Toyota U.S. sales halt seen well into February

 @ibtimes
on January 29 2010 8:48 PM

Toyota Motor Corp's crippling sales shutdown of eight models due to a U.S. safety recall will continue until at least mid-February, sources briefed on the matter said on Friday.

Competitors moved to profit from rising consumer frustration as models that represented more than half of Toyota's 2009 U.S. sales are not for purchase because of accelerator pedals that may stick.

The sales resumption assumes a smooth and swift rollout of a remedy to fix faulty accelerators in vehicles already sold or at dealerships, said the sources, who wished to remain anonymous because Toyota's plans are still developing.

The third week of February is very optimistic, said one of the sources.

Toyota said this week that it was stopping sales of the eight models covered by the recall involving the sticking accelerator pedals until a fix was in place.

Toyota on Friday was close to announcing details of a repair for the safety risk that has been reviewed by U.S. safety regulators, an official with the National Highway Traffic Safety Administration said.

Also on Friday, Toyota said it would recall as many as 1.8 million vehicles in Europe. This increases the global recalls of Toyota cars and trucks to about 7.5 million vehicles, almost as many as it sold worldwide in 2009. The total includes a recall for a separate issue involving floor mats becoming stuck under accelerator pedals.

With Toyota potentially unable to sell some of its most popular models including the Camry for a month or more, rivals readied new plans to poach sales from the world's largest automaker and the top-selling brand in the United States.

Everybody's going to pile on now, said Jim Ziegler, a dealer consultant in Atlanta. Toyota just fumbled the ball in the red zone.

Ford Motor Co, Hyundai Motor Co and Chrysler Group LLC said they were rolling out incentives targeting Toyota customers. Volkswagen, jockeying with Toyota for the title as global sales leader, also is considering incentives to convert Toyota owners in the United States.

The companies are following the lead of General Motors Co, which on Wednesday began offering Toyota customers payouts of up to $1,000 or zero-percent financing for up to five years if they trade in a Toyota for a GM vehicle.

GM Chief Executive Ed Whitacre said the program was the first example of a new, more aggressive' GM and said the reaction from its dealers has been good.

We will react quicker than GM is used to reacting, so we'll do something first, and get out there first, Whitacre told reporters in San Antonio.

The reaction (from the dealers), was good, Whitacre said. They said, 'we can't believe this is GM,' so that's good.

In a blow to Toyota's reputation for quality, Consumer Reports said it was suspending its recommendations for the Toyota models at the center of the accelerator pedal recall.

The nonprofit magazine is an influential guide to car purchases and its endorsement of Toyota vehicles over the years was one important factor in the automaker's rise to 17 percent U.S. market share, just behind GM.

We are taking this action because the vehicles have been identified as potentially unsafe without a fix yet being available to consumers, and in general our position is that you shouldn't compromise on safety, said Jim Guest, president of Consumers Union, the publisher of Consumer Reports.

Separately, a second congressional committee launched an investigation into the Toyota recalls.

The House Oversight and Government Reform Committee has requested that Transportation Secretary Ray LaHood testify at a February 4 hearing.

There appears to be growing public confusion regarding which vehicles may be affected and how people should respond, said Representative Edolphus Towns, chairman of the oversight committee chairman.

In short, the public is unsure as to what exactly the problem is, whether it is safe to drive their cars, or what they should do about it, Towns said.

RIVALS GAIN GROUND

Autoconomy.com analyst Erich Merkle said the recalls could cost Toyota a full percentage point in U.S. market share this year.

Barclays Capital analyst Brian Johnson said he expected that Toyota's sales suspension would temporarily bump up the market share of key rivals led by GM.

Toyota's market share will likely suffer somewhat and we expect the manufacturer's January sales to be down year-on-year, Johnson said.

Assuming that buyers of the eight Toyota models involved in the recall move to competitors with similar vehicles, Barclays sees a short-term market share gain by GM of 2.4 percent, Honda 2.1 percent, Ford 1.6 percent, Nissan 1.1 percent and Hyundai 0.7 percent.

Toyota shares have lost 15 percent since the recall was announced on January 21. Shares were down less than 1 percent in trading in New York on Friday at $77.

ALG, a forecasting firm that sets resale values used in writing vehicle leases, on Friday warned that unless Toyota moved quickly to address safety issues, residual values of its vehicles could drop by 4 percentage points.

That would make it more expensive for Toyota to lease cars and light trucks.

The remedy being readied by Toyota and its accelerator supplier CTS Corp involves a shim, also called a spacer, that will be placed in the accelerator to keep it from sticking, sources have said.

Toyota expects to finalize this remedy with U.S. safety regulators early next week.

A NHTSA official said on Friday that Toyota had consulted with the agency on its planned approach to the fix, adding that Toyota would announce its repair plans very soon.

Analysts have estimated that the sales halt announced by Toyota this week could cost the automaker at least $550 million in operating profit a month.

In addition, Toyota's cost to repair each vehicle with a shim or spacer at a U.S. dealership should be less than $100, people briefed on the preliminary discussions have said.

That would mean a total warranty cost of the recall of nearly $230 million.

Toyota in addition to repairing accelerators is likely to fully replace accelerators in some vehicles, using a new design it has worked out with CTS. That will cost the automaker more than repairing the accelerators.

PRODUCTION SHUTTING MONDAY

In addition to suspending sales, Toyota has said it will shut production of the eight recalled models at six U.S. and Canadian factories for at least February 1-5.

This will permit CTS to stockpile newly-designed accelerators that will be placed in vehicles yet to be produced and for cars and trucks already sold.

A separate recall targets floor mats becoming stuck under accelerators in a wider range of Toyota and Lexus vehicles. In total, Toyota has recalled about 5.6 million vehicles in the United States.

(Additional reporting by Soyoung Kim in Detroit; John Crawley in Washington; Chang-Rang Kim and Taiga Uranaka in Tokyo; Christiaan Hertzner in Frankfurt; Rhys Jones in London; and Helen Massy-Beresford in Paris; editing by Carol Bishopric)

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