Sales shutdown rocks Toyota, recall broadens

Shares of Toyota fell another 2 percent in Tokyo trading as concern deepened about the knock-on effects from a recall to fix millions of vehicles.

Toyota said late on Wednesday that it had determined that it would have to fix another 1.1 million vehicles to address the risk that floor mats could trap accelerator pedals and cause bursts of sudden acceleration.

Separately, Toyota said it believed it had found a mechanical fix for a problem that has forced it to recall 2.3 million vehicles for sticky accelerators.

Taken together, Toyota now has recalled nearly 6 million vehicles for problems with the accelerators used across its lineup, a sweeping safety action that has tarnished its reputation for quality and emboldened its rivals.

Toyota's got the resources to bounce back from this, but this is the biggest crisis that they have ever faced, and Ford and Hyundai and others are coming on strong, said Jim Ziegler, an auto dealer consultant in Atlanta.

Transportation Secretary Ray LaHood said in an interview with Chicago's WGN Radio that regulators had asked Toyota to take the unprecedented step of halting production of affected vehicles as it worked to address the problem.

In a move that underscored the depth of the crisis, major car rental agencies including Enterprise Holdings, Avis Budget Group Inc and Hertz said they were pulling Toyota vehicles from their rental fleets.

Looking to gain from Toyota's slip, General Motors Co said it was offering Toyota customers payouts of up to $1,000 or zero-percent financing for up to five years on most of the GM line-up.

Representative Bart Stupak, a Michigan Democrat and chairman of the House Energy and Commerce subcommittee on investigations, said the panel would continue to monitor the Toyota situation and press for answers.

I am very concerned about the safety issues, he said in a statement. Members of Congress and consumers need to know exactly what the problem is, how to fix the problem and what must be done to protect drivers of Toyota vehicles.

Toyota executives, meanwhile, huddled with U.S. dealers in a series of hastily arranged conference calls on Wednesday.

One of the key issues: how to deal with thousands of Toyota cars now stranded on dealer lots that are banned from being sold because of the faulty accelerator pedals.

Dealers in contact with Toyota said the automaker had provided assurance that it would help them address the financial fallout from the recall and increase sales incentives to win back lost business in the weeks ahead.

Toyota spokeswoman Celeste Migliore said the automaker was in the process of reviewing its incentives and all of our advertising in response to events.

CTS Corp, which supplies the accelerator pedals at the center of the crisis, said late on Wednesday it had a fix for the safety issue and had begun to ship redesigned parts to Toyota factories.

Shares of CTS fell as much as 20 percent on Wednesday, before closing down just 2.4 percent.

'DEVASTATING BLOW'

The most recent troubles for Toyota began on Tuesday when it said it would suspend sales in the United States of eight models, including versions of its top-selling Camry sedan made in North America.

Toyota is also halting production at six plants in the United States and Canada for the first week of February.

Analysts said the financial damage to Toyota from the recalls would depend on how long it has to shut production on key models and how badly consumer confidence is shaken as reflected in pricing of both new and used cars.

It's a devastating blow to Toyota and Toyota's reputation, said Dennis Virag, president of the Automotive Consulting Group. Toyota is the new General Motors in terms of experiencing quality glitches, over-expansion and the proliferation of new product models.

The production halt comes at a time when major automakers are ramping up output as the U.S. industry recovers from its worst downturn since the recession of the early 1980s.

For Toyota, the setback occurs as the carmaker rolls out a marketing campaign intended to reverse a recent slide that sent its 2009 sales down 20 percent.

These are also critical days for Toyota management. Akio Toyoda, grandson of Toyota's founder, took over as president of the automaker in June with a vow to address missteps in the U.S. market and elsewhere.

In 2008, Toyota overtook GM as the world's leading automaker. But rivals such as Ford, Hyundai and Honda Motor Co have been seen as catching up to Toyota on quality and reliability.

RISKS ABOUND

You can't just stop selling these models and not expect some impact to your market share -- at least in the short term, Deutsche Securities analyst Kurt Sanger told Reuters Insider.

I'm sure every Hyundai dealer in the U.S. is letting customers know about their improvement in quality, 'and by the way, guess what happened across the street?' Sanger said.

Toyota said its decision to shut down production next week would idle about 14,000 workers. Toyota spokesman Mike Goss said those workers would remain employed and would work on plant improvements while assembly lines are shut down.

Analysts said there was a risk that Toyota would be forced to extend that production shutdown.

Meanwhile, Toyota's problems threatened to pull down industry-wide auto sales for January and hit resale values for used cars, analyst said.

U.S. auto sales in January, due out next Tuesday, are expected to show the market has softened from the 10.8 million-unit sales pace of the fourth quarter of 2009.

(Reporting by Soyoung Kim and Bernie Woodall, additional reporting by Kevin Krolicki and John Crawley; Editing by Maureen Bavdek, Matthew Lewis and Carol Bishopric)