Trauma at Toyota: Sales, image skid Surveys say shoppers may flee; analysts see lingering damage

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Trauma at Toyota: Sales, image skid

Surveys say shoppers may flee; analysts see lingering damage

Jesse Snyder

and Kathy Jackson

Automotive News -- February 8, 2010 - 12:01 am ET

Toyota's meltdown has led thousands of car buyers to cross the brand off their shopping lists and has sent the company's vaunted image into free fall.

"The last time we saw something like that was when Southwest had to ground its entire fleet in 2008," said Ted Marzilli, managing director of BrandIndex Service, a New York market research firm. "We see Toyota on par or even greater than that."

Toyota Motor Sales U.S.A. says it expects to lose 80,000 sales this year because of its escalating safety crisis. Market researchers paint an even gloomier picture as the bad news piles up.

Brand experts say purchase intent is shrinking and fewer shoppers are researching Toyotas. Assessing the continuing impact is hard until the barrage of new revelations eases, but early signs are grim for Toyota.

An online poll by Kelley Blue Book showed purchase consideration for the Toyota brand fell by 20 percent after the recent recall, dropping it from first-place to third behind Chevrolet and Ford.

January U.S. sales for Toyota and Scion dropped 19 percent in a rising market, even though the sales suspension of eight models affected only the last five days of the month.

Toyota dealers play down the problems.

"Business is better than I thought it would be," said Earl Stewart, a Toyota dealer in North Palm Beach, Fla. "I'm pleasantly surprised."

So is dealer Gordon Stewart, no relation, who said his Alabama Toyota dealership sent out 300 recall letters to customers but had only 12 responses through Friday.

And company executives are talking optimistically.

"Dealers are telling me consistently there is minimal to no effect on our business," said Bob Carter, Toyota Division's general manager. "Most of our consumers are confident in the brand, and many are just delaying their purchases."

Current Toyota owners may be easier to appease than buyers the company is trying to conquest, branding experts say. That could hurt Toyota's growth prospects.

Marzilli of BrandIndex says the company's poll data show Toyota's image has fallen faster than any other brand he remembers in any industry -- worse than General Motors' and Chrysler's brands when the automakers asked for a taxpayer bailout.

Indeed, Toyota just can't get out of the news. On Jan. 21, the company recalled 2.3 million vehicles to repair accelerator pedals, and five days later it suspended U.S. sales and production of eight models.

The stories keep popping up: an expanded recall, congressional investigations, and last week a separate investigation of the popular Prius hybrid after allegations of brake problems. On Friday, Kelley Blue Book said it dropped Toyota used-car values 1 to 3 percent and warned of future declines of 4 to 5 percent if the issue drags on.

"The longer it's in the news, the greater the damage to the perception of Toyota," said Lincoln Merrihew, of brand consulting firm Compete Inc. in Boston. "The potential toll is massive."

January sales may have been just a taste of things to come. The recalls cost retailers 20,000 deals last month, Carter said.

"Our sales results were 23 percent below our internal target," Carter said.

After finishing 2009 as the No. 1 brand with a 14.3 percent market share, Toyota saw its January share plunge to 11.5 percent.

Bad buzz

Toyota's future doesn't look any brighter to research firms.

BrandIndex, which monitors consumers daily on brand perception, says the best brands generate a "buzz score" of 50 or 55 on its internal index. Toyota's score crashed to minus-50 on Feb. 4, from 30.7 on Jan. 8. The January score already had been weighed down by the effects of Toyota's floor mat recall last fall.

Marzilli said Ford's current buzz score of 43 represents the greatest upswing of any brand the index tracks -- a jump of 29 points in the past year.

"Toyota's problems seem to be snowballing," Marzilli said. "Before they were seen as a solid blue-chip brand. But with all of this negative information it will be hard for them to get out of this."

Other researchers agree.

"This recall nightmare could have a substantial effect on future Toyota sales and on intangibles such as market perception," said James Bell, executive market analyst for Kelley Blue Book's kbb.com service.

In the week after the Jan. 21 recall, page views on kbb.com, a precursor to purchasing, fell 32 percent for the recalled Toyota Corolla and RAV4 and 27 percent for the recalled Camry.

Consumer purchase intent for Toyota -- defined as when a shopper is interested enough to configure a vehicle online -- fell to 9.7 percent on Jan. 28 from 13.9 percent before the recall, said Edmunds.com CEO Jeremy Anwyl. But by last week, it had rebounded to 11.8 percent.

Toyota Division's Carter said dealers are working hard to retain customers that other automakers are targeting. Last week, Toyota Motor Sales said it would give Toyota brand dealers each $7,500 to $75,000 in cash in hopes they would spend it pampering customers who bring in recalled vehicles.

Larry Kull, a Vineland, N.J., dealer and vice chairman of the Toyota dealer council, said the situation improved last week as factory assistance and cash kicked in.

"Our used-car sales have been helpful since the stop on new cars," Kull said. "Everybody's been impacted, and it's been slower. We are hopeful that we'll start receiving more cars that will be for sale."

George Magliano, head of North American vehicle forecasting for IHS Global Insight, thinks Toyota will lose buyers this year.

"Whatever Toyota loses, somebody else will make up," he said. "They'll go to Honda and Nissan, then some to Hyundai-Kia and to a lesser extent Ford and GM. The Camry buyer will go to the Accord, possibly to Fusion or Sonata."

2-stage danger

Compete's Merrihew sees Toyota's situation as a two-stage danger.

Retaining loyal customers is the easier part. "To the extent you can surprise and delight someone with an over-the-top response, you may be able to do that," he said.

But the longer Toyota's recalls are news, the more the company will have to divert its marketing message from long-term image building and attracting new customers, he said. Merrihew said a full image recovery might take Toyota five years.

Anwyl sees a faster rebound.

"Toyota has built up a ton of good will over years, and that's now at risk," he said. "But they haven't thrown it all away yet."

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