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Toyota recall could cause short- and long-term problems for automaker
By Joseph R. Perone/The Star-Ledger
February 14, 2010, 6:00AM

toyota.jpgSTEVE HOCKSTEIN/BLOOMBERGSnow covers Toyota Camry sedans at Toyota Universe in Little Falls. A massive recall has already affected the resale values of some models. Liz Wellinghorst considered trading in her gas-guzzling sport utility vehicle for a Toyota Highlander with better fuel economy.

But the crossover vehicle is part of last month’s expanded recall of Toyotas with sticking gas pedals. The Ridgewood mother didn’t want to take a chance carpooling her two children and their friends.

"I was thinking about a Highlander, but I won’t go near it now," she said. "Not with kids."

As Toyota struggles to deal with a massive worldwide recall -- including 8.5 million cars in the U.S. with potential accelerator problems -- uncertainty over the extent of the automaker’s problems is having an effect on customers. A study released last week by Kelly Blue Book showed 27 percent of the shoppers who said they were considering a Toyota prior to the recall now say they no longer are considering the brand for their next vehicle purchase.

Not only are some customers shying away from new Toyotas, but the recalls also are hurting the resale value of used cars made by the Japanese automaker, as well, with prices dropping by hundreds of dollars in the past few weeks.

Used-car prices of the small Toyota Matrix, for example, have dropped $800 since late January, according to Juan Flores, director of vehicle valuation for Kelley Blue Book. Toyota’s popular Camry sedan has fallen as much as $300, and the RAV4 is down $550, he said.

However, the resale value of used Toyota Tacoma trucks and Sienna minivans, which are not affected by the recall, have either stabilized or gone up, he said. The reason could be that car dealers are buying more non-recalled used vehicles to sell on their lots, Flores said.

Ed Ventura, who lives in Leonia, is trying to sell a 2007 Camry with 64,000 miles. He has an asking price of $12,000, which he said is below market value, in hopes of moving it. So far he’s had no offers.

"It’s not a bad price," said Ventura, who began advertising the car last week. "I’m only concerned about not being able to sell it because of the bad economy, not because of the recall."

As as result of the recall, car buyers who want a new Toyota are in a good position to negotiate a better price at or near invoice right now, Flores said.

For example, Toyota’s announcement last week that it was recalling 440,000 Prius hybrids for a potential brake problem has probably knocked between $1,000 and $1,500 off the sticker price, Flores said.

Government investigations into 2009 and 2010 Toyota Corollas for potential steering problems could further weaken their values, as well, Flores said.

"When the repairs take effect, dealers are going to have built-up inventory, and that will put downward pressure on prices," Flores said. "We expect Toyota will come out with zero percent financing for 60 months in March to clear these cars off the lots, and that is very unusual to do that at this time of year."

As Toyota wrestles with its problems, other car manufacturers are picking up market share. The Honda Civic and Accord, Chevrolet Malibu and Nissan Sentra all recorded increased new car transaction prices immediately after the Toyota recall, according to TrueCar.com, an automotive website that tracks industry sales.

Hyundai and Kia also showed slight pricing improvements, the website said, and Chevrolet is offering "extra incentives to sell more vehicles."

Toyota dealers have extended their service hours to fix customer cars under the recall, as well as vehicles they already have in inventory. Brunswick Toyota has opened its service shop on Sundays and has trained new car sales representatives to schedule appointments with customers to have their cars fixed, according to Ray DeSimone, general manager of the North Brunswick dealership.

"Toyota told us to handle customer cars first and then we can handle our own inventory," he said. "About 75 percent of our inventory is sellable now. We have repaired about 150 customer cars so far, and we probably have another 300 to schedule."

He estimates some pre-owned Toyotas have dropped as much as 3 percent in value at auctions, which means dealers like him can buy them cheaper. "Fortunately, we were a little low on inventory, so now we can try and stock up," he said.

The dealership is "getting a surprising amount of customer traffic, considering what has happened," and he expects Toyota will come out with a significant sales incentive on new models this week.

The unprecedented recall should have only a temporary downward effect on resale value, he said. "You get the sense that this will be a bump in the road and not a long-term deal, because Toyota is committed to get this right as quickly as possible," he said.

Toyota Motor president Akio Toyoda apologized for the recall in an op-ed piece in the Washington Post last week. He said the company will establish a center of excellence to focus a team of engineers on improving quality control in North America. The company also will assemble a blue-ribbon safety advisory group of outside experts to review its operations, and it will "more aggressively investigate complaints we hear directly from consumers."

The recalls have been a blow to Toyota’s once-solid reputation for quality, said Andrew Graham, chief executive of Kepner-Tregoe, a Princeton-based management consulting and troubleshooting firm.

"This is highly damaging," he said. "What started with an isolated problem is now generating the perception of an overall quality problem. Once you are labeled with poor quality, you are dead in the water."

Will Cofnuk of Morris Township, whose wife bought a Camry in October, brought it back last week to Toyota of Morristown to get the accelerator repaired under the recall. He said he still thinks Toyota puts out a good product.

"It hasn’t changed my view of Toyota," he said. "My wife had a 2005 Camry, and she put 100,000 miles on it with no problems."

Still, Toyota could be faced with some residual damage from the recall debacle. Sales "may continue to slump" for the world’s largest automaker in the short term as a result of the recalls, according to JPMorgan analyst Himanshu Patel. Later this month, Congress will question Toyota and federal regulators on the crisis and whether complaints about Toyota’s safety were ignored.

Toyota officials may have to brace for a protracted period of repair and litigation costs. It took Audi, the German automaker, more than a decade to recover from reports of sudden unintended acceleration of its 500 sedan in the mid-1980s.

"Toyota should have learned from Audi’s sudden-acceleration syndrome issue, in which Audi blamed ‘driver error’ or pedal size," said Shannon Bowen, associate professor of public relations in Syracuse University’s S.I. Newhouse School of Public Communications and an expert in crisis management.

"Not acknowledging that consumers had a real problem cost Toyota valuable time," she added. "By the time Toyota took the problem seriously enough to initiate a recall and fix the pedals, they had lost the trust of many consumers."

Customers begin to lose faith in a brand if they no longer believe what the company is saying, she said.

"That damage to Toyota’s reputation will take years to recover from, just as it did for Audi," she said.


Staff writer Danny Teigman contributed to this report. Joseph R. Perone may be reached at jperone@starledger.com or (973) 392-4262.

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