Toyota Adds Prius to Global Recall List; Brake Problems Cited

February 9, 2010

Toyota Motor Corp said it is recalling nearly half a million of its flagship Prius and other hybrid cars for braking problems as it seeks to address criticism over the handling of its worst safety crisis.

The world’s largest automaker is under fire for two other recalls covering more than 8 million vehicles worldwide due to problems with slipping floor mats and sticky accelerator pedals.

It also faces a potential rush of litigation for crashes linked to those problems and blamed for 19 deaths and numerous injuries in the United States over the past decade.

Chastised by safety authorities and members of the Obama administration for moving too slowly on those recalls, Toyota President Akio Toyoda said he never believed the company was infallible, but it had always tried to repair defects swiftly.

“Let me assure everyone that we will redouble our commitment to quality as a lifeline of our company”, Toyoda, the grandson of the company’s founder, told a news conference in Tokyo. “With myself taking the lead, and by keeping to the “genchi genbutsu” principle, all of us at Toyota will tackle the issue in close cooperation with dealers and suppliers together, we will do everything in our power to regain the confidence of our customers,” he said, first in Japanese, then in English.

Genchi genbutsu, meaning “go and see”, is one of the five principles invoked in Toyota’s management and production philosophy — one of the most studied and copied in the world.

Toyota said it was recalling a total of 437,000 units of its 2010 Prius, Sai, Prius PHV (plug-in hybrid) and Lexus HS250h hybrids globally, including 155,000 in North America, 223,000 in Japan and 53,000 in Europe.

The latest model Prius is sold in some 60 countries and is a hugely important model for Toyota, which is betting on the hybrid to maintain its lead in low-emission vehicles. The Prius was Japan’s top-selling car last year, a first for a hybrid.

“Toyota has been, beyond any doubt, the top player in the hybrid car segment, and the fact that Prius and other hybrid models will be part of this massive recall significantly dents its image,” said Suh Sung-moon, an analyst at Korea Investment & Securities in Seoul.

The fallout would likely help the likes of Korea’s Hyundai Motor, which is set to launch its first hybrid model in the United States later this year, he added.

In an op-ed in the Washington Post, Toyoda said the company would communicate more with U.S. regulators including U.S. Transportation Secretary Ray LaHood.

Toyoda, who is due to meet Japan’s Transport Minister later on Tuesday, said he had heard of some cancellations of orders for hybrids affected by the recall. He said he was still waiting on a fix for his own Prius.

Some owners of the latest, third-generation Prius have complained that on bumpy roads and on ice, the regenerative brakes which help charge the vehicles’ electric battery appear to slip and the car lurches forward before the traditional brakes engage.

Toyota has said it fixed a software glitch in the anti-lock brake system (ABS) on the 2010 Prius at the end of last month. An official at Japan’s Transport Ministry said Toyota would halt sales of all other hybrid models in Japan until a fix was in place, likely in late-February or early March.

U.S. automaker Ford Motor Co said last week it would roll out a software patch for consumers to address similar problems with braking on two of its hybrid models, without filing a recall.

Nissan Motor Co, Japan’s No.3 carmaker, said Toyota’s woes had led it to focus more on winning customers’ trust, as it posted a return to profit in the third quarter.

Shares in Toyota, which lost about a fifth of their value since late January, closed up 2.9 percent, while the Nikkei average dipped 0.2 percent.

“The shares fell while Toyota appeared not to be doing anything to deal with its problems,” said Hiroaki Osakabe, a fund manager at Chibagin Asset Management. “But now, the fact they’re taking concrete steps on the issue is being seen as positive.”

Analysts were reluctant, however, to say Toyota shares couldn’t fall further. “I think it’s still much too early to say all the bad news is out,” said Norihiro Fujito, general manager at Mitsubishi UFJ Securities in Tokyo. “At least for now we’re seeing short covering and buying on a sense that the share has been oversold.”

In the apparent first of a potential rush of legal claims over the Prius, the owner of a 2010 model has sued Toyota in Los Angeles, claiming the automaker failed to fix a brake defect and seeking a court order requiring a recall.

Meanwhile, complaints to U.S. safety regulators about 2010 Prius brake problems have jumped sharply since the Transportation Department announced a formal investigation last week.

More bad news came when KBB, or Kelley Blue Book, said on Monday it plans to cut U.S. used-car values of recalled Toyotas by 1.5 percent “on concerns around the growing supply of unsold Toyotas on both dealer lots and at auctions.”

Toyota faces further scrutiny on Wednesday when its North America chief executive, Yoshimi Inaba, testifies to Congress in front of the House Oversight Committee in Washington.

Transportation Secretary LaHood and NHTSA Administration Administrator David Strickland will also testify.

(Additional reporting by Mayumi Negishi and Elaine Lies in TOKYO; David Bailey and Bernie Woodall in DETROIT; Steve Gorman in LOS ANGELES; John Crawley in WASHINGTON and Jungyoun Park in SEOUL; Writing by Lincoln Feast; Editing by Jean Yoon and Ian Geoghegan)

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