Toyota faces probe; Honda also recalls models

Honda said it would recall a total of 646,000 units of its Fit/Jazz and City models, including 140,000 in the United States, because of a faulty window switch, after a child died when fire broke out in a car last year.

The announcement came as investors, suppliers and consumers weighed the impact of an unprecedented halt in U.S. production by Toyota, the world's No.1 automaker.

Honda's move, as well as Toyota's recall due to problems with unintended and dangerous acceleration, come at a 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.

In an unusual move, House Energy and Commerce Committee Chairman Henry Waxman said he would hold a hearing next month to consider how quickly and effectively Toyota 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.

KNOCK-ON EFFECTS

Toyota this week suspended North American sales and production of eight models including its best-selling Camry after regulatory pressure, and widened the recall to China and Europe. A Toyota spokeswoman said the company was still checking on whether any vehicles are affected in Latin America, the Middle East and Africa.

Japan's largest company, studied for its devotion to quality, could recall about 8 million vehicles in total -- 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.

Honda's recall added to concerns that the safety-conscious image of Japanese manufacturers would be threatened.

The Japanese have built their image on reliability, the fact that they make bullet-proof vehicles, said IHS Global Insight analyst Carlos Da Silva.

It's not that their vehicles are worse than the others, (the recalls are) just showing maybe that their vehicles are like the others. The race to cost cuts and the competition between all the brands is so fierce that even the mighty Japanese are doing things that are not as reliable as they were.

Suppliers were expected to see some fallout.

If Toyota gets the flu, its suppliers will also be sneezing, said Kevin Chen, president of Gasgoo.com, a major Chinese auto parts trading platform, noting Toyota's hand-picked suppliers depend on the automaker for a living.

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.

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.

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.

One reader of The Consumerist calling themselves theblackdog, wrote: 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.

SAFETY REPUTATION

IHS Global Insight's Da Silva argued Japanese carmakers would be able to salvage their reputation for safety as long as they moved quickly to show the recalls were isolated incidents. If reliability becomes a permanent issue for Toyota and Honda that would negatively impact sales, he said.

Recalls can show companies care about the cars they build, and don't simply wash their hands of them once they are driven away from the showroom, he added. It should be an issue if they don't take care of it and if it happens too often.

Toyota shares have dropped 17.6 percent since January 21, when it said it would broaden its recalls by a further 2.3 million vehicles. Shares ended down 2 percent in Tokyo on Friday.

Industry analysts and executives estimate it will cost some $250 million in warranty costs alone for Toyota 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 jam under accelerator pedals.

Then there are the still unknown costs of lost production, financial support to dealers and sales incentives the company has told its retailers it is considering.

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.

(Additional reporting by Bernie Woodall, Soyoung Kim, Kevin Krolicki in Detroit; Chang-Rang Kim and Taiga Uranaka in Tokyo; Janaki Krishan in Mumbai; Fang Yan in Shanghai; Tiisetso Motsoeneng in Johannesburg; Rhys Jones in London and Helen Massy-Beresford in Paris; Editing by Lincoln Feast and David Holmes)

($1=89.95 Yen)