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Is Toyota the New Yugo? (TM, F, HMC)


The news is not getting any better for Toyota Motors (TM). Today the U.S. National Highway Traffic Safety Administration is set to begin an inquiry into reported steering problems with the company’s Corolla models. The Corolla is Toyota’s second-best seller in the U.S., trailing only the Camry. Globally, the Corolla is the world’s best-selling car.

The company says it has received fewer than 100 complaints about the Corolla’s loss of steering control, and Toyota says it will fix any problems it finds and is prepared to recall up to 500,000 Corollas. If Toyota decides to recall the Corollas, that would bring the worldwide total of recalled vehicles to about 9 million.

Toyota has launched a charm offensive, with newspaper and TV ads touting the company’s dedication to serving its customers and keeping them safe. That campaign is not likely to overcome the steady stream of bad news that consumers will be reading as administrative and congressional hearings get going.

Toyota’s big problem is that all these reviews will be looking for evidence that Toyota knew it had safety problems but did not do anything to solve them. Has the company been hiding something? More important, can consumers trust Toyota going forward? Toyota is cutting production as a result of declining sales. The company has estimated that it will lose up to 100,000 new car sales in its fiscal year ending in March.

Of its competitors, Ford Motors (F) looks to be in the best position to pick up additional sales from Toyota’s troubles. The U.S. company’s hottest selling model is the Fusion, which has received several awards recently from auto magazines. Ford hasn’t said much publicly about its sales, but it is not unreasonable to expect that sales in February and March will be higher.

Auto industry analysts at have predicted that Toyota will finish 2010 with 16.5% market share in the U.S., behind both GM and Ford. Those two companies, together with Honda Motors (HMC) stand to gain the most from Toyota’s troubles.

Another industry watcher, Kelly Blue Book, reported that 27% of buyers who had been considering a Toyota before the first recall are no longer including Toyota in the consideration set. One can assume that that number is only getting larger as the bad news continues to roll in.

Toyota can still stop the bleeding. First, they have to fix the problems that have been identified. Second, they’ll need to buy back market share once consumers have been convinced that the company has overcome its technical and managerial issues. That won’t be cheap, and it will affect the company’s stock price for a fairly long time.

Toyota really has no choice, though. Either the company does the right thing and re-burnishes its image, or the visions of another Yugo remain in customers’ minds for years to come.

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