Toyota hits more problems in US

Toyota recalls more than a million vehicles to replace floor mats that could trap accelerator pedals and opens the door for Ford, Chrysler and GM to take sales away.

Potential buyers look at Toyota Corollas on the lot at Boch Toyota in Norwood, Massachusetts January 27, 2010.  Toyota Motor Corp. will suspend U.S. sales of eight models subject to a massive safety recall, an unprecedented move that sent its shares tumbling and raised questions about the timing of its earnings money. Toyota also said  it would halt production of the models, including the best-selling Camry, at plants in the United States and Canada in the first week of February. REUTERS/Brian Snyder  (UNITED STATES - Tags: TRANSPORT BUSINESS) *** Local Caption ***  BKS02_TOYOTA-_0127_11.JPG
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Toyota has expanded its massive recall in the US by more than a million vehicles to replace floor mats that could trap accelerator pedals, in a fresh blow to the Japanese car giant. The latest move, which covers 1.093 million vehicles and includes a planned one-week shut down of production lines in North America next month, comes on top of a recall of about 4.2 million cars and trucks by Toyota in November.

In a further setback to the world's largest car company, Fitch Ratings put a negative outlook on Toyota's long-term bond rating, signalling a possible downgrade. "The recalls and sales and production suspension cast a negative light on Toyota's reputation for quality, just as the company emerges from an unprecedented downturn in the auto industry," Fitch analyst Jeong Min Pak said. Toyota shares tumbled 3.91 per cent to 3,560 yen yesterday, after a drop of 4.26 per cent the previous day in response to the group's decision to suspend sales in the US of eight models due to the safety concerns.

The Japanese car maker has long prided itself on rigorous safety controls but has been hit by a series of quality issues. Separate from the floor mat trouble, Toyota last week recalled 2.3 million cars and trucks because of problems with sticking accelerator pedals. The company said that in rare cases, the pedal mechanism could become worn and harder to depress or stuck in a partially depressed position.

"Toyota's image has worsened quite a lot because [the recalls] have tarnished the company's reputation for quality, which was the source of its strength," said Shigeru Matsumura, an analyst at SMBC Friend Research Centre. "Toyota's strategy was to expand its share in the North American market due to the problems of General Motors (GM) and Chrysler. Now, because of these recalls and the sales suspension, it stumbled in its efforts. This has provided a new opportunity for car makers like GM," he said.

Aiming to regain some of its lost market share, GM will give owners of Toyota cars and lorries US$1,000 (Dh3,673) or free financing if they buy one of the US firm's models by the end of next month. GM's programmes follow "thousands of calls" to the car maker's dealers from Toyota customers who were concerned or wanted help buying a GM vehicle, said Steve Hill, the general manager of retail activities for the company, based in Detroit. Ford also plans to offer $1,000 rebates to Toyota and Honda customers to make them switch to its models, said Robert Parker, a spokesman for the company.

The incentives may help GM and Ford vie with Honda and Hyundai for customers after Toyota halted sales of eight models including the top-selling Camrys and Corollas. "This is a good move by GM," said the car analyst John Wolkonowicz of IHS Global Insight. "This helps GM, because while its quality is quite good and much improved, it hasn't received the public accolades that Honda, Ford and Hyundai have."

Along with the Camry and Corolla, last week's Toyota recall covers the Avalon and Matrix hatchback, the RAV4, Highlander and Sequoia 4x4 as well as the Tundra pick-ups. "We discussed doing a programme aimed at Toyota and decided it wasn't appropriate," said Chris Hosford, a Hyundai Motor spokesman. "We are taking steps such as making sure our dealers have adequate supply. But we don't want to jump on this thing like a vampire."

* with Agence France-Presse and Bloomberg