/ 27 January 2010

Toyota suspends US sales of eight models in recall

Toyota will suspend US sales of eight models subject to a massive safety recall, an unprecendented move that sent its shares tumbling and raised questions about the timing of its earnings recovery.

Toyota said it would also halt production of the models, including the best-selling Camry, at plants in the United States and Canada in the first week of February.

Shares in the world’s biggest carmaker suffered their biggest slide in eight months, falling 4,3% in a Toyko market down 0,7% on Wednesday.

Last week, Toyota announced it would recall 2,3-million vehicles in the United States to fix potentially faulty accelerator pedals, its second large recall in four months in the United States, its biggest market.

The series of recalls threaten to damage Toyota’s reputation for safety and quality that helped it ascend to the top of the global car industry.

“This unprecedented automotive decision indicates how serious a safety problem this is,” said Michelle Krebs, senior analyst at Edmunds.com. “We’ve gone from floormats to recalls for wear items to a full shutdown, and I can’t help but think that the company’s credibility is being called into question.”

Toyota said the production halt would initially last a week before being reviewed. Officials could not recall a sales or production suspension resulting from vehicle defects on such a scale.

Toyota is considering whether it needs to issue a recall in Europe as well, where the same parts are used for some models.

Earnings threat
The sales and production suspension could also affect its earnings in the near term.

“The recall itself won’t be a big problem for Toyota’s earnings, but suspending production and sales could have a big impact depending on how long it lasts,” said Koji Endo, an auto analyst at Advanced Research Japan.

Battered by a plunge in global sales brought on by the financial crisis, Toyota has forecast a ¥350-billion ($3,9-billion) operating loss for the year to March — a projection widely regarded as conservative.

It was expected to post a operating loss of about ¥47-billion in the year to March 2010, before rebounding to a ¥599-billion profit in 2011, according to 19 analysts polled by Thomson Reuters I/B/E/S.

“There is a chance that Toyota could swing to profit this business year, but this sales and production suspension may have a certain impact,” Endo said.

Toyota said this week it expects a 6% rise in group-wide global sales to 8,27-million units in 2010, but according to a company spokesperson in Tokyo, the outlook does not take this sales suspension into account.

The sales suspension and recall includes Toyota’s top-selling vehicle in North America, the Camry, for model years since 2007.

Also included are the 2009-2010 model year RAV4, Corolla and Matrix, the 2008-2010 model year Sequoia, the 2007-2010 model year Tundra, the 2005-2010 model year Avalon and the 2010 model year Highlander.

Annual combined sales of these models are one million cars in North America, more than half of Toyota’s annual sales there last year, according to Advanced Research’s Endo. It is more than 2 700 units a day or 19 000 cars a week.

“In this highly competitive market, no automaker — not even Toyota — can afford to stop selling its cars and trucks for long, but perhaps Toyota is banking on the idea that customers will appreciate the priority of their safety in this decision,” commented Edmunds.com Senior Analyst Jessica Caldwell.

Bob Carter, Toyota US group vice-president, said the world’s number one carmaker is taking the actions to ensure safety and restore confidence in Toyota among consumers.

“This action is necessary until a remedy is finalised,” Carter said in a statement. “We’re making every effort to address this situation for our customers as quickly as possible.”

The plants where the models are made are located in Indiana, Texas, Kentucky, and in Ontario. – Reuters