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Toyota Shuts Down Sales

published  First Published: 28/01/2010
Article written by: David Wheaton
Shares of Toyota dropped more than eight per cent on Wednesday in US trading as concern deepened about the knock-on effects from a recall to fix potential acceleration problems on 4.8 million vehicles in the United States.
US Transportation Secretary Ray LaHood said in an interview with Chicago's WGN Radio that safety regulators had asked Toyota to take the unprecedented step of halting production on the models covered by the recall.
Analysts said Toyota's sudden decision to shut down sales on key models including the top-selling Camry had tarnished the automaker's once-sterling reputation for quality and would hit its results and embolden 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.
In a move that underscored the depth of the crisis, major car rental agencies including Enterprise Holdings and Avis Budget Group Inc said they were pulling Toyota vehicles from their rental fleets until the recall is resolved.
Looking to gain from Toyota's slip, General Motors Co said it was offering Toyota customers payouts of up to $US1,000 or zero-percent financing for up to five years on most of the GM line-up.
Toyota executives, meanwhile, huddled with US 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 faulty accelerator pedals that could get stuck and cause unintended acceleration.
"We're developing the recall remedy even as we speak," said Brian Lyons, a Toyota spokesman in Torrance, California.
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.
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 plunged as much as 20 per cent but closed down just 2.4 per cent.
Toyota said the replacement parts would begin shipping to its factories and it was working with CTS on a separate program to fix defective vehicles already with dealers or customers.
''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 already subject to the safety recall. The move follows two recalls to fix acceleration problems on 4.8 million vehicles.
Toyota is also halting production of the models at five facilities in the United States and Canada for at least the first week of February.
"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 production as the battered US 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 per cent.
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 US 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 said.
"I'm sure every Hyundai dealer in the US is letting customers know about their improvement in quality, 'and by the way, guess what happened across the street?'" Mr 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.
"It doesn't appear that Toyota has come up with a definite fix for the problem yet, so the initial announcement of a one-week plant closure could potentially be followed by more," Barclays Capital analyst Brian Johnson said.
Meanwhile, Toyota's problems threatened to pull down industry-wide auto sales for January and hit resale values for used cars, analyst said.
US 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.


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