History Indicates High-Profile Defects Don’t Always Sink Sales

Special Coverage

Toyota's Safety Crisis

While many analysts and industry watchers predict Toyota Motor Corp.’s U.S. sales will be impacted severely by two high-profile recalls, historical data indicate such events do not always have a significant effect on consumer demand.

Toyota last week recalled 2.3 million cars and trucks with potentially defective accelerator pedals and was forced by U.S. law to stop selling the eight models affected.

The auto maker also added four models to a previous campaign, adding 1.09 million units to an already-recalled 4.2 million.

While the media frenzy surrounding the move is in full swing, an examination of Ward’s data shows other high-profile recalls had surprisingly little impact on a brand’s overall sales.

Although Toyota’s floor-mat-related recall issued last fall received widespread media attention, the auto maker’s U.S. sales grew in November and December, with Toyota’s December increase three times that of the industry overall.

Prior to the Toyota campaign, the most highly publicized campaign was Ford Motor Co.’s August 2000 callback of the Explorer SUV as a result of defective Firestone tires.

Ford’s total sales fell in three of the four subsequent months, with December’s 14.9% decline its biggest of the year. In 2001, with the Ford/Firestone issue still front-and-center in the media, Ford sales dipped 5.6%, to 3.92 million units, compared with a 1.3% drop in total industry light-vehicle deliveries.

But the decline was not due to the Explorer, which remained the best-selling SUV in the U.S. for the 11th consecutive year, recording 415,921 sales.

Despite Firestone tire recall, Explorer sales remained strong.

And Ford’s 2001 performance was on a par with other auto makers that didn’t experience high-profile recalls. Nissan North America Inc. sales fell 6.5% and the former DaimlerChrysler AG lost 9.1% of its prior-year U.S. volume.

In 1992, a Dateline NBC report on the allegedly high-explosive nature of General Motors Corp.’s older-generation C/K pickups with side-saddle fuel tanks put a bright spotlight on the auto maker.

Although GM never issued a recall, the controversy persisted in the media for two years as the auto maker tussled with the U.S. government over whether the trucks should be called in for repairs.

But GM’s sales actually rose all three years the controversy played out in the media, including 1994 when deliveries jumped 7.1% and nearly matched the industry’s 8.0% gain.

A more ominous comparison to the Toyota situation is with Audi of America Inc., which suffered from similar sudden-acceleration accusations in 1986, led by a report on its 5000 flagship model by CBS’ “60 Minutes.”

Audi was vindicated in 1989, when the National Highway Traffic Safety Admin. concluded operator error was to blame for the reported incidents, which resulted from drivers stepping on the accelerator by mistake instead of the brake pedal.

But by then, Audi sales already had begun a steep slide, falling to 59,797 units in 1986 from a record 74,241 in 1985, and continued downward to 41,322 in 1987. By 1989, Audi deliveries hit a 12-year-low of 21,225, before further worsening to about 12,000 units annually in the early 1990s, when the brand nearly was pulled from the market.

It wasn’t until 1998 that Audi sales exceeded the 40,000-unit mark again.

However, some of Audi’s difficulties may have been market related. Sales of European cars overall slipped every year between 1986 and 1993, a result in part of a new luxury tax in the U.S. on cars priced more than $30,000 and an early-1990s recession that reduced consumer confidence.

Speaking to reporters during a conference call today, Jim Lentz, president of Toyota Motor Sales U.S.A. Inc., says the negative effects of the recalls on Toyota’s sales may be mitigated by other factors.

Specifically, Toyota’s two top sellers, the Camry and Corolla, each implicated in both the sticky pedal and floor mat recalls, may not suffer badly because they are sourced from Japanese plants as well as North American sites. Only North American-built models with pedals by CTS Corp. are included in the sticky-pedal recall that forced sales and production to be halted.

Also, Lentz says Lexus and Scion models, which are not included in the pedal campaign, are “having a pretty good month.”

Toyota will release U.S. January sales figures tomorrow.

[email protected]