Toyota suspending production at two Indiana plants

January 27, 2010

Toyota is halting production at six North American car-assembly plants—including Indiana facilities in Princeton and Lafayette—beginning the week of Feb. 1 to fix gas pedals that could stick and cause acceleration without warning.

The move, announced late Tuesday, comes on the heels of last week's recall of 2.3 million vehicles. Toyota also will suspend U.S. sales of the eight models affected, including the Camry—America's top-selling car—and Corolla, another popular model.

The Princeton plant, which employs 4,200, will shut down production lines for the Sequoia and Highlander SUVs. That facility also manufactures the Sienna minivan, which was not included in the recall. Toyota makes the Camry at the 3,000-employee Subaru of Indiana facility in Lafayette under a partnership that started in 2007. Toyota gave no date on when production could restart.

The Japanese automaker's decision to suspend sales is a blow to its reputation for quality and endangers its fledgling earnings recovery. It is also a symbol of the dramatic failings of the aggressive growth strategy Toyota Motor Corp. pursued under former President Katsuaki Watanabe, a cost-cutting expert, who led the Japanese automaker to the No. 1 spot in global vehicle sales, dethroning General Motors Co. in 2008, analysts say.

The automaker's shares fell 4.3 percent in Tokyo trading.

A Toyota official, who spoke on condition of anonymity, said the sales suspension could hinder the company's ability to meet its forecast for 6 percent growth in global vehicle sales this year.

Although Toyota's Japan plants are not affected, the problem could spread to Europe, where a similar accelerator part is being used, and could affect millions more vehicles.

The problem part comes from one U.S. supplier and does not affect models that use parts from different suppliers, said another Toyota official who spoke on condition of anonymity.

Analysts said the production stoppage signaled a more serious crisis for Toyota than recalls, which are fairly routine for automakers.

"It's an abnormal situation, and there is no way to compare it with anything else," said Yasuaki Iwamoto, auto analyst with Okasan Securities Co. in Tokyo.

He said the problem should serve as a wake-up call for Toyota to be more careful with maintaining quality. There is no quick fix to a tarnished brand image, Iwamoto said.

Despite the recent recalls, Toyota has still done well on quality surveys, and leads the world in hybrids, which show off top-grade green technology.

But the latest U.S. problems mirror the spate of quality problems that plagued Toyota several years ago in Japan, its home market.

In 2006, Watanabe acknowledged lapses in quality control in Japan. One sparked a criminal investigation by the Japanese government into accidents suspected of being linked to vehicle problems. No one was charged.

At that time, Watanabe appeared at a news conference in Tokyo, bowing deeply to express remorse to consumers and dealers. Later, he acknowledged overzealous growth was behind the quality problems.

"Under Watanabe's growth strategy, it was difficult to maintain a balance between speed and quality," Iwamoto said. "The problems came about because of the strains that came from his expansion efforts."

Watanabe, who took office in 2005, was replaced last year by Akio Toyoda, the grandson of Toyota's founder. Toyoda, seen as a charismatic figure that can bring together not only employee ranks in Japan but suppliers and dealers, has repeatedly said his company is in a crisis that could peril its survival.

He has also avoided the past fanfare involved in announcing sales targets.

Toyota quietly gave global sales targets Tuesday that showed it was optimistic about getting on track to recovery since the financial crisis in late 2008 sent demand crashing, especially in the key North American market.

Toyota said it expected to sell 2.19 million vehicles in North America in 2010, up 11 percent from 2009. Globally, Toyota said it was planning sales of 8.27 million vehicles this year, up 6 percent from 2009.

But those numbers could change with the latest developments. Also at risk are Toyota's earnings.

Last year, Toyota reduced its loss forecast for the fiscal year through March 2010 to 200 billion yen ($2.2 billion) from its initial projection for a 450 billion yen ($5 billion) loss, citing a gradual recovery in global demand.

Toyota announces earnings Feb. 4.

Mamoru Katou, analyst at Tokai Tokyo Research, said he could not calculate the exact damage to Toyota's results because the duration of the sales suspension was still undecided. But he said it was certain to be significant, especially if the suspension continues for a month or two.

He said Toyota was likely reorganizing production plans, such as switching suppliers, and shipping in parts from Japan. "The problem is extremely serious," said Katou. "The models are precisely those Toyota had been preparing to sell in big numbers."

The Japanese automaker said the U.S. sales suspension includes the following models: the 2009-2010 RAV4, the 2009-2010 Corolla, the 2007-2010 Camry, the 2009-2010 Matrix, the 2005-2010 Avalon, the 2010 Highlander, the 2007-2010 Tundra and the 2008-2010 Sequoia.

Toyota sold more than 34,000 Camrys in December, making the midsize sedan America's best-selling car. It commands 3.4 percent of the U.S. market and sales rose 38 percent from a year earlier. Sales of the Corolla and Matrix, a small sedan and a hatchback, totaled 34,220 last month, with 3.3 percent of the market and sales up nearly 55 percent from December of 2008.

The auto company said the sales suspension wouldn't 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.

The announcement follows a larger U.S. recall months earlier of 4.2 million vehicles because of problems with gas pedals becoming trapped under floor mats, causing sudden acceleration. That problem was the cause of several crashes, including some fatalities.


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