Recall another blow to Toyota’s reputation
The largest recall in Toyota Motor Corp. history will probably put a serious dent in the Japanese automaker’s pocketbook. But the hit to Toyota’s image could prove even more damaging.
The company’s reputation as a builder of reliable, trouble-free vehicles has been tarnished by a series of quality problems, including the recall of more than 4 million Toyota and Lexus cars and light trucks to fix a defect that could cause runaway acceleration. On Wednesday, Toyota unveiled an elaborate plan to fix the problem that ultimately could cost hundreds of millions of dollars.
Also this week, Toyota said it would recall 110,000 Tundra pickup trucks because excessive rust on the frames could cause the spare tire to fall into the roadway and create a hazard for other vehicles. Earlier this month, Toyota suffered another blow when none of its vehicles were named top picks in the Insurance Institute for Highway Safety’s tests of 2010 model cars and light trucks.
It’s a humbling comedown for an automaker that in the early years of this decade routinely had the fewest recalls among the six largest players in the U.S. auto market. In 2000, for example, Toyota recalled a mere 8,379 vehicles, according to government data.
The litany of quality and safety issues has led some industry experts to wonder if Toyota’s rapid expansion in the 2000s, which enabled it to pass General Motors as the world’s biggest automaker, came at the expense of the company’s legendary engineering and quality control prowess. Toyota executives have conceded as much, acknowledging as far back as 2005 that the company needed to get “back to basics.”
And after a fatal August crash of a Lexus ES 350 in San Diego was blamed on runaway acceleration, Toyota President Akio Toyoda issued a public apology.
“Customers bought our cars because they thought they were the safest but now we have given them cause for grave concern. I can’t begin to express my remorse,” Toyoda said in a statement.
At risk, some say, is the very trait that made the automaker No. 1.
“There’s nothing else to the brand,” said John Wolkonowicz, an analyst with consultant IHS Global Insight. “It’s not built on eye-catching design. It’s not built on a cutting-edge driving experience. It’s not built on performance. It’s built on quality and low cost of ownership.”
So far, there’s little evidence that the acceleration-related recall, announced Sept. 29, is driving buyers away from Toyota, which, like its competitors, is suffering through the worst market for auto sales in decades.
“At this point we don’t see any connection or any known impact on sales,” Toyota spokesman Mike Michels said.
The recall covers various model years of eight Toyota and Lexus vehicles, including the Camry sedan and Prius hybrid.
But the uncontrolled acceleration problem clearly has spooked some of the company’s customers.
“Until they’re able to specifically determine what caused the problem, no one in my family is going to buy one of their products,” said David K. Winnett Jr. of Torrance, who traded his wife’s 2007 Lexus IS 250 for a Buick Acadia after she experienced a runaway acceleration incident in early August. “It’s just too risky.” The IS 250 is one of the models included in the recall.
Automakers recall millions of cars each year in the U.S. to address various problems. The issues can be life-threatening, such as the defective tires that led to Ford Motor Co.'s recall in 2000-2001 of millions of Firestone tires sold as original equipment on Explorer sport utility vehicles.
Or the problems can be trivial. Honda Motor Co. recalled more than a million vehicles in 2006 to replace owner’s manuals that contained an erroneous phone number.
The runaway acceleration problem is just the latest in a spate of quality missteps that have plagued Toyota in recent years.
In 2005, the automaker had to recall more than 2.3 million vehicles. Among the problems were steering defects in certain pickup trucks and SUVs and a software glitch that could cause some Priuses to stall or shut down.
In 2007, Toyota settled a class-action lawsuit filed by customers who complained of oil sludge buildup in their vehicles’ engines. And even before this week’s Tundra recall, the company had been dealing with complaints that its Tacoma and Tundra pickups were rust-prone.
Two years ago, Consumer Reports magazine -- often accused by U.S. automakers of unfairly favoring Asian brands over American -- suspended its practice of automatically giving new Toyota vehicles a positive recommendation. The action came after the magazine’s vehicle testers decided that the brand’s history of dependability could no longer be relied upon.
“Toyota has spent the last five or 10 years concentrating on being the biggest instead of the best, and that’s a shame,” said Jake Fisher, senior engineer at the nonprofit Consumer Union, which publishes Consumer Reports.
That kind of negative perception could ultimately erode the price premium that Toyota has long enjoyed in the U.S. because of its reliability, said Mark Oline, an auto industry analyst for Fitch Ratings.
The results of the Insurance Institute’s latest crash tests were especially galling to the automaker, which last year had 11 top safety picks among its Toyota, Lexus and Scion nameplates.
The institute, which is funded by insurance companies, conducts independent tests that it hopes will lead to improvements in auto safety. For this year’s tests, it added a tough roof-strength requirement that winnowed out several vehicles that had achieved top safety scores in the past.
Toyota said the institute’s statement that the automaker had been “shut out” of the top safety picks was “extreme and misleading.” The company noted that most of its models weren’t tested for roof strength and were thus ineligible to be named top picks.
Toyota’s quality stumbles have helped open the door to competitors, particularly Korean automaker Hyundai. And domestic automakers such as Ford may also be able to attract former Toyota loyalists whose trust in the Japanese brand has been eroded.
In 2004, 92% of first-year Toyota owners were willing to recommend their car to a friend, according to research by Art Spinella at CNW Marketing Research -- a virtual tie with Honda for first among mainstream vehicle brands.
Toyota’s “recommendation percentage” fell to 88% this year, trailing Ford, Chevrolet, Honda, Volkswagen and Hyundai.
Rising concern about runaway acceleration has created an opening for kitchen-table tinkerers like Donald Cook of Ventura. Cook, a veteran auto mechanic, is marketing a $159 device called the Decelerator, which he says will override a vehicle’s electronic throttle control during a runaway acceleration episode, reducing a wide-open throttle to idle speed.
Cook is specifically targeting Toyota owners, mentioning the recall prominently in the online ad for his device. Toyota had no comment.
Automakers typically don’t divulge how much they spend for specific recalls, lumping the costs in with warranty repairs and related expenses. Toyota said it hadn’t calculated how much the current recall would cost.
But based on the solution the company announced Wednesday -- which includes a software upgrade, replacing some floor mats, and modifying and later replacing gas pedals -- the cost could easily exceed $250 million, said Clarence Ditlow, executive director of the nonprofit Center for Auto Safety.
In any case, the damage Toyota is facing could be the kind that doesn’t show up as a line item on a financial statement.
“It takes a very long time to establish a reputation for safety and reliability,” said Fisher of Consumer Union. “It doesn’t take very long to lose it.”