Toyota Crisis Mounts as U.S. Steps Up Pressure to Fix Vehicles

February 03, 2010, 03:23 PM EST

By Angela Greiling Keane

Feb. 3 (Bloomberg) -- U.S. Transportation Secretary Ray LaHood stepped up pressure on Toyota Motor Co. to fix defects that have caused the recall of millions of vehicles because they may suddenly accelerate, causing drivers to lose control.

LaHood told reporters in Washington he planned to call Toyota President Akio Toyoda "and explain to him that this is serious business." LaHood also told a House panel that drivers should stop driving the recalled vehicles, a comment he later called a misstatement.

The remarks underscore a growing crisis at Toyota that has caused it to lose $29.5 billion in market value since the current recalls began and has tarnished its reputation for quality.

"Up until the last couple days that we had all expected the consumer hit wouldn't be as serious as the media hit they were taking," said Wes Brown, an analyst with market research firm Iceology in Los Angeles. "Now things may start to shift that image hit to the consumer side that had been steadfastly loyal. They are really starting to run the risk of escalating things tremendously."

LaHood told a congressional panel this morning that owners of recalled cars should "stop driving it and take it to a Toyota dealer."

"What I said in there was obviously a misstatement," LaHood told reporters later. "If you own one of these cars, take it to the dealer. If you are in doubt, take it to the dealer and have them fix it."

Toyota said this week it would fix the defect by having dealers install shims in accelerators. LaHood said the government is investigating to see whether an electronic throttle system is the cause, as at least seven lawsuits allege.

Shares Decline

Toyota's American depositary receipts, each representing two ordinary shares, fell $4.25, or 5.4 percent, to $73.93 at 12:54 p.m. in New York Stock Exchange composite trading. The ADRs tumbled to a 10-month intraday low, touching $71.90, after the remarks to "stop driving" that LaHood later recanted.

Before his testimony, LaHood told reporters in Washington he will phone Toyoda to be certain his agency "pushed them over the line" so that Toyota is doing all it can to resolve defects.

Separately, the Toyota City, Japan-based carmaker has been ordered by Japan's government to investigate brake-related problems with the latest version of its Prius hybrid car, the nation's transportation ministry said today.

The ministry said it has received 14 complaints related to Prius brakes. It has also asked other carmakers to look into similar reports. Such requests are "routine," said Masaya Ota, an official in the ministry's recall division.

Sticky Pedals

Toyota began shipping steel plates to U.S. dealers on Feb. 1 as a fix for sticky gas pedals that have caused the carmaker to recall about 2.57 million vehicles in the U.S. and Canada.

"We know what the problem is," Jim Lentz, Toyota's president of U.S. sales, said in an interview on Bloomberg Television on Feb. 1. "We have the fix."

The U.S. recall for pedals that stick applies to model years 2009-2010 RAV4, 2010 Highlander and 2008-2010 Sequoia sport-utility vehicles, 2009-2010 Corolla and 2005-2010 Avalon sedans, some 2007-2010 Camry sedans, 2009-2010 Matrix hatchbacks, and 2007-2010 Tundra pickups, according to Toyota.

Toyota also has recalled and plans to fix about 5.6 million Toyota- and Lexus-brand cars and trucks in the U.S. and Canada because of floor mats that might trap gas pedals and cause vehicles to speed out of control. Some Toyota brand vehicles are affected by both types of recalls.

The investigation of the Prius in Japan could undermine sales in Toyota's home market, where it hasn't recalled any vehicles due to the sudden-acceleration issue. The model was Japan's best-selling vehicle in 2009.

Prius the 'Flagship'

"The Prius is Toyota's flagship model, its key to the future," said Ashvin Chotai, managing director of London-based Intelligence Automotive Asia Ltd., a consulting company. "If that model gets tainted, that would suggest Toyota's crisis has moved on to the next level."

In the U.S., the National Highway Traffic Safety Administration, part of the Transportation Department, is examining the electronics of automakers including Toyota in response to complaints, LaHood told reporters today. Among the questions is whether electromagnetic interference from power lines could affect the computerized systems that help run today's vehicles, he said.

"We will continue our investigations into all aspects of these vehicles, including the electronics," LaHood said. "We're going to hold Toyota's feet to the fire."

Toyota has said it ruled out electronics as a cause of sudden acceleration in its cars and trucks.

Lawsuits Filed

At least 15 lawsuits seeking class action status have been filed against Toyota on the acceleration issue, and seven of them claim an electronic throttle system called ETCS-i is at fault instead of the pedals.

In cars with the ETCS-i system, the engine's throttle is controlled by electronic signals, which are sent from a sensor that detects how far the gas pedal is depressed. The signals are transmitted to a computer module that controls how much the throttle opens.

Lawyers claiming an electronic defect contend that floor mats or stuck pedals don't explain the sudden-acceleration incidents that triggered their lawsuits.

'Sitting Dead Still'

In a Texas lawsuit filed on Jan. 29, plaintiff Alfred Pena said his 2008 Toyota Avalon unexpectedly accelerated at a stop sign on Jan. 14, causing a collision. He wasn't injured, said Robert Hilliard, an attorney representing Pena. Pena's wife, Sylvia, had a previous episode of unintended acceleration that didn't result in an accident, Hilliard said.

Sylvia Pena "was sitting dead still," and the car accelerated as she released the brake before she touched the gas pedal, Hilliard, of Corpus Christi, Texas, said in an interview.

"My belief is that fixed Toyotas with new pedals will still inadvertently accelerate," Hilliard said.

NHTSA tested throttle electronics last year in response to a petition from a 2007 Lexus ES 350 owner who had experienced sudden acceleration of his vehicle. The agency denied the petition in October after subjecting the same model of car to "multiple electrical signals" and "magnetic fields."

'Exhaustive Testing'

Toyota said at the time that the October decision marked the fifth in which the agency had rejected similar requests to investigate company vehicles for defects including electronics related to unintended acceleration.

"In terms of electronics of the vehicle, we've done exhaustive testing and we've found no issues with the electronics," Toyota's Lentz said on a conference call with reporters Feb. 1.

Toyota, as required by law, stopped selling eight vehicles recalled in the U.S. last week. The company said it will begin fixing accelerator pedals, which were supplied by Elkhart, Indiana-based CTS Corp., this week, with some dealerships preparing to do repairs around the clock.

The Transportation Department and its auto safety agency have been called to testify at two congressional hearings on the handling of the Toyota recalls.

House Hearings

A House Oversight and Government Reform Committee panel will hold a hearing on the recalls on Feb. 10, followed by the House Energy and Commerce Committee on Feb. 25.

Representative Bart Stupak, a Michigan Democrat who serves on both committees scheduled to question Toyota, said in a letter to Lentz that his public statements on Feb. 1 were "different than the representations" Toyota officials made to the Energy and Commerce Committee's staff last week.

Asked whether Toyota "could be certain that floor mat entrapment and sticking accelerator pedals fully explained" the causes of unintended acceleration, company officials said the "causes of unintended acceleration are 'very, very hard' to identify," Stupak said in a letter today to Lentz.

Chrysler will show electric Fiat 500, sources say

DETROIT -- Chrysler Group will show off two vehicles at next month's Detroit auto show hinting at future collaborations under Italy's Fiat S.p.A, according to two sources familiar with the plans.

Appearing on the Chrysler stand will be:

? An electric version of the Fiat 500 minicar.

? A Lancia Delta mid-size hatchback with a Chrysler grille.

Chrysler has no immediate plans to sell either of the vehicles in North America, said the sources, who declined to be identified. CEO Sergio Marchionne plans to gradually merge the Lancia and Chrysler brands. They are both under the guidance of brand CEO Olivier Francois, appointed in the aftermath of Fiat taking control of the U.S. automaker following its U.S.-steered rescue and bankruptcy this spring.

A corner of Chrysler's stand will also be dedicated to showing vehicles from Fiat's luxury-sports brands, the Ferrari 458 Italia and the Maserati GranCabrio, the sources said.

Chrysler spokesman Gualberto Ranieri declined comment on what vehicles the company might show.

He confirmed Chrysler is not planning a press conference because the company has no new production vehicles to show. Chrysler executives, including Marchionne, will be on hand for interviews during the primary media preview day, Jan. 11, Ranieri said.

The entire 500 lineup

In addition to the electric version of the 500, Chrysler will display the entire Fiat 500 lineup for the first time in North America, the sources said. Included will be the 500C cabriolet, scheduled to go on sale in 2011, and the sporty 500 Abarth. Abarth is Fiat's performance brand.

The 500 hatchback, previewed in April at the New York auto show, will go on sale in the United States in late 2010.

Chrysler will build the 500 for North America at its plant in Toluca, Mexico, beginning late 2010. Initial capacity will be 100,000 units a year -- half of them destined for North America and half for Latin America.

The 500 will be powered by Fiat's 1.4-liter FIRE engine, for "fully integrated robotized." Engine output will range from about 100 hp for the base model to about 175 hp for the turbocharged version destined to be the Abarth sporty model.

Chrysler will build the FIRE engines in its Dundee, Mich., plant beginning in the fourth quarter next year. At 139.6 inches, the four-passenger 500 hatchback is 33 inches longer than the Smart ForTwo.