Unprecedented shutdown hammers Toyota, partners

DETROIT Wed Jan 27, 2010 4:02pm EST

Toyota Camrys and Avalons sit ready to shipped at the Toyota Motor Manufacturing Plant in Georgetown, Kentucky, January 27, 2010. REUTERS/ John Sommers II

Toyota Camrys and Avalons sit ready to shipped at the Toyota Motor Manufacturing Plant in Georgetown, Kentucky, January 27, 2010.

Credit: Reuters/ John Sommers II

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Trouble at Toyota

Wed, Jan 27 2010

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DETROIT (Reuters) - Toyota Motor Corp shares dropped more than 8 percent on Wednesday in U.S. trading as concern deepened about the automaker's suspension of sales and production of some of its best-selling vehicles due to problems with faulty accelerators.

Shares of auto parts suppliers and dealerships with exposure to Toyota also tumbled, while expectations built that the company's troubles would benefit rivals.

Analysts said Toyota's unprecedented move to shut down sales of models accounting for most of its U.S. sales had tarnished the automaker's once-sterling reputation for quality and safety and raised the risk of an even more costly disruption to operations in its largest market.

In a move that underscored the depth of the crisis, Avis Budget Group Inc said it was pulling 20,000 Toyota cars from its rental fleet, citing "the safety and peace of mind of our customers."

CTS Corp, which supplies the accelerator pedals at the center of an ongoing Toyota recall, said it was still working with the automaker on a remedy. Shares of CTS plunged as much as 20 percent on Wednesday.

U.S. safety regulators said they were in continuing talks with Toyota. Dealers have a legal obligation to not sell any vehicle identified as defective until the problem is fixed, the National Highway Traffic Safety Administration said.

That strands thousands of top-selling Toyota cars like Camry on dealer lots, locking up tens of millions of dollars in financing and saddling retailers with useless inventory from an automaker that has prided itself on running lean.

Shares of AutoNation, the largest U.S. dealership group, were down over 2 percent. Group 1 Automotive, the No. 4 U.S. auto dealership group, dropped 9 percent.


The most recent troubles for Toyota began on Monday when it said it would suspend sales in the United States of eight models already subject to a safety recall for accelerator pedals that could stick. The move follows two recalls to fix potential acceleration problems on 4.8 million vehicles in the United States.

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.

The eight models represented 57 percent of Toyota's U.S. sales in 2009 and include the Camry and Corolla sedans, two of the best-selling cars in the U.S. market.

"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 including General Motors Co and Ford are ramping up production as the battered U.S. industry recovers from its worst downturn since the recession of the early 1980s.

The move will be a direct hit to Toyota's earnings because automakers book revenue when they produce and ship the vehicles to dealer lots, not when they are bought by consumers.

It also comes at a critical time for Toyota as it rolls out a marketing campaign in an effort to reverse a recent slide that sent its 2009 sales down 20 percent.

The sweeping sales halt also comes at a crucial time 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 U.S. 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.


"You can't just stop selling these models and not expect some impact to your market share -- at least in the short term," said Deutsche Securities analyst Kurt Sanger told Reuters Insider.

"Will it help certain brands gain share in the short term? Yes. I'm sure every Hyundai dealer in the U.S. is letting customers know about their improvement in quality, and by the way, 'Guess what happened across the street?'" Sanger said.

New York-listed shares of Toyota traded to the lowest level since November, dropping as much as 9 percent to $78.89. In Tokyo, Toyota's shares suffered their steepest slide in eight months, falling 4.3 percent.

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 to avoid saddling dealers with more inventory as it scrambles to fix the problem in conjunction with its supplier and safety regulators.

"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 in a note for clients.

Meanwhile, Toyota's problems could pull down industry-wide auto sales for January, KeyBanc Capital Markets analyst Brett Hoselton said.

U.S. auto sales in January, which major automakers including Toyota are due to report on February 2, are expected to show the market has softened from the 10.8 million-unit sales pace of the fourth quarter of 2009.

(Reporting by Soyoung Kim and Bernie Woodall, additional reporting by Kevin Krolicki and John Crawley; Editing by Maureen Bavdek and Matthew Lewis)

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Comments (18)
kelliann wrote:
Prius is the first car where people reported gas pedal sticking and some people died as a result. When Toyota said it was just the floor mats, that was refuted. Yet, Toyota is not recalling the Prius – why not?? I nearly bought a 2008 and am glad I did not. I am sticking with my 2003 Prius for now. I just can’t *believe* they are not recalling and stopping sales for Prius as well! This is outrageous!

Jan 27, 2010 8:27am EST  --  Report as abuse
jimnollet wrote:
Have you EVER heard in the history of US car making, no matter how bad the defect was, gas tanks explding on contact (heck they still didnt admit that one), other major safety problems, fires, loss of control problems, things that were proven by multible independant researcher companies, Have you ever once seen an American car company stop production JUST IN CASE something might be unsafe, nothing is even proven yet is Toyotas case, just alot of rumors and air time. You could have a death trap American car, and there would not be a chance they would stop production, it could be proven to be defective beyond any doubt by 30 different companies and no American company would ever stop production, they care more about profit than consumer safety, always have.
and actually from Toyota, the only part, they can find any type of problem in is from an american company, but they dont mention that in the news.

Jan 27, 2010 9:04am EST  --  Report as abuse
jimnollet wrote:
I will bet you the first 3 post are by union types, who build us such safe reliable American cars. You know they also dont mention in the news on every problem Toyota has has, has been from an american company or American Union, Sad but true. The Camry is the most American made car in the USA, based on facts, the big 3 keeps lobbying to keep twisting things to change rules, now canada is included for american made cars to be included in made in USA, also changed, so they go by cost of part, with no governing body,, so GM can buy 90% parts overseas, but CLAIMS this one part, electronic board or whatever cost $1000s and was made here so that offsets all these parts made in China that they say were pennies, so they keep to the over 50% parts american made rule, even though its 90% chinese parts, they can CLAIM (without anyone overlooking very hard)that 51% of there cost of parts were from the USA

Jan 27, 2010 9:28am EST  --  Report as abuse
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