Secretary LaHood's 'Stop Driving' Comments Make It Even Worse for Toyota

It seems things just keep getting worse for Toyota Motor (TM). Already besieged by two massive recalls of as many as 8 million cars, and production and sales halts on eight models, U.S. Transportation Secretary Ray LaHood told a House panel Wednesday that owners of 2.3 million recalled models for sticky accelerators should "stop driving" them and get them fixed.Speaking prior to his testimony, LaHood told reporters that Toyota owners should contact their dealer immediately and "exercise caution until repairs can be made," the Associated Press reported. Later, perhaps realizing that his comments could create fear and confusion among owners of recalled cars, LaHood said he misspoke and advised owners to bring their vehicles to dealers if they were concerned. "What I said in there was obviously a misstatement," he added.

But as if that weren't enough, the Japanese auto maker must now contend with concerns with possibly defective brakes on its popular Prius model. A Toyota spokeswoman says the company was investigating several dozen complaints since December for what owners describe as insufficient braking when driving over bumpy or frozen roads, Reuters reported.

A Big Sales Tumble

LaHood's comments and fresh concern about Prius models' braking systems add greater weight to criticism many have voiced in recent weeks that the world's No. 1 automaker has taken its eye off quality in pursuit of sales. The sales stoppage, announced last week and involving eight models, has already taken a toll on showroom traffic. Toyota reported Tuesday that January sales fell 16% from January 2009. But compared to December 2009 sales, Toyota fared even worse, falling nearly 47%.

On Monday, the company announced it was shipping parts to dealers this week to fix the gas-pedal problem. Many dealers will stay open extended hours, some around the clock, to repair the cars, the company said. The "simple" repair involves installing a steel reinforcement bar to prevent friction between accelerator parts. The federal government OK'd the plan last week.

In addition to the recall of 2.3 million cars for sticky accelerators, which has been broadened to include models sold in Europe and China, Toyota has also recalled 5.4 million cars that suffer from a similar unintended acceleration problem caused by floor mats.

Little Time to Accentuate the Positive

All this couldn't come at a worse time for Toyota, which is due to report fiscal third-quarter earnings this week. The effects of the recall and even more recent matters come too late to affect third-quarter numbers. Still, with sales losses mounting and estimates of the cost of the recalls escalating daily, Toyota executives will have little time to dwell on any positive results in the quarter when they announce them Thursday.

Prior to the recall, Toyota was already expecting to report a $2.2 billion loss for the fiscal year that ends next month -- a second consecutive year of losses. Some analysts have called the company's forecast too gloomy and expect much better results. Analysts surveyed by Thomson Reuters think Toyota will be in the black for the fiscal year ending March 31, ringing up a profit of $377 million, BusinessWeek reports.

Of course, much hinges on the company's ability to quickly resume production and sales of its popular Camry and Corolla sedans and the six other models involved in the recall.

Winter of Discontent

A survey by Kelley Blue Book of people planning to purchase a car found that 21% of those who were considering Toyota before the recall no longer are looking at the brand, reported. Nevertheless, 43% of those who have soured on the brand said they'll reconsider once they see how the solution to the recall plays out.

If there ever was a winter of discontent for an auto maker, this is it. Previous criticism aimed at Toyota for failing to act quickly to acknowledge quality problems and remedy them have auto-industry insiders saying the company's woes threaten to eat away at its market share, which shrank last month to levels not seen in three years.
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