News
Toyota recall could cause short- and long-term problems for automaker
By Joseph R. Perone/The Star-Ledger
February 14, 2010
Liz Wellinghorst considered trading in her gas-guzzling
sport utility vehicle for a Toyota Highlander with better fuel economy.
But the crossover vehicle is part of last month’s
expanded recall of Toyotas with sticking gas pedals. The Ridgewood
mother didn’t want to take a chance carpooling her two children
and their friends.
"I was thinking about a Highlander, but I won’t
go near it now," she said. "Not with kids."
As Toyota struggles to deal with a massive worldwide
recall -- including 8.5 million cars in the U.S. with potential
accelerator problems -- uncertainty over the extent of the automaker’s
problems is having an effect on customers. A study released last
week by Kelly Blue Book showed 27 percent of the shoppers who said
they were considering a Toyota prior to the recall now say they
no longer are considering the brand for their next vehicle purchase.
Not only are some customers shying away from new Toyotas,
but the recalls also are hurting the resale value of used cars made
by the Japanese automaker, as well, with prices dropping by hundreds
of dollars in the past few weeks.
Used-car prices of the small Toyota Matrix, for example,
have dropped $800 since late January, according to Juan Flores,
director of vehicle valuation for Kelley Blue Book. Toyota’s
popular Camry sedan has fallen as much as $300, and the RAV4 is
down $550, he said.
However, the resale value of used Toyota Tacoma trucks
and Sienna minivans, which are not affected by the recall, have
either stabilized or gone up, he said. The reason could be that
car dealers are buying more non-recalled used vehicles to sell on
their lots, Flores said.
Ed Ventura, who lives in Leonia, is trying to sell
a 2007 Camry with 64,000 miles. He has an asking price of $12,000,
which he said is below market value, in hopes of moving it. So far
he’s had no offers.
"It’s not a bad price," said Ventura,
who began advertising the car last week. "I’m only concerned
about not being able to sell it because of the bad economy, not
because of the recall."
As as result of the recall, car buyers who want a
new Toyota are in a good position to negotiate a better price at
or near invoice right now, Flores said.
For example, Toyota’s announcement last week
that it was recalling 440,000 Prius hybrids for a potential brake
problem has probably knocked between $1,000 and $1,500 off the sticker
price, Flores said.
Government investigations into 2009 and 2010 Toyota
Corollas for potential steering problems could further weaken their
values, as well, Flores said.
"When the repairs take effect, dealers are going
to have built-up inventory, and that will put downward pressure
on prices," Flores said. "We expect Toyota will come out
with zero percent financing for 60 months in March to clear these
cars off the lots, and that is very unusual to do that at this time
of year."
As Toyota wrestles with its problems, other car manufacturers
are picking up market share. The Honda Civic and Accord, Chevrolet
Malibu and Nissan Sentra all recorded increased new car transaction
prices immediately after the Toyota recall, according to TrueCar.com,
an automotive website that tracks industry sales.
Hyundai and Kia also showed slight pricing improvements,
the website said, and Chevrolet is offering "extra incentives
to sell more vehicles."
Toyota dealers have extended their service hours to
fix customer cars under the recall, as well as vehicles they already
have in inventory. Brunswick Toyota has opened its service shop
on Sundays and has trained new car sales representatives to schedule
appointments with customers to have their cars fixed, according
to Ray DeSimone, general manager of the North Brunswick dealership.
"Toyota told us to handle customer cars first
and then we can handle our own inventory," he said. "About
75 percent of our inventory is sellable now. We have repaired about
150 customer cars so far, and we probably have another 300 to schedule."
He estimates some pre-owned Toyotas have dropped as
much as 3 percent in value at auctions, which means dealers like
him can buy them cheaper. "Fortunately, we were a little low
on inventory, so now we can try and stock up," he said.
The dealership is "getting a surprising amount
of customer traffic, considering what has happened," and he
expects Toyota will come out with a significant sales incentive
on new models this week.
The unprecedented recall should have only a temporary
downward effect on resale value, he said. "You get the sense
that this will be a bump in the road and not a long-term deal, because
Toyota is committed to get this right as quickly as possible,"
he said.
Toyota Motor president Akio Toyoda apologized for
the recall in an op-ed piece in the Washington Post last week. He
said the company will establish a center of excellence to focus
a team of engineers on improving quality control in North America.
The company also will assemble a blue-ribbon safety advisory group
of outside experts to review its operations, and it will "more
aggressively investigate complaints we hear directly from consumers."
The recalls have been a blow to Toyota’s once-solid
reputation for quality, said Andrew Graham, chief executive of Kepner-Tregoe,
a Princeton-based management consulting and troubleshooting firm.
"This is highly damaging," he said. "What
started with an isolated problem is now generating the perception
of an overall quality problem. Once you are labeled with poor quality,
you are dead in the water."
Will Cofnuk of Morris Township, whose wife bought
a Camry in October, brought it back last week to Toyota of Morristown
to get the accelerator repaired under the recall. He said he still
thinks Toyota puts out a good product.
"It hasn’t changed my view of Toyota,"
he said. "My wife had a 2005 Camry, and she put 100,000 miles
on it with no problems."
Still, Toyota could be faced with some residual damage
from the recall debacle. Sales "may continue to slump"
for the world’s largest automaker in the short term as a result
of the recalls, according to JPMorgan analyst Himanshu Patel. Later
this month, Congress will question Toyota and federal regulators
on the crisis and whether complaints about Toyota’s safety
were ignored.
Toyota officials may have to brace for a protracted
period of repair and litigation costs. It took Audi, the German
automaker, more than a decade to recover from reports of sudden
unintended acceleration of its 500 sedan in the mid-1980s.
"Toyota should have learned from Audi’s
sudden-acceleration syndrome issue, in which Audi blamed ‘driver
error’ or pedal size," said Shannon Bowen, associate
professor of public relations in Syracuse University’s S.I.
Newhouse School of Public Communications and an expert in crisis
management.
"Not acknowledging that consumers had a real
problem cost Toyota valuable time," she added. "By the
time Toyota took the problem seriously enough to initiate a recall
and fix the pedals, they had lost the trust of many consumers."
Customers begin to lose faith in a brand if they no
longer believe what the company is saying, she said.
"That damage to Toyota’s reputation will
take years to recover from, just as it did for Audi," she said.
Sheldon J. Schlesinger, P.A. represents clients throughout
the state of Florida including the cities of Boca Raton, Boynton
Beach, Carol City, Cooper City, Coral Gables, Coral Springs, Davie,
Deerfield Beach, Delray Beach, Fort Lauderdale, Hialeah, Hollywood,
Jupiter, Lake Worth, Miramar, Miami, Oakland Park, Palm Beach, Palm
Beach Gardens, Palm Springs, Pompano Beach, and Rivera Beach
Broward County • Miami-Dade County • Palm Beach
County
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