Payday Loans

The Sharks Begin Circling

28th January 2010

Toyota’s problems seem to multiply everyday. The latest in the saga of Toyota’s quality issues involves other car companies, namely General Motors and Ford. Yesterday, GM added an extra incentive to its existing ones specifically for Toyota and Lexus owners, giving them an extra $1000 which they can apply in three ways: 1. Those who choose to lease a vehicle may waive three payments for up to a total of $1,000. 2. Qualifying customers who are financing a vehicle purchase can receive 0 percent financing for up to 60 months. 3. Cash buyers can receive $1,000 off their purchase. It is noteworthy that GM did not “announce” this new incentive. They didn’t want to appear like they were gloating over Toyota’s situation. Ford followed suit shortly thereafter, but with a twist. Ford’s program targets people who own Honda, Acura, Toyota, Lexus or Scion vehicles that are 1995 models or newer. The owners of eligible vehicles would get $1,000 for trade-in assistance on either a purchase or lease of a new Ford, Lincoln or Mercury vehicle. That money is stackable on any other incentives already on a Ford Motor product.

In straw #2, the suppler of the pedals in question, CTS, (sort of) fired back at Toyota. Toyota, you might remember, was quick to drive a bus over CTS by naming them as the supplier of the faulty pedals, prompting some reporters (me) to question where the buck stops at Toyota. Mitchell Walorski, head of CTS Corp. investor relations, said the Elkhart, Ind., supplier is not part of the problem. CTS has “no knowledge of any accident or injury” stemming from the accelerator assemblies it supplies Toyota, he said. Walorski told Automotive News that CTS engineers are assisting Toyota, “but this is their recall.” CTS was not consulted about Toyota’s decision to issue the recall or to halt certain vehicles’ sales, he said.

In straw #3, the National Auto Auction Association announced that all of its member auctions would be required to make an announcement concerning the affected vehicles at their auctions. This is regular procedure for any auctions that have issues, and NAAA said Toyota is no different. The reason is simply full disclosure so everybody knows what they are getting. The impact is that Toyota’s residual (resale) values just took an immediate and substantial hit, which will affect trade-in values and, further down the road, lease payments. A lower residual value makes the lease payment higher, absent additional incentives. So lower residuals will hurt sales (especially leasing) or make them more costly to Toyota.

Straw #4 is an update to #3. The NAAA changed course and advised its member auctions to halt the selling of the affected Toyota models until the issues are resolved. This takes the ramifications in #3 and magnifies them significantly.

Straw #5 concerns rentals. All of the largest rental companies –  Hertz, Enterprise, Alamo, National, Avis, Budget, Dollar and Thrifty – all said they would stop renting vehicles covered in the recall.

In Straw #6, Toyota yesterday said it would recall an additional 1.1 million autos in the United States to fix floor mats that may jam accelerator pedals and cause unintended acceleration. The action is an extension of last fall’s recall, in which Toyota recalled 4.3 million vehicles in its largest-ever U.S. safety action. Today’s amended recall involves 2008-10 Highlanders and 2009-2010 Corollas, Venzas, and Matrixes, Toyota said in a statement. The action also covers 2009-2010 Pontiac Vibes made in a joint venture with General Motors Co. This brings the total units recalled for the 2 separate problems to over 6 million.

Lucky Straw #7 goes overseas. Toyota announced that it will extend the recall to an estimated 2 million units in Europe and about 75,000 in China. Let’s see, that now makes over 8 million units worldwide, about the same as Toyota sells worldwide in a year.

For Crazy Straw #8, Ratings agency Fitch, placing Toyota on watch negative, said the recalls and production suspension damaged Toyota’s reputation for quality and could hamper its recovery. If they ultimately lower Toyota’s credit rating, this will make borrowing to fund operations more costly. If it is only a short-term hit, then it will be unlikely to affect Toyota very much, as Toyota has more cash on hand the the pharaohs did.

I wonder if the camel’s back is getting weary yet?

As you might expect, all these straws are having an effect on Toyota’s stock. It has fallen over 15% since last week, reducing the camel’s market capitalization by $25 billion. That’s not going to make the shareholders very happy.

That’s what I think – how about you? Please leave your comments below.

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