Experts estimate the recall of millions of Toyota Motor (TM) vehicles could cost the company tens of millions of dollars, but what about it dealers? Accounting for lost sales of both new and used cars, BusinessWeek estimates they could lose as much as $2.5 billion a month. That's a lotta Tundras-full of cash.Toyota is feverishly working on a fix for the problem, which involves 2.3 million cars in the U.S. with "sticky" gas pedals that cause the cars to accelerate unintentionally. The company announced the recall, which involves Toyota's popular Camry and seven other models, last week. It has since expanded the action to include eight models sold in Europe, some of which aren't available in the U.S.
Already reeling from a slowdown in sales due to the recession, the recall threatens the very viability of the weakest of Toyota's 1,200 dealerships nationwide. General Motors' Chevrolet and Honda Motor (HMC) appear to be the beneficiary of Toyota's woes, with interest in Toyota models falling 10% in recent weeks, according to consumer buying guide Edmunds.com. If the recall and production shutdown drag on for months, it's possible that some dealers may have to close up.
Fast Action Will Make a Big Difference
But that's not likely to happen says, John Wolkonowicz, senior auto analyst at IHS Global Insight. With Toyota's announcement that it has already found a fix, Wolkonowicz doesn't believe the production shutdown, which is slated to start Monday, or the halt in sales will last very long. That would limit the fallout to dealers.
Toyota may be able to resume sales by the third week of February, according to Reuters. But Toyota spokesman Brian Lyons said he couldn't confirm the report, The Detroit News reported.
The Boston Globe reported Thursday that showrooms were eerily quiet at one Boston-area Toyota dealer, the largest in New England. The only traffic at Boch Toyota was from customers getting their cars serviced. They included Carina Pima, a 23-year-old mother who said she was to scared to drive her 2010 Camry, one of those recalled, and was given a rented Kia Optima to drive until her car could be fixed.
"A Little Metal Shield"
The repair involves putting a shield around a part of the accelerator-pedal assembly that corrodes with age, causing it to stick in some instances. The fix is simpler than replacing the entire pedal, as was first thought to be necessary. "They just have to add a little metal shield that they can make very quickly," Wolkonowicz says.
The pedals in question were supplied by Canadian parts supplier CTS Corp. (CTS), and installed on vehicles produced at five factories in Indiana, Kentucky, Texas and Canada. The models involved in the recall are: the 2009-10 RAV4; the 2009-10 Corolla and Matrix; the 2005-10 Avalon; 2010 Highlander; the 2007-10 Tundra and the 2008-10 Sequoia; as well as some 2007-10 Camrys.
In the last three years, five people died, and 17 were injured in 13 crashes involving in Toyota vehicles confirmed to involve unintended acceleration, according to the U.S. National Highway Traffic Safety Administration.
Some of the recalled models are also involved in a separate recall of some 5.4 million Toyota models that suffer from a similar unintended acceleration problem caused by accelerator pedals that get hung up on floor mats.
A Different Image Problem
As to whether the recalls will damage the Toyota brand, Wolkonowicz says he believes loyalists will look past the sudden-acceleration problem and likely keep buying. When it comes to attracting new buyers, however, Toyota could have a different problem on its hands -- its stodgy image. Toyotas are viewed as old-peoples' cars by many in Generations X and Y, not unlike they way in which baby boomers saw Buicks and Oldsmobiles decades ago.
Young people want to drive cars driven by those they aspire to be, Wolkonowicz says, adding "[they] don't aspire to be old geezers." Right now, Toyota dealers would be happy if prospective buyers of any age show up.
Investing Like Warren Buffett
Learn from one of the world's best investors.View Course »