Recall may dull Toyota’s image, resale values

January 28, 2010 http://detnews.com/article/20100128/AUTO01/1280364

Recall may dull Toyota’s image, resale values

Brand’s resistance to depreciation, long the envy of rivals, could be in jeopardy, some say

BRYCE G. HOFFMAN
The Detroit News

Toyota Motor Corp.’s sweeping recall is raising serious questions about how the problem with unintended acceleration could impact the company’s brand image and the long-term value of its vehicles.

Investors already are concerned, as evidenced by the more than 4.26 percent drop in Toyota’s share price following the announcement Tuesday that it was suspending sales of eight models affected by the recall.

Toyota’s resale values long have been the envy of the automobile industry. Many customers say they buy Toyotas because they know they will hold their value. The same high resale values have allowed the Japanese automaker to offer lower lease rates, too.

A Toyota spokesman said it was too early the assess the impact of the recent recalls and halt in sales on residual values, declining further comment.

According to Edmunds.com, which tracks resale values, used Toyota cars and trucks are, on average, worth 43.8 percent of their original sale price after five years. Among the major brands, only Honda’s number was higher, at 44.8 percent. The average five-year-old Chevrolet is worth 38.1 percent of its original price. The average Ford, an even 38 percent. And the average Chrysler is worth 29.4 percent of its original price five years later.

But Joe Spina, an Edmunds analyst, said Toyota has a loyal customer base and consumers have a short memory.

The automaker’s decision to halt production of the affected models — many of which already were in short supply — could actually boost the value of those products, or at least offset any significant decline, he said.

"It will not help their public perception, but three years from now these things will balance each other out. Three years from now, there’s going to be a shortage of those vehicles coming off lease. It’s going to help the prices of the cars that are going across the auction block," Spina said.

"There’s been bad news about Toyota for the past couple of months, and yet their market share has continued to grow."

He noted that sales of the Ford Explorer were unaffected by the infamous Firestone tire recall in 2000.

But Citigroup analyst Itay Michaeli said that recall had a big impact on Ford and Firestone’s safety reputation, an impact that lingered long after the issue was resolved.

"It remains to be seen whether Toyota’s pristine reputation will be damaged over the medium-to-long term, resulting in market share gains for transplant competitors and the Detroit Three," he said.

"Any waning in Toyota’s reputation could enhance its competitors’ share of the market. Conversely, Toyota may be able to save face, resolve the accelerator pedal issue and make up any lost production in the quarter, and today’s news may become a non-event."

Spina said Ford stands to benefit most from the Toyota recall.

"Ford will probably be the lucky recipient in the short term," he said. Kelley Blue Book, which tracks used car values, said it anticipates some "incremental softening" in the current value of some used Toyotas.

"Given the news, this is not the best week for a consumer to try to trade in their Toyota for a new car," said Jack R. Nerad, executive market analyst for Kelley Blue Book.

"While dealers are savvy about these things and understand that the car can still be re-sold once proper repair has been identified, they might be reluctant to accept the vehicle in trade, or offer a lower price for it than would otherwise be the case."

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