/ 22 February 2010

Toyota memo raises stakes for chief’s US hearings

A document claiming Toyota saved over $100-million by convincing US regulators to agree a cheap fix for unintended acceleration problems raised pressure on the company’s president as he arrived in Washington to prepare for a grilling from congress.

Akio Toyoda faces the biggest test of his seven-month tenure when he testifies before the US lawmakers in an effort to contain a safety crisis that threatens the reputation and continued success of the carmaker in the market that made it a global powerhouse.

Toyota has recalled over 8,5-million vehicles globally in recent months for problems including sticky accelerators, accelerators that can be pinned down by loose floormats and a braking glitch affecting hybrid models, including its flagship Prius.

Regulators believe five deaths are associated with floor mats and are reviewing up to 29 other fatality reports to see if they are related to unintended acceleration.

A 2009 internal document turned over to lawmakers and made available on Sunday shows Toyota’s Washington DC staff trumpeting savings of more than $100-million by convincing regulators to end a 2007 investigation of sudden acceleration complaints with a relatively cheap floormat recall.

The document seems certain to add to the high-stakes debate about whether Toyota missed or ignored complaints about sudden acceleration in its vehicles and whether US safety regulators were tough enough.

Toyota on Sunday reiterated that it was conducting a top-to-bottom review of all its operations.

“Our first priority is the safety of our customers and to conclude otherwise on the basis of one internal presentation is wrong,” the company said.

But the US Department of Transportation said the document highlighted Toyota’s slow response to the safety problems.

“Unfortunately, this document is very telling,” said department spokesperson Olivia Alair in an emailed statement.

Toyota has launched a publicity campaign to convince current and prospective customers that the company is addressing the problems. Its US sales plummeted 16% in January and the company has estimated the recalls will cost it $2-billion at the operating level in the fiscal year ending March.

Shares of Toyota rose nearly 3% on Monday, lifted by a rally on exporters as the yen slipped against the dollar.

Toyoda appearance key
Toyoda, who is set to testify Wednesday after initially ruling out such an appearance, has acknowledged that the carmaker founded by his grandfather let its standards slip during fast growth over the past decade.

The company has been tight-lipped about Toyoda’s schedule, with a spokesperson declining to confirm whether its president was already in the United States. Japanese media reported he had arrived in Washington and television showed images of his private jet.

Analysts said Toyoda’s appearance in Washington will be a defining moment in whether and how quickly it can move beyond its safety crisis.

“Congress is doing him a favour. He can be apologetic and be contrite and take responsibility and acknowledge that there have been some stress points in growth of the company,” said Jeffrey Sonnenfeld, a Yale School of Management senior associate dean and an expert on corporate leadership.

Toyota is mustering political support as well. More than 100 Toyota dealers, who are influential with Congress because of their impact on local economies, are gathering in Washington starting on Monday.

The line of questioning that Toyoda faces will focus in part on how the carmaker and officials handled a growing number of petitions to investigate whether there was a glitch with the electronic throttles in Lexus and Toyota vehicles.

Before an August 2009 crash that killed an off-duty California highway patrol officer and three others, Toyota had limited its action on sudden acceleration complaints to a recall of 55 000 floormats on the Camry and Lexus ES350.

But the the National Highway Traffic Safety Administration also faces criticism for having done little to force Toyota to come to terms with a growing record of consumer complaints.

NHTSA opened seven investigations into sudden acceleration in Toyota and Lexus vehicles between 2003 and the start of 2009 but closed five of them after concluding there was no evidence for any action.

Two probes ended with floormat recalls, a far cheaper fix than the more sweeping changes to accelerator pedals that Toyota announced late last year.

The July 2009 document, appears to be a briefing for Toyota’s North American chief Yoshi Inaba prepared by the carmaker’s Washington staff, and cites sudden acceleration as a “key” safety issue and warns that US regulators were taking a tougher line on forced recalls.

It goes on to credit Toyota’s Washington safety group with having “negotiated” a floormat recall on the Camry and Lexus ES350 in 2007, a step credited with saving over $100-million and avoiding a finding of a defect by the NHTSA.

Documents subpoenaed by lawmakers and obtained by Reuters indicate insurance company State Farm reported to NHTSA in early 2004 about seven incidents of sudden acceleration involving Toyota Camry and Lexus models.

Transportation Secretary Ray LaHood, who will testify on Tuesday, said the agency was looking into related complaints in December of 2003.

James Lentz, president of Toyota Motor Sales USA, appears on Tuesday before the House Energy and Commerce Committee along with the head of the National Highway Traffic Safety Administration, David Strickland.

Toyoda’s much-anticipated appearance is scheduled for Wednesday before the House Oversight and Government Reform Committee, along with LaHood, Strickland and Inaba.

Former NHTSA administrator and consumer advocate Joan Claybrook is also among witnesses listed for Wednesday’s hearing.

Toyota Motor shares ended the morning session up 2,9% at ¥3 395, slightly underperforming a 3,2% gain in the benchmark Nikkei average.

The stock has lost 19% over the past month but has steadied over the past 10 trading sessions. – Reuters