January 28, 2010 / 5:39 PM / 8 years ago

UPDATE 2-Supplier says fixes faulty Toyota pedal

 * CTS says 3 plants producing new Toyota gas pedals
 * CTS CEO: Supplier sees no financial impact from recall
 * Problem with "condensation" in Toyota accelerators -CEO
 * CTS shares down 9.2 pct  (Recasts first sentence, adds comments from CTS, Toyota)
 By Kevin Krolicki
 DETROIT, Jan 28 (Reuters) - The supplier that builds the accelerator pedals at the center of a massive recall by Toyota Motor Corp (7203.T) is ramping up production on a redesigned part that it believes fixes the safety issue that has shut down sales of some of the automaker's most popular models.
 "Step one is that we have a new design," CTS Corp (CTS.N) Chief Executive Vinod Khilnani said. "That new design has been, I believe, tested adequately by CTS and Toyota and has been agreed as the solution."
 Khilnani said his company had built the earlier accelerator pedals to Toyota's initial specifications and that problems reported with the pedal sticking appeared to be linked to condensation around the part which the automaker had not anticipated.
 "We built the pedal to their specifications and Toyota has concurred with that," Khilnani said on a conference call with analysts to discuss the company's financial results.
 Khilnani said CTS had been working for some time to redesign an accelerator pedal for Toyota and was investing in new production lines to make the new part so that the automaker could move toward restarting its own production and sales.
 "We have the fix. It is a much more robust pedal that is meeting the tougher specifications from Toyota," Khilnani said, adding that he was not aware of any injuries or accidents as a result of the sticky pedal on Toyota cars or trucks.
 Shares of CTS fell another 9.2 percent on Thursday. The stock has lost about 12 percent since last week when Toyota announced its recall.
 Toyota has recalled 2.3 million vehicles for sticky accelerator pedals made by CTS and has shut down sales and production of eight models while it works on a fix.
 Another 5.2 million Toyota models have been recalled for a separate problem where floormats can become jammed under the accelerator pedal, causing unintended acceleration.
 CTS, which has been a supplier to Toyota for the past five years, does not believe that its pedal design is to blame for that second set of safety issues, Khilnani said.
 The automaker said it had not yet determined how quickly it could restart sales with the redesigned parts from CTS.
 "We still don't have a definitive timeline for when we are going to roll out our next step," said Barbara McDaniel, a Toyota spokeswoman.
 Elkhart, Indiana-based CTS is the sole supplier of accelerator modules to Toyota for the eight models covered by its recall.
 Khilnani said Toyota representatives were in CTS factories to work out a way to "ramp up production as rapidly as possible so that they can get replacement pedals very, very quickly."
 He did not expect that the ongoing recall would have a negative impact on financial results for CTS.
 "When the dust settles and people absorb all the news, this will not have any significant financial impact on the corporation," Khilnani said.
 The new accelerator pedals CTS is building for Toyota will address the condensation problem that causes the pedal to return slowly to the idle position, he said.
 CTS is producing redesigned pedals for Toyota at three existing factories and is in the process of adding a production line, he said.
 CTS said the pedals built for Toyota were not used by other automakers. It also supplies parts to Chrysler, Honda Motor Co (7267.T) and Volkswagen (VOWG_p.DE).
 CTS has about 16 to 20 percent in the global market for supplying accelerator modules to automakers, the company estimates.
 Its major competitors include Denso Corp (6902.T) and Hella KGaA Hueck & Co [HELLA.UL]. Together the three companies have about two-thirds of the global market for accelerators.  (Reporting by Kevin Krolicki, editing by Matthew Lewis) 

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