Toyota Racks Up Recalls as Automakers Adopt More Proactive Safety Stance

Toyota Motor Corp. (NYSE ADR: TM) added another set of recalls yesterday (Thursday) to its rocky year.

Toyota announced it needed to repair 1.66 million autos worldwide for brake-fluid leak issues. The newest development brings the total number of Toyota vehicles recalled worldwide in the past year to about 14 million. 

The company said it needed to fix rubber seals on about 740,000 vehicles in the United States and 599,000 in Japan, as well as some models in European markets, including Avalon and Lexus sedans and Highlander sport-utility vehicles. A small amount of brake fluid was able to leak from the master cylinder and gradually reduce braking performance and cause a "spongy" feeling in the brakes, according to a company spokesman. Cars affected have had factory-filled brake fluid replaced with brake fluid that is not "genuine" factory fluid.

Toyota won industry praise for discovering the problem on its own, before it caused any accidents.

"Toyota's action was uninfluenced by the [National Highway Traffic Safety Administration]," David Strickland, administrator of the NHTSA, told Bloomberg. "They notified the agency as soon as they knew, which is fantastic, and they took affirmative action, which is the right thing to do."

Toyota as of Thursday was aware of 14 incidents in the United States of brake-fluid leaking, but none resulted in accident or injury.

Toyota has been trying to regain customer confidence after recalling more than 8 million vehicles worldwide earlier this year for acceleration issues. Toyota has added safety teams and engineers to its production process to develop a faster response system and improve quality control.

"They seem to know they must be very open about this to restore customer confidence," Ian Fletcher, an analyst at HIS Automotive in London, told Bloomberg. "They can't afford anymore to have the massive political trial they had in the U.S." 

The latest recall was Toyota's eighth in the last six months, according to NHTSA.

Toyota, once almost synonymous with reliability, has struggled to keep its quality reputation since it suffered problems last fall of "runaway" cars accelerating on their own despite drivers attempts to stop. The problem was initially cited as floor mats getting trapped under gas pedals, but news surfaced in January 2010 that there was a flaw in an accelerator pedal part.

"Toyota has still not fully recovered from the damage done to its brand recently," analyst Jessica Caldwell told Reuters.

Toyota issued the acceleration-related recall in January, resulting in the biggest recall for the company and one of the biggest ever in U.S. automaker history. Since then, its sales have lagged behind the rest of the industry, rising by only 1.4% in the first nine months of 2010 while overall U.S. auto industry sales rose over 10%.

Toyota shares plunged in January and then hit more lows in July and August, but had slowly climbed 6.98% in the past two months. Shares were unaffected by the news Thursday.

The sharp increase in recalls this year isn't just stemming from Toyota. In the past six months, General Motors Corp. and Nissan Motor Co. Ltd. (OTC ADR: NSANY) have had seven recalls and BMW (ETR: BMW), Chrysler Group LLC and Ford Motor Corp. (NYSE: F) have had five each. The industry overall has accumulated 56 safety recalls in the last six months.

Honda Motor Co. Ltd. (NYSE: HMC) also announced this week it would recall about 4,000 sedans in Japan with the same brake-fluid glitch as Toyota. In the United States that number could be much higher. A company spokeswoman said Honda is still preparing a report for U.S. regulators that could recall hundreds of thousands of 2005 through 2007 Odyssey minivans and Acura RL luxury sedans.

The NHTSA also issued a reminder this week to 8.4 million owners of Ford vehicles recalled between 1999 and 2009 to bring their cars in for repair. The automaker issued a recall for leaky cruise-control switches that could cause fires in 14 million vehicles, the largest U.S. safety recall ever. But as of last week about 60% of the car owners had not brought in the cars for repair.

Analysts attribute the rise in recalls to increased scrutiny in the auto industry since Toyota's acceleration issue.

"Given the dramatic recall story that unfolded early this year, Toyota and other automakers are getting out in front of quality issues with recalls earlier in the process, not wanting to be accused of foot-dragging again. As a result 2010 is proving to be a big recall year," said analyst Michelle Krebs.

The growing amount of recalls is actually more indicative of a safer car industry, one that wants to avoid slow responses to issues and is known for preventing accidents. Although recalls usually pack a short-term punch to carmakers, in the long-term they reduce fatalities and business-ending risks.

Toyota's reputation for quality suffered its short-term punch by falling from 6th in 2009 to 21st in 2010, according to J.D. Power and Associates's annual quality survey.

Toyota has tried to lure customers back with specials like rebates and low-interest deals while its rivals spent less on such incentives. But after a slew of recalls experts say Toyota made the right moves.

"It's a process that's not going to be fixed overnight, but all they can do right now is damage control," said Jesse Toprak, vice president of industry trends for

But the company has said it will continue to win back the trust and loyalty of customers and regain its rank as one of the highest-quality automakers.

"We don't consider a recall a four-letter word," Toyota spokesman Brian Lyons told Reuters. "We see it as representative of our commitment to our customers. We want to do everything we can to help restore confidence in our brand and with our customers and their vehicles."

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