Toyota's Reputation for Quality Under Fire

Jan. 27, 2010
Question is whether the company sacrificed its legendary quality to become the world's number one producer

A string of safety problems has put Toyota Motor's hard-won reputation at risk as critics question whether the company sacrificed its legendary quality to become world number one.

Toyota's unprecedented decision to suspend sales of eight models in the United States due to possible defects will undoubtedly hit its earnings, but the impact on its brand image could be even more serious, analysts said.

In 2008 Toyota ended General Motors' 77-year reign as the world's largest auto maker but the road has been a bumpy one for the Japanese giant, long lauded for its vehicles' safety and reliability. The company expanded rapidly over the past decade to meet strong demand, particularly in overseas markets such as the United States.

But it was battered by the global economic crisis that erupted in 2008, sinking $4.9 billion into the red in the year to last March.

And now executives are scrambling to reassure consumers after recalling millions of vehicles in the United States due to accelerator problems.

"Toyota took the path of expansion although it reversed it recently. The current problems reflect strains caused by that," said Yasuaki Iwamoto, an auto analyst at Okasan Securities.

"As Toyota vehicles are popular in America and elsewhere, Toyota had a responsibility to supply them. But the flip side is that a product defect endangers its brand image."

The firm said it would stop producing the eight models, including the Corolla and Camry sedans as well as the RAV4 and Highlander sport utility vehicles, for a week at five North American plants due to the sales suspension.The models affected accounted for 70% of the maker's brand sales in the United States in December.

"This could be pretty devastating to Toyota's bottom line," said Rebecca Lindland, director of auto research at IHS Global Insight, an advisory firm. "It's not just a simple matter of replacing a part that's wearing out."

Yet while the safety issues could have a long-term effect on the company's image, many Toyota drivers are "incredibly loyal", she added. "Toyota has built up decades of goodwill. Where it will hurt them is with the younger buyer -- people under 45 -- who don't have a lifelong devotion to the company," she said.

News of the suspension alarmed investors, who sent Toyota shares sliding 4.3% to 3,705 yen.

Copyright Agence France-Presse, 2010

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