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Recall threatens Toyota's position as top carmaker

By Peter Wilkinson, CNN
The recall of millions of vehicles affects Toyota's reputation for reliability, experts say.
The recall of millions of vehicles affects Toyota's reputation for reliability, experts say.
STORY HIGHLIGHTS
  • Recall of millions of Toyota vehicles could affect its position as biggest car manufacturer
  • Analysts say Toyota's reputation as reliable carmaker is at stake; must act openly and rapidly
  • Millions of cars being recalled because of faulty accelerator mechanisms

London, England (CNN) -- The way in which Toyota handles the recall of millions of vehicles will determine whether it retains its position as the world's biggest car manufacturer, industry experts warned Friday.

They said that with cars being ordered back to dealerships across the United States, Europe and China because of potential problems with accelerator pedals, Toyota must now act openly and rapidly to retain consumers' loyalty and persuade them that reliability and safety is not being sacrificed.

The issues stem from faulty mechanical linkages that could wear over time, resulting in the accelerator partially sticking open. In the U.S. 2.3 million cars are being recalled for this problem, while 5.3 million cars will be checked because pedals have occasionally become trapped under floor mats.

Several accidents may have occurred because of sticking accelerators, according to safety complaints database ConsumerReports.org, which reported that Toyota owners experienced 40 percent of all "unintended acceleration incidents" in the U.S. during 2008.

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"The glitter on the Toyota brand has been fading for a while," said motor industry analyst Professor Garel Rhys of the UK-based Cardiff Business School. "Its models are not as sharp and reliable as they used to be, and Volkswagen has announced that it wants to replace Toyota as the number one manufacturer.

"Twenty or 30 years ago Toyota showed that reliability could go hand-in-hand with value for money, but customers are now much less loyal to a brand. So this recall, one of the biggest in the history of the car industry, is a tough challenge for Toyota," Rhys added.

Does the recall hurt the Toyota brand?

Shares in Toyota have fallen by more than 15 percent in the last week, as the scale of the recall grew. The Japanese manufacturer's credit rating could also be downgraded, according to media reports, meaning the total cost could be measured in billions of dollars.

One Japanese industry analyst has warned that the full cost of the problem to Toyota may not become clear for several weeks.

"Toyota's stock might fall further until the impact on earnings and profits from the recall becomes clear," Hiroaki Kuramochi from Tokai Tokyo Securities told Autocar magazine.

The cost to the company, if it was proved to have known about the problems and did nothing, could be massive. Legal costs of a possible class action would be "catastrophic," Rhys said, while the loss in reputation would be immeasurable.

He added though, that as far as he knew, Toyota had acted as fast as it could to recall the vehicles, but he said what will determine the outcome of the crisis is whether customers judged the speed of the reaction to be real or superficial.

Toyota has announced that 1.8 million cars sold in Europe would be recalled and on Friday it gave details of which models were affected. These included the Corolla, Yaris, Avensis and RAV4 but none of the luxury Lexus models.

I haven't been sure for a long time what really made Toyota different, and if it isn't reliability, which is now in question, then what is it?
--Brand strategist Simon Middleton

Spokesman Scott Brownlee denied accusations that there had been any kind of cover-up. "It is not true that we've known about the problem and been reluctant to talk about it; quite the reverse," he said.

"Before you announce a recall you need to identify exactly what the problem is and which models are affected so you have the capability to rectify the faults. I am confident Toyota has been open and thorough."

Another problem for Toyota is that many of their cars, the eco-friendly Prius excepted, are seen as dull by much of the motoring press: Reliability is the main selling point. Take that away, according to Autocar magazine's Associate Editor Hilton Holloway, and it's unclear why people should buy them.

"Toyota is, like many Japanese companies, very hierarchical. The new boss Akio Toyoda says he understands the problem, but there needs to be more openness and enthusiasm. The company has become too big and unwieldy, with low profit margins. When there was a small drop in production the company went into the red. Suddenly everyone realized the company wasn't so sound after all."

How the recall affects the company in the long-term remains to be seen. Brand strategist Simon Middleton said Toyota must never forget that its appeal is based on reliability. "Toyota has struggled for a while with what its brand means in the hearts and minds of consumers. And when they hit a problem I'm not convinced the management is sure how to deal with it.

"One element of great brands is to be markedly different from your competitors. I haven't been sure for a long time what really made Toyota different, and if it isn't reliability, which is now in question, then what is it?"