Beyond Recalls: A Year Later, Toyota's Woes Continue

Toyota's reputation has taken a beating, cutting into its sales The company can't blame all of its problems on recalls.
Toyota's reputation has taken a beating, cutting into its sales The company can't blame all of its problems on recalls.

A year ago, Toyota Motor (TM) had just begun its massive recall of millions of vehicles to fix problems related to sudden unintended acceleration. At the time, many thought the Japanese automaker's stellar image for quality and safety would allow it to shrug off any fallout from the recalls, but it hasn't worked out quite that way.

Today, Toyota is defending itself on several fronts, not the least of which are lawsuits -- from both customers and investors -- alleging that the company hid what it knew about the problems. Beyond its legal woes, the manufacturer has also seen its once-unassailable image for building well-designed, durable cars called into question and its U.S. sales fall.

Last year, Toyota was the only major automaker in the U.S. to report a drop in sales. While it saw a seemingly small decline of only 0.3%, the drop followed several years of extraordinary growth that saw Toyota surpass Ford Motor (F) as the No. 2 supplier of vehicles to the American market -- and eclipse General Motors (GM) as the world's largest auto manufacturer.

In fact, Toyota's momentum stalled so completely last year that -- while it maintained a slim lead as the top auto seller worldwide -- it lost the No. 2 spot in U.S. sales to Ford and could remain No. 3 again this year, if online searches and comparisons are an indication of consumer interest in Toyota vehicles.

Fewer Shoppers Consider Toyota

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According to analysis from online car-buying site, fewer car shoppers considered Toyota models in December compared to same month a year ago. The firm reports that 17.9% of its website visitors researched Toyota vehicles last month, a 2.3 percentage-point drop from December 2009. For the full year, Edmunds says, shoppers' interest in Toyota vehicles was down about 3.8 percentage points compared to 2009.

The lingering effect of its numerous recalls isn't the only thing keeping consumers at bay, says Jessica Caldwell, a senior analyst for Edmunds. "Toyota needs to overcome not just the [public relations] damage sustained by last year's recalls, but also the reality that its models are stale," she says in a blog post.

As competitors have been introducing new or upgraded models, Toyota's lineup has remained largely unchanged during the last few years, she says. That has led some consumers to exclude Toyota from consideration all together, instead focusing on competing models from Honda Motor (HMC) and Nissan Motors (NSANY), according to Edmunds.

Fresh Designs Needed

In today's competitive marketplace, it has become more important than ever to keep product lines updated, Caldwell says. "Most new car shoppers cross-shop online without much product loyalty, and many dismiss the cars that are lacking desirable new technology features."

That hasn't gone unnoticed by Toyota, which plans to introduce 11 new or revised vehicles this year. They include some bread-and-butter Toyota models, such as the popular Camry sedan and RAV4 compact SUV, as well as niche models from Toyota's Scion and Lexus divisions.

Ultimately, it's fresh models and new technology that bring new-car buyers into dealer showrooms. Incentives, such as rebates and low-rate financing work, too, Caldwell says. "But new products are a far better investment for car companies long-term."