February 3, 2010 / 7:18 AM / 10 years ago

Obama administration steps up pressure on Toyota

WASHINGTON/DETROIT (Reuters) - The Obama administration stepped up the pressure on Toyota Motor Corp on Wednesday to address a range of safety issues as investors and consumers reacted to the deepening crisis for the world’s largest automaker.

A Toyota car is displayed at a dealership in Tel Aviv February 3, 2010. REUTERS/Gil Cohen Magen

“Our ... people will hold Toyota’s feet to the fire to make sure they are going to do everything they said they were going to do to make the vehicles safe,” U.S. Transportation Secretary Ray LaHood said at an appearance in Washington.

LaHood said he would take the unusual step of calling Toyota President Akio Toyoda to emphasize how seriously the Obama administration is taking investigations into reports of uncontrolled acceleration in Toyota vehicles.

Toyota shares hit a new low on LaHood’s comments, including a statement he later clarified that had been interpreted as a warning for consumers to stop driving the more than 5 million Toyota vehicles covered by two sweeping recalls.

At Wednesday’s low of $71.90 in New York trade, Toyota shares had dropped more than 17 percent since January 26 when it suspended sales of eight models in the United States, including its two most popular cars, the Camry and Corolla. The shares were down 5 percent at $74.24 on Wednesday afternoon.

Toyota issued a statement urging consumers to take any vehicles experiencing problems with the accelerator pedal to a dealership for an immediate fix.

But it also said that the problem did not appear to “occur suddenly,” suggesting drivers would experience warning signs before a pedal became stuck.

“Our message to Toyota owners is this — if you experience any issues with your accelerator pedal, please contact your dealer without delay. If you are not experiencing any issues with your pedal, we are confident that your vehicle is safe to drive,” the company said in a statement.

Separately, in another potential knock on its reputation for quality, Toyota said dealers in both the United States and Japan had reported complaints about the brakes in its new model Prius hybrid.

A Toyota spokeswoman said the company was investigating several dozen complaints since December over what drivers characterized as insufficient braking when traveling over bumpy or frozen roads.


Goldman Sachs downgraded Toyota to “neutral” from “buy” and said investors had now priced in a loss of up to 4 percentage points in the automaker’s U.S. market share.

A setback on that order would put Toyota at about the current size of Honda Motor Co in the U.S. market or less than half the size of General Motors Co, now majority-owned by the U.S. government.

Goldman Sachs said in a note for clients that the cost to Toyota from lost sales and warranty-covered recalls was estimated at $1.6 billion through March.

Toyota pulled eight of its most popular models including the Camry, Corolla and Rav4 from U.S. showrooms in the last week of January after it launched a recall for problems with sticky accelerator pedals made by supplier CTS Corp.

Earlier on Wednesday, LaHood had touched off a sharp sell-off in Toyota shares and a flood of calls to U.S. dealerships from panicked consumers when he appeared to tell Americans to stop driving Toyotas under recall.

“My advice is if anybody owns one of these vehicles is to stop driving it and take it to a Toyota dealer because they believe they have the fix for it,” he said.

LaHood later said that had been a “misstatement” and that his advice was unchanged from the steps already recommended by U.S. safety regulators and Toyota.

The National Highway Traffic Safety Administration has said it will investigate whether Toyota’s electronic throttle control system could be part of the problem behind reported instances of uncontrolled acceleration in its vehicles.

Toyota has said it found no evidence of any safety problems beyond those covered by two recalls under way for accelerator pedals that can become stuck and the risk that a loose floormat can trap an accelerator pedal on some models, including the Prius.

The automaker has recalled 8.1 million vehicles for both sets of problems around the world, including 5.5 million in the United States.

Toyota’s 1,200 U.S. dealerships have begun to receive shipments of parts needed to fix faulty accelerators and many said they would hire new crews and stay open late to fix recalled cars as quickly as possible over the coming weeks.


LaHood’s pledge to take his concerns directly to Toyota’s chief executive puts the spotlight back on Toyoda, the grandson of the automaker’s founder who took over the top job last year with a pledge to revive the values that helped the company win a reputation for top-notch quality.

Outside of a terse apology on the sidelines of the World Economic Forum in Davos last week, Toyoda has kept a low profile as the crisis has mounted.

“In moments of a business crisis, people want to see a company take full responsibility, be empathic to the victims and their families and be in control by outlining the problem and how they intend to solve it. They also expect the CEO doing all this,” said Ong Hock Chuan, an adviser with Jakarta-based consultancy Maverick which specializes in crisis management.

“Toyota seems to have failed in all counts. Its admission of the problem has been half-hearted and almost reluctant, it has failed to apologize unequivocally to victims and their families, and it’s failed to articulate and communicate what it intends to do to regain control of the situation.”

Toyota suffered a 16 percent sales drop in its biggest market, the United States, last month as it was not able to sell about 60 percent of its U.S. inventory. Sales of models covered by the recall are not expected to resume until the third week of February, sources have said.

Honda Motor Co raised its profit forecast on Wednesday.

Honda is not among top automakers to offer cash incentives to try to win over Toyota customers, but analysts see Honda as one of the automakers best-positioned to benefit from Toyota’s troubles in the U.S. market, along with Hyundai Motor Co and Ford Motor Co.

Toyota service manager Jim Lasseter shows an accelerator pedal (R) that is subjected to recall and modification, and another that functions properly, at a Toyota dealership in Daly City, California February 2, 2010. REUTERS/Robert Galbraith

“Toyota is the front-runner representing Japanese cars,” Honda Executive Vice President Koichi Kondo told reporters. “In that sense, we’re somewhat worried that there may be a knock-on effect on other Japanese brands, but we’ll need a little more time to gauge any impact.”

Toyota will have a further opportunity to address the issue when it issues third-quarter results, due on Thursday.

Toyota shares have fallen in eight of the past nine sessions and the company lost more than $25 billion in value since its initial U.S. accelerator pedal recall on January 21.

Additional reporting by Soyoung Kim in Detroit, Chang-Ran Kim in Tokyo and Helen Massy-Beresford in Paris; Writing by Kevin Krolicki; editing by Jean Yoon, Erica Billingham and Matthew Lewis

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