Big T Is Back Despite Recalls, Earthquakes And Politics



Can anything slow Toyota down? Only a couple of years ago, the Japanese giant seemed as vulnerable as a sumo wrestler with vertigo as it struggled to explain away a series of safety and quality snafus that forced it to recall an unprecedented 14 million vehicles worldwide. Then, just it was getting back on its feet, the maker was body-slammed by the March 2011 earthquake and tsunami that all but shut down the Japanese auto industry, leaving the industry giant struggling under severe inventory shortages for the rest of the year.

Only a couple of years ago, the Japanese giant seemed as vulnerable as a sumo wrestler with vertigo.

Yet, just like that sumo wrestler, Toyota has repeatedly shaken off the hardest hits. Despite somewhat mixed reviews, its Camry has continued to dominate the midsize passenger car segment – helping Toyota drive sales gains that have, in recent months, run triple the pace of the overall US automotive recovery.

In fact, Toyota's loyalty rate is once again setting the industry benchmark, according to a new study by Experian Automotive, something that suggests the recent sales surge is more than just pent-up demand as buyers catch up after the shortages of 2011.

So, what to make of the unexpected move by Standard & Poors, the influential financial ratings agency, which this month downgraded the maker's stock from a "Hold" to "Buy" rating? Now, to be sure, this was no panic move. S&P didn't tell investors to dump Toyota and race somewhere else with their money. No one is expecting the sort of financial collapse that accompanied the descent into bankruptcy at General Motors and Chrysler during the latter half of the past decade. But for those who thought Toyota was, indeed invulnerable, the downgrade may be hard to reconcile.


Paul EisensteinPaul A. Eisenstein is Publisher of TheDetroitBureau.com and a 30-year veteran of the automotive beat. His editorials bring his unique perspective and deep understanding of the auto world to Autoblog readers on a regular basis.



Two key factors are right now giving observers like S&P analyst Efraim Levy and others pause for concern. Perhaps the most worrisome is the 48.9-percent decline in Toyota's Chinese sales for September. While that market may be cooling off a bit after a decade of torrid growth, the real problem is the backlash from a long-simmering political dispute that appears to have no near-term solution.

Chinese protestors took to the street en masse after Japan purchased a group of uninhabited islets that it calls the Senkaku and China calls Daioyu. At least one Toyota dealership was severely damaged in the protests, as were many Japanese vehicles on the street. While Beijing has since reined in the rioters, subsequent boycotts may be more troubling and long-term, forcing Toyota to slash production at its key joint venture in Tianjin over the coming weeks. And there are signs further cuts could follow unless and until the political situation is resolved.

Perhaps most worrisome is the 48.9-percent decline in Toyota's Chinese sales for September.

Not so coincidentally, the latest strife marked the anniversary of the Japanese invasion of China and underscores the long-simmering resentment between the two countries. Toyota was a relative latecomer to the booming Chinese auto market, in part, because of that, though it was lately gaining on market leaders General Motors and Volkswagen. Now, that's anything but certain and they could benefit at Toyota's expense.

Only months ago, Akio Toyoda, the grandson of Toyota's founding father, boldly predicted the maker would exceed its previous global record, set in 2007, and come within a whisker of the 10 million sales mark for the current fiscal year ending March 31, 2013.

While problems in China may seem remote to most Americans, it remains to be seen whether the latest safety scare here will reignite the crisis of 2009 and 2010, when family heir Toyoda was blisteringly grilled by a Congressional subcommittee angered by word Toyota had hidden deadly safety lapses.

Toyota recalled more individual vehicles in the US than any other maker in 2010.

Indeed, as both Autoblog and TheDetroitBureau.com have reported, there is evidence Toyota may have known for as much as four years about the latest problem, a faulty power window switch that could suddenly short and leave a vehicle in flames. After a modest recall of several models earlier this year and the start of an investigation by the National Highway Traffic Administration, Toyota is now recalling 7.5 million vehicles worldwide – a third sold in the States.

Toyota recalled more individual vehicles in the US than any other maker in 2010, though Honda gained that dubious distinction last year. The industry giant could again be the recall leader this year. But will that matter?

All but certainly, Toyota would have a more serious problem if the latest recall is repeated. And sources have provided worrisome documents suggesting a further cover-up to key members of Congress – some of which TheDetroitBureau.com has reviewed.

Barring further revelations and recalls, the surge in Toyota's loyalty numbers mean this may be little more than the proverbial tempest in a teapot, suggests Rebecca Lindland, chief analyst at IHS Automotive. "Toyota has a very loyal owner base, and this isn't going to sway them," she believes. But she quickly cautions that, "for those people on the fence about buying a Toyota, this will have an impact. It could be more difficult getting new buyers into the showroom."

Toyota could accede to the increased competition or cut into profits with hefty new incentives.

That could prove particularly true in segments of the market where it is now facing renewed competition, such as the midsize market where the venerable Toyota Camry is being assaulted in 2013 by the likes of the new Ford Fusion, the remade Honda Accord and segment fuel-economy leader Altima, Nissan CEO Carlos Ghosn pointedly declaring his goal of displacing Camry as the midsize sales king.

Toyota could accede to the increased competition or cut into profits with hefty new incentives. It has plenty of cash reserves and profits are back on the rise. But the Chinese crisis could divert some of those resources, which is what worries S&P analyst Levy.

Toyota has long shown itself to be the irresistible object, eventually overwhelming everything in its way. But the current set of challenges, following the problems of the last few years, just might reveal a more vulnerable side that actually does slow the Toyota juggernaut down.