IHS Global Insight Perspective | |
Significance | Toyota has announced a fix for nearly 150,000 vehicles in dealer inventory and 2.3 million vehicles in customer hands that will remedy a sticking accelerator pedal, but has come up short on details as to when the fix will be exactly available, what the rate of replacement will be, and whether customers or inventory will be targeted first. The automaker's European operation has also announced the extent of a recall in its own region. |
Implications | The moves follow increasing public and media outcry about what Toyota knew about the sticking accelerator pedal and floor mat issues related to unintended acceleration—Toyota insists it became aware in October 2009, but investigations indicate it may have been much earlier than that. |
Outlook | Announcing a fix is a good next step, but a lack of detail as to how customers can get vehicles fixed, when Toyota might begin selling cars again, and a media that has now seemingly turned against the company all spell difficult times ahead for the automaker. |
The fallout from the Toyota unintended acceleration recall continues to grow in the United States as the automaker this morning announced that it had a pedal fix for the millions of vehicles currently on the road in customers' hands, as well as those sitting at dealer lots under a stop-sell order. That, among several other developments, comprise the beginning of what is likely to be a very difficult week for Toyota's public relations department. The latest developments are theses:
- Toyota Announces Pedal Fix for Recalled Vehicles: According to Toyota, which spoke to IHS Global Insight late on Sunday (31 January), a fix for the 2.3 million recalled vehicles equipped with a faulty pedal assembly that can jam in an activated position has been identified. It involves replacing a piece of the complete pedal assembly with a steel countermeasure bar that will be manufactured in Japan. The first examples of the countermeasure part should be arriving at dealers "this week or next", which would allow the 1,200 American dealers to begin repairs of the nearly 150,000 vehicles in Toyota's inventory. Toyota did not have an answer however for how many parts the unnamed countermeasure supplier would be able to produce on a daily basis however, nor was there a definitive answer on how long it would take to repair all of the vehicles both in Toyota's inventory and in customer hands. Unofficial sources have reported that it is likely that none of the eight affected stop-sale vehicles will be approved for delivery to consumers until mid-February at the earliest.
- U.S. Government Regulators Satisfied with the Fix: Officials from the U.S. National Highway Traffic Safety Administration (NHTSA) have reviewed the fix that Toyota has submitted, and have deemed it to be an acceptable solution to the company's recall issue. While the NHTSA is not required to approve the fix, it does have veto power if the regulators deem the fix to be inadequate. Thus far, Transportation Secretary Ray LaHood has said that he has reviewed the fix with Toyota officials, and that the agency agrees with the company's approach.
- Toyota Chief Formally Apologises for Recall Anxiety: Toyota's top executive, family scion Akio Toyoda, finally broke silence last Friday (28 January) and addressed the mounting calls for him to make some sort of statement regarding the increasing firestorm of controversy surrounding the global concern over the recalls. "We're extremely sorry to have made customers uneasy," Toyoda said on the sidelines of the World Economic Forum in Davos, Switzerland, as broadcast by Japanese channel NHK. "We plan to establish the facts and give an explanation that will remove customers' concerns as soon as possible." Increasing calls from the Japanese press for Toyoda to make some sort of statement have led to sources indicating that such a thing may happen this week in the form of a press conference before Toyota's 4 February earnings announcement.
- Financial Services Division to Boost Used Vehicle Loans Through Incentives: Toyotas Financial Services (TFS), the automaker's captive finance company, has announced a new round of incentives aimed at helping dealers focus on used vehicles and other new and saleable cars and trucks while much of the company's inventory sits idle, awaiting repair. TFS has lowered interest rates on all new- and used-car loans for customers with credit scores of 650 or greater, with an incentive programme that includes a half-percentage point reduction on finance contracts, lower finance rates on all makes of used vehicles at a dealer, and expanded credit lines for dealers wishing to stock up on used vehicle inventory. "We anticipate that Toyota dealers may place greater focus on used vehicles during February," said Mike Groff, TFS group vice-president of sales, marketing and product, as quoted by Automotive News.
- Allegations That Toyota Knew About Pedal Problem Begin to Surface: Several sources, led primarily by a lengthy report in the Detroit Free Press over the weekend, have begun to question when exactly Toyota knew about issues with unintended acceleration. Investigations into complaints to the NHTSA and Toyota allege that since 2003, nine separate U.S. investigations into unintended acceleration have been reported, but not until a 2007 investigation into the floor mat interaction was any sort of action generated, according to the Free Press. Toyota insists that it has co-operated with investigators in every probe, and that each investigation prior to the most recent ones had turned up no evidence of a defect. But accident lawyers representing several victims of crashes have alleged that the company has known about the issue for years, and has pressured the NHTSA to redefine the specific problems. The paper cites hundreds of requests from Toyota customers since 2003 that all led to no problems being found or cases being dismissed outright with no inquiry to Toyota, and issues in Europe beginning in 2008 with similar requests. The cases have drawn the attention of the U.S. Congress, which has now formally opened its own investigation into what Toyota may have known and what the NHTSA may have missed.
Toyota Announces Extent of Recall in Europe
Toyota Motors Europe has also announced the extent of the recall in its region. According to a statement made by the automaker, the accelerator pedal issue with affect eight Toyota model ranges
- Aygo (built between February 2005 and August 2009)
- iQ (built between November 2008 and November 2009)
- Yaris (built between November 2005 and September 2009)
- Auris (built between October 2006 and 5 January 2010)
- Corolla (built between October 2006 and December 2009)
- Verso (built between February 2009 and 5 January 2010)
- Avensis (built between November 2008 and December 2009)
- Rav4 (built between November 2005 and November 2009)
The company added that the precise number of vehicles affected were not yet known, but could reach as many as 1.8 million vehicles. Toyota also said that as soon as a countermeasure is confirmed, it will communicate to all customers and other concerned parties the details of the corrective action and of the implementation procedure. However, it had no intention of halting production in Europe, as a result of running changes in production using different parts having already been implemented as part of a continuous quality improvement policy.
This problem has also affected PSA's Peugeot 107 and Citroën C1 which share the architecture and a manufacturing facility with the Toyota Aygo. PSA Peugeot-Citroën told Automotive News Europe that around 97,000 vehicles would be affected by the precautionary recall, and that it would affect just 10% of these models on the road in Europe.
Outlook and Implications
Thus far, Toyota's public handling in the of the recall fiasco in the United States has been decidedly mediocre, with a less-than-cohesive public relations response that has not been terribly effective in quelling media concerns and questions about the entire business. Toyota has been short on some of the key details as to how much of the recall is going to work, mostly dealing with timetables and numbers. The logistics of what needs to be accomplished are indeed daunting, with Toyota having an unenviable task in front of it. The task of repairing nearly 150,000 vehicles sitting on 1,200 dealer lots around the United States is likely to take weeks just from the time the parts actually arrive at dealers, which could be either this week or next. But even if the average dealer could repair ten vehicles a day, this would still require 12,000 countermeasure parts be manufactured and delivered daily to dealers, and even then would still take two weeks to accomplish. This presupposes that the service technicians at the Toyota dealer are not already working on repairing recalled customer cars as well, of which there are 2.3 million in the United States just for the faulty pedal fix; that number swells to over 5.3 million when the floor mat recall is included. This also does not take into account the requirement for components from Europe which could add to the long jam in demand as well as adding to the time pressure that this adds to the recall. Many Toyota dealers will reportedly be open 24 hours a day to accommodate all the work that needs to be done, but nobody has yet answered how the dealers will pay for this extension of service hours, given that many of them are still struggling from coming off a highly depressed sales year in the United States. Investment firm Morgan Stanley put together a presentation stating that Toyota's sales interruption is likely to last around two weeks, and no more than four. However, it is entirely possible that it could go well beyond this, as Toyota needs to decide which is going to have priority: fixing vehicles in inventory that could start the sales ball rolling again, or fixing customers' vehicles as they are brought in at the expense of the dealer inventory. Toyota has sent mixed signals about which will have priority, with one executive saying customer vehicles will have the priority for the countermeasure parts and another saying dealer repairs will take precedence. Hopefully the coming week will bring some additional clarity along with a timetable and some better understanding of the numbers at work.
But of even greater concern is the increasingly loud calls for investigations into what Toyota knew about the unintended acceleration problem, when it may have known, and what actions it took. Toyota spokespeople in the United States have told IHS Global Insight and other media outlets that the automaker became aware of the pedal issue in October 2009, and took appropriate and immediate action within 90 days of diagnosing the issue. But this is not entirely accurate, given that the Detroit Free Press has uncovered nine such U.S. investigations that were met with scepticism and push-back by Toyota since 2003. To be fair, the vast majority of "unintended acceleration" issues are indeed caused by operator error, often confusing the brake and accelerator under duress or unusual conditions. But several reports seem to indicate that floor mats in particular were reported as an issue as far back as 2007, to no action. Thus far, Toyota's reputation has taken a serious hit in terms of the bulletproof reliability of the vehicles it makes, but the sales impact has been rather immeasurable due to the fact that Toyota is not selling 57% of its U.S. vehicle line-up at the moment. But if the public senses that Toyota has not been frank or forthcoming with the issue over the past several years, and has been attempting to hide the severity of the pedal issue, the sales impact from potential customers could be devastating.