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Toyota in race to save its image

As safety issues tarnish the carmaker's golden image, rivals gear up to grab new customers.

January 28, 2010|By Jerry Hirsch and Nathan Olivarez-Giles
  • Noe Beltran puts signs in new cars at Toyota of Hollywood that the automaker has placed a sales freeze on as it addresses a problem with the gas pedal.
Noe Beltran puts signs in new cars at Toyota of Hollywood that the automaker… (Rick Loomis / Los Angeles…)

Since first importing cars to the United States more than five decades ago, Toyota Motor Corp. has slowly and steadily built itself into the world's preeminent automaker, developing a strong reputation for technical expertise and reliability.

Now two major recalls and Tuesday's decision to suspend making and selling eight models because of a safety issue put Toyota's gains at risk.

How well the Japanese automaker responds may determine whether it can avoid the inexorable trends that eventually sent former industry leader General Motors Corp. into bankruptcy last year -- an aging customer base and a seeming inability to tackle quality issues squarely.

Unless it can quickly identify and come up with a fix for the occasional but sometimes deadly acceleration problems that have plagued its vehicle line, there will be more formerly loyal customers, such as John Whiffen of Malibu, who will flee to other brands.

Whiffen, a longtime Toyota fan who prized the vehicles for their feeling of safety, began having sudden-acceleration problems last spring with one of the two Highlander sport utility vehicles in the family, which also owns a Lexus.

But his dealer downplayed the first three incidents, and Whiffen continued driving it until a fourth incident in August sent his SUV into a wall, causing $12,000 in damage.

This week, nearly six months later, he said, the dealer's service department called to tell him the vehicle had no problems and checked out fine. For Whiffen, a retired orthopedic surgeon, it was the last straw.

"I thought Toyota was a very good company and built good products," Whiffen said. "Now I wouldn't even consider buying a Toyota in the future. This whole event tells me that they don't value my life, and that means I should never buy another car from them."

Rivals are already plotting to steal customers from Toyota.

GM said Tuesday that it would offer special leases, discounted financing and other incentives to Toyota and Lexus owners. Ford plans to offer $1,000 incentives to owners of Toyotas, as well as Hondas, if they buy Fords, according to the Detroit Free Press.

In the near term, Toyota and its dealers stand to lose more than $400 million in sales, amounting to almost 27,000 vehicles, just from Tuesday through the end of the month, estimates Jesse Tropak, an analyst at TrueCar Inc., a Santa Monica auto sales and pricing information company.

The vehicles involved in the suspension account for almost 10% of U.S. annual auto sales, he said. And the timing is likely to send a majority of would-be Toyota buyers to other brands.

"Buyers in January and February are typically purchasing a car because they have to, not because they want to," Tropak said. "They are not going to postpone their purchase."

Fixing the vehicles will probably cost billions of dollars more, but Toyota's real expense will come in what it has to pay to keep its dealers and customers happy and to rebuild confidence in the brand, and that will require even more billions of dollars, Tropak said.

Dealers are being hit especially hard. At Toyota of Huntington Beach, the suspended models account for half the sales and 65% of the revenue, said general manager Bob Miller, who Wednesday morning fended off more than 50 calls from sometimes irate customers. "I didn't sleep too well," he said. "I've been glued to the front of the computer all morning waiting for word."

At Toyota/Scion of Hollywood, general manager Don Mushin had no doubt the suspension would hurt his business. "About 78% of our inventory is affected by this sales stoppage," Mushin said.

But the dealers were confident that Toyota would limit the damage and figure out a way to fix things quickly. Now, however, they have no information to give angry customers.

It may take Toyota some time to reach the owners in last week's recall of 2.3 million vehicles, line up replacement parts and schedule appointments to fix the gas pedal assembly, said John Wolkonowicz, an analyst at IHS Global Insight in Lexington, Mass. Wednesday, Toyota recalled 1.1 million more vehicles.

"They don't have 2.3 million accelerator pedals in inventory. The supplier makes maybe 30,000 a week," he said.

For the most part, Toyota's recent quality problems had stayed out of the limelight, known mainly to auto industry insiders and people who owned the affected vehicles, said Jeremy Anwyl, chief executive of Edmunds Inc., the auto information company.

The highly public news now, though, will start to affect buying decisions, especially as rivals take advantage.

Avis Budget Group Inc. said Wednesday that it removed about 20,000 Toyotas from its rental fleets. Enterprise Holdings Inc. took its Toyotas out of service from its Alamo Rent A Car, Enterprise Rent-A-Car and National Car Rental chains.

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