A blow to Toyota's image: Production suspended on eight models, five more recalled

Toyota Motor Corp's suspension of sales in the United States on an unprecedented scale to fix faulty gas pedals deals a blow to the automaker's reputation for quality and endangers its fledgling earnings recovery.

The suspect parts are made by a US supplier, but they are also found in its European-made vehicles, an official with the automaker said Wednesday. Toyota said it has not decided what to do there.

But then came reports Friday that Toyota has now figured out how to fix the problem with sticking accelerator pedals and was to update employees with details.

The company said in an email to workers Thursday night that it presented a remedy to federal regulators.

The email obtained by The Associated Press says that plans are being developed on a variety of fronts.

working around the clock

The company also said its engineers were working around the clock to fix the problem in eight of its models, including the top-selling Camry midsize sedan.

Toyota says accelerators rarely stick. But earlier this week, the company halted sales and production of the models. It has recalled at least 2.4 million cars and trucks in the US, Europe and China because of the problem.

Toyota announced last Tuesday it would halt sales of some of its top-selling models to fix gas pedals that could stick and cause unintended acceleration, a week after it issued a recall of the eight affected models.

The Japanese car company is also suspending production at six North American car-assembly plants beginning the week of February 1.

It gave no date on when production could restart.

On Thursday, the company announced that the recalls over problem gas pedals in the US are being extended to Europe, the latest blow to the world's top automaker as it struggles to salvage its safety reputation.

The scale of recalls over problems with sticking gas pedals and floor mats that can trap the accelerator have rapidly snowballed.

The additional recall affects 1.09 million vehicles in the United States covering five models, including the Highlander, Corolla, and Matrix, Venza and Pontiac Vibe.

Those steps came on top of a recall in late 2009 involving 4.2 million vehicles amid concerns that floor mats could bend across gas pedals, causing sudden acceleration.

The timing could not be worse for Toyota.

Two years ago, the company beat out General Motors Company to become the world's largest automaker.

Now just weeks into 2010, it is stopping sales in its biggest market, the US, at a time when it desperately needs to sell cars here after reporting its first-ever annual loss last year.

The sales and production halt involves several best-selling US models, including the Camry and Corolla sedans and the RAV 4 crossover, a blend of SUV and car whose sales surged last month.

The problem is rare, Toyota said, and customers who are concerned should contact customer service for help before recall instructions are issued.

The sales suspension in the US - Toyota's biggest market - could endanger the company's fledgling earnings recovery.

Toyota only returned to the black for the July-September quarter with net income of yen21.8 billion (US$241 million) after three straight losing quarters.

"It is still uncertain how this recall problem will affect Toyota's profits. But investors are worried it could really pressure the company's overall earnings," said Masatoshi Sato, market analyst at Mizuho Investors Securities Company Limited.

Fitch Ratings warned Thursday the massive recalls and sales suspension could dent Toyota's recovery, especially in the vital US market.

Fitch placed Toyota's credit rating of 'A+' on watch negative, meaning the rating could be downgraded. That could increase the interest rate Toyota pays on any debt.

The US sales halt calls into question the aggressive growth strategy pursued under former President Katsuaki Watanabe, a cost-cutting expert, who led the Japanese automaker to the No 1 spot in global vehicle sales in 2008, analysts say.

Hitting that milestone coincided with a yen437 billion (US$4.86 billion) loss during its last fiscal year, marking the worst performance in the company's 72-year history.

"This action is necessary until a remedy is finalised," said Bob Carter, Toyota's group vice president and general manager.

Toyota spokesman Mike Goss said most workers were expected to be at their jobs during the assembly line shutdown.

Workers will receive additional training or work on improvements to their assembly processes. They can also take vacation or unpaid leave, he said.

Toyota expects to sell 2.19 million vehicles in North America in 2010, up 11 per cent from 2009, according to sales targets released Tuesday.

quality problems

Globally, Toyota said it was planning sales of 8.27 million vehicles this year, up six per cent from 2009.

But those numbers have not figured in the US sales stoppage, Takeuchi said.

The automaker's problems in the US may be an extension of the spate of quality problems that plagued Toyota several years ago in Japan, its home market, during the aggressive growth strategy pursued under Watanabe.

In 2006, the Japanese government launched a criminal investigation into accidents suspected of being linked to vehicle problems, though nobody was charged. Watanabe later acknowledged overzealous growth was behind the quality problems.

Watanabe was replaced last year by Akio Toyoda, the grandson of Toyota's founder.

The auto company said the sales suspension would not affect Lexus or Scion vehicles. Toyota said the Prius, Tacoma, Sienna, Venza, Solara, Yaris, 4Runner, FJ Cruiser, Land Cruiser and select Camry models, including all Camry hybrids, would remain for sale.

Those vehicles contain gas pedals produced by a different North American supplier from the one whose parts are involved in the current sales halt, Toyota has said.

Toyota sold more than 34,000 Camrys in December, making the midsize sedan America's best-selling car.

It commands 3.4 per cent of the US market and sales rose 38 per cent from a year earlier. Sales of the Corolla and Matrix, a small sedan and a hatchback, totalled 34,220 last month, with 3.3 per cent of the market and sales up nearly 55 per cent from December of 2008.

- AP