds.com, the car consumer Web site, said Monday. "There was complete silence and they were letting other people fill their air on the story. Now, they are doing a better job."

Still, along with the media frenzy ignited by the recalls, at least two congressional panels have scheduled hearings into the issue. The first one is a House hearing on Feb. 10 with the title, "Toyota Gas Pedals: Is the Public at Risk?"

The worst-case outcome for the company would be if any of the investigations uncovers evidence that Toyota has been aware of the problem for longer than it has admitted.

"If Toyota is seen in any way of having stonewalled the process in finding out there was an issue or having covered anything up, that would be devastating for them," says Bragman. "There are no two scarier words to the American car consumer than 'unintended acceleration.' It almost drove Audi out of the market in the late '80s."

Audi was forced to issue major recalls of its Audi 5000 model in the 1980s after drivers reported sudden acceleration when shifting from park. In that incident, the National Highway Traffic Safety Administration determined that most of the problems were caused by drivers hitting the wrong pedal, but it took Audi years to recover from the fallout.

But Audi did manage to recover, and eventually came back strong. Other carmakers have also found a way to bounce back from their own highly publicized recall woes.

Toyota, says Krebs, has to "turn it into an opportunity." This could start with the legions of current Toyota owners who have to bring their car in for repairs in the coming weeks.

"Those customers have to be pampered and reassured, so that they will buy their next car from Toyota," says Krebs. "It can be done. Toyota has a lot of goodwill and brand equity, but it might be a bumpy ride in the early going."

The carmaker will clearly take a big hit on sales in 2010, with sales volume down by an estimated 75 percent as long as the freeze on certain models continues. This drop comes after a rough 2009 with the economic downturn.

The recalls could also take a toll on Toyota's used car values, another traditional selling point for the carmaker. Because sales of these used models have also been suspended, the impact on their prices remains unknown.

And it's also unclear how quickly customers will return to buy either new or used Toyotas. The influential product review publication Consumer Reports on Friday suspended its "recommended" status for the eight recalled Toyota models.

Beyond these specific models, analysts worry that Toyota simply won't be able to build the kind of loyalty with younger customers that it has long enjoyed with the baby boomer generation. The company already has an aging customer base, Bragman points out.

"Younger buyers were still not totally sold on Toyota, and now this comes along," says Bragman. "Now, there are other choices that are just as good for younger buyers. Hyundai and Ford come to mind."

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