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US Congress to probe Toyota recalls

autos Updated: Jan 29, 2010 09:04 IST

Reuters
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Congressional investigators sought documents from Toyota Motor Corp and US safety regulators about a pair of safety recalls the automaker was racing to address.

House Energy and Commerce Committee Chairman Henry Waxman said he would hold a hearing next month to consider "how quickly and effectively" the car maker responded to complaints about unintended and dangerous acceleration.

"Like many consumers, I am concerned by the seriousness and scope of Toyota's recent recall announcements," Waxman said in a statement.

The unusual action by the US government comes just hours after the Toyota recall for accelerator problems was widened to include China and Europe.

The world's largest automaker and a company studied for its devotion to quality, Toyota has recalled about 8 million vehicles in recent months -- more than the number of cars and trucks it sold worldwide in 2009.

The recalls rank as the largest ever for Toyota. Analysts say the financial impact will depend on how long the safety problems shut production and whether Toyota's famously loyal customers begin to abandon the brand.

Shares of Toyota have dropped 17 per cent over the past week. The stock was down 1.5 per cent in early Tokyo trading on Friday.

"If I sat down to write the worst thing that could happen to Toyota, it would be very close to what is happening to them now," said Gerald Meyers, a University of Michigan business professor and veteran auto executive.

"They are at the edge of a collapse of confidence in their products," said Meyers. "That means their brand is in jeopardy. If they lose their brand they lose the battle. That's why it's close to being as bad as it could get."

Ratings agency Fitch, placing Toyota on watch negative, said the recalls and production suspension damaged Toyota's reputation for quality and could hamper its recovery.

Toyota's troubles come as rivals Ford Motor Co and Hyundai Motor Co announced fourth-quarter results that beat analyst expectations. Both automakers lead a pack of rivals expected to gain ground from Toyota's missteps.

Reckoning the damage

Industry analysts and executives estimate that it will cost some $250 million in warranty costs alone to address the smaller of the two recalls underway in the United States.

The automaker also faces the fallout from the larger recall that began last year and was broadened this week for vehicles at risk of having floormats that can become jammed under accelerator pedals.

Then there are the still unknown costs for lost production, financial support to dealers and sales incentives the company has told its retailers it is considering in a bid to keep customers being wooed by rivals.

In addition, Toyota is certain to face lawsuits from people who claim injuries from the defects or class-action claims on behalf of consumers who will claim the crisis has damaged the value of their cars, analysts say.

Toyota has not released an estimate for the number of incidents of unintended acceleration. Consumer advocates say there are hundreds of such cases in Toyota vehicles.

Meanwhile, Toyota said it was racing to fix one of the recurring problems with sticky accelerator pedals that has forced it to shut down sales and production of most vehicles in the United States.

The proposed remedy under discussion with U.S. officials would involve shipping a "spacer" or a "shim" to Toyota's dealers in the United States, sources briefed on the matter said.

The new part would increase tension in the accelerator and prevent sticking, Toyota engineers believe, according to the sources, who asked not to be named because an announcement has not been made.

Toyota spokesman Mike Michels declined to comment on the proposed repair. He also said production could be run at reduced levels even after it is restarted to allow Toyota to send replacement parts to dealers.