January 26, 2011 / 9:16 AM / 9 years ago

Toyota recalls 1.7 million autos as quality woes mount

TOKYO (Reuters) - Toyota Motor Corp said it would recall more than 1.7 million vehicles worldwide, bringing its total for recalls to nearly 16 million since late 2009 and dealing a blow to its efforts to restore its reputation for quality.

A Toyota logo is pictured on the front of a car in London, January 26, 2011. REUTERS/Stefan Wermuth

The recalls are for various issues, the biggest of which is to fix potentially faulty fuel pumps and connecting pipes in 1.34 million vehicles, Toyota said.

Although the situation is different from last year, when Toyota attracted intense scrutiny from U.S. safety regulators over unintended acceleration problems that were blamed for dozens of fatalities, the latest recall may make it harder for Toyota to convince investors it has put its quality problems behind it.

Shares of Toyota, the world’s top automaker, extended early declines and closed down nearly 2 percent on the Tokyo Stock Exchange after the announcement.

Toyota’s U.S. shares were down 1.5 percent at $82.60 in morning trading in New York, compared with a rise of 0.6 percent in the S&P 500 index.

“Toyota faces harsh competition from Honda Motor Co, which is in a much better situation in the U.S. market — this is reflected in its stock price which now stands at multi-year highs,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

“That’s why investors are a little nervous and sold Toyota when this negative news came out,” he said.

The models affected by the fuel pump issue include the Noah minivan and other models sold in Japan as well as 141,000 Avensis units sold overseas. That is Toyota’s biggest recall in six years and its second-biggest ever for a single defect, said Toyota spokeswoman Shiori Hashimoto.

Toyota said in a filing to Japan’s transport ministry that no accidents had been reported because of the defects.

U.S. SALES SUFFER

Toyota was the only major automaker to see its sales fall in the United States last year, and just squeaked by General Motors Co to keep its spot at the top of the global sales ranking.

Toyota said it was also recalling around 335,000 Lexus units sold overseas, including about 245,000 sold in the U.S. market, due to trouble with a fuel pressure sensor connected to an engine fuel delivery pipe.

In the United States, about 152,500 IS250 models are affected by the recall.

Lexus remained the top luxury brand in the U.S. market last year, with sales of about 230,000 units. But second-place Mercedes-Benz closed the gap to less than 5,000 vehicles and grew by 17 percent. Mercedes-Benz is owned by Daimler.

Lexus’ 6 percent growth in sales compares with gains of 26 percent by Honda’s luxury brand Acura and of 27 percent by Nissan Motor Co’s Infiniti brand.

Lexus is seen as a car for Baby Boomers which does not appeal as much to younger buyers.

Lexus has lost some luster in the U.S. market in part because of publicity surrounding last year’s safety recalls but also because its model lineup is not fresh, said Jeremy Anwyl, chief executive of Edmunds.com.

“The safety issue from last year had an impact, but the products for both Lexus and Toyota are getting stale in a market that values newness,” said Anwyl.

“I don’t think this is going to have a huge impact in terms of sales,” he said, mentioning that Toyota and Lexus dealers can claim the automaker is being proactive, before any injuries or accidents have been reported.

In two other filings on Wednesday, Toyota said it would recall about 75,000 Crown models and about 6,200 Townace vans in Japan to fix the same fault found in Lexus cars sold in the United States and elsewhere.

Toyota’s Hashimoto declined to say how much the latest recalls would cost the Japanese carmaker.

The U.S. recalls regarding Lexus will take an estimated two hours for inspection and tightening of the fuel pressure sensor but three hours if a gasket needs to be replaced, Toyota said.

For the financial year to March, Toyota expects operating profit of 380 billion yen ($4.6 billion), lower than both Honda and Japan’s No. 3, Nissan, are forecasting.

Toyota’s last big recall was in October when it said it would fix 1.66 million Avalons, Highlanders and other models worldwide mainly for a defect in the master cylinder brake seal.

Toyota shares closed down 1.9 percent at 3,400 yen, underperforming a 0.6 percent fall in the benchmark Nikkei average.

Shares of Honda, Japan’s second-largest automaker, gained 0.7 percent to 3,470 yen.

Additional reporting Noriyuki Hirata, Tim Kelly, Antoni Slodkowski and Bernie Woodall; Editing by Lincoln Feast and Matthew Lewis

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