Recalls nonissue in lifeline growth markets

Despite safety woes, Toyota can still rely on China, Southeast Asia

by Elaine Kurtenbach

The Associated Press

Toyota Motor Corp. is stricken by massive recalls in the U.S. and stalled sales at home, but it is not without a lifeline — big, fast-growing markets like China and Southeast Asia, where drivers seem unfazed by what is troubling consumers in the West.

Toyota could certainly do with a cushion if it’s going to keep its pole position in the auto world. Recalls totaling 8.5 million vehicles globally for faulty brakes, floor mats that can entangle the gas pedal and sticking accelerators have battered its once stellar reputation.

Toyota’s share of the U.S. market is already nose-diving and a return to profit after big losses from the global recession is imperiled by an estimated $2 billion in recall costs and lost sales.

The backlash in the U.S., its biggest market, has been swift and merciless. Drivers feel betrayed after being lured by Toyota’s promises of unmatchable quality and safety.

But in developing countries, where the scale of recalls was small, it doesn’t face such high expectations. Auto safety problems tend to draw less attention in nations where consumer protection agencies are a relatively recent innovation and compete with more pressing concerns such as ensuring basics like clean water and uncontaminated food.

Chinese consumers are all too familiar with quality problems, thanks to a slew of scandals involving everything from tainted milk and medicine to crumbling buildings and roads. The government’s difficulties in preventing such troubles has left many somewhat philosophical about the challenges involved.

“Chinese cars have a lot more problems than Japanese cars, so we know that no product is perfect,” said 42-year-old entrepreneur Li Lianjun as he joined his family for a Lunar New Year’s dinner.

“I’m willing to take a chance on the car if I really love its specs and the way it looks regardless of recalls,” he said.

Beijing construction worker Zhao Zushen drives a Volkswagen. But if anything, Toyota’s problems have left him even more confident about the quality of its cars.

“Every car has problems. Japanese carmakers are very meticulous about details and quality, so this ordeal will only make them more careful in the future,” Zhao said.

In India, where Toyota has high hopes for the launch early next year of the Etios compact, the recall crisis has barely registered. That partly reflects Toyota’s still low profile there. Indians have also only recently become sensitive to quality as competition has brought more brands to the market.

The most ubiquitous cars on the streets of the financial capital Mumbai today are decades-old, shuddering Fiat Premier Padmini black-and-yellow taxi cabs, whose brakes seem almost an afterthought. Still, no one complains. Commuters in suits squeeze in four at a time for shared cab rides to the local commuter train station. Most people seem happy enough not to have to wait in line for the bus.

Attitudes like that, especially in China — which last year overtook the U.S. as the world’s biggest auto market with vehicle sales surging 45 percent to 13.6 million — could be Toyota’s salvation.

The automaker was slow to commit heavily to China and other big emerging markets. But just as for General Motors Co. and other rivals, growth in such regions is now helping to offset weakness in its traditional strongholds.

Toyota’s sales in the U.S., Europe and Japan accounted for less than two-thirds of the total in 2008, down from over 80 percent a decade earlier. China is its biggest overseas market, with sales hitting 709,000 last year, but the company is also seeing double-digit growth in countries from Brazil to Thailand.

“While everyone talks about China, if you add them up: Indonesia, Thailand, Brazil, South Africa, there is a lot of growth,” said Christopher Richter, an auto analyst with CLSA Asia Pacific Markets in Tokyo.

In Thailand, Toyota’s biggest Southeast Asian market and a major export base, loyalty to the brand seems as strong as ever. The automaker’s Thai vehicle sales jumped by half in January from a year earlier.

“I’ve been driving Toyota for 20 years, and I don’t see any problems from them,” said Tepchai Nunthawonaruch, a 50-year-old businessman in Bangkok who dotes on his 2001 Toyota Camry.

In Russia, Toyota sold slightly less than 69,000 cars last year, down nearly two-thirds from the year before. But that was due to the global financial meltdown, says Yuliy Matevosov, an auto analyst at the Aton brokerage in Moscow.

“Russian people don’t worry too much about such things,” Matevosov said of the recalls. “Toyota’s brand is not likely to suffer from this. Those Russians who drive a Toyota will continue to do so.”

To counter the potential impact in Russia from a recall of 160,000 cars — a figure comparable with Toyota’s precrisis yearly sales — the company has launched a promotional campaign offering special deals on the Corolla, its best-seller there.

Toyota is reaching out to Indian consumers with a four-month promotional tour of 10 cities launched last month. Its venture there, Toyota Kirloskar Motor, expects its sales to reach 65,000 units this year and to more than double in 2011 with the launch of the Etios — the company’s first made-for-India compact.

“We are quite bullish about the India market,” said Toyota Kirloskar spokesman Sandeep Singh. A planned March launch of imports of the Prius — Toyota’s iconic gas-electric hybrid that was recalled for braking problems — will go ahead, he said.

Even as Toyota benefits from enormous growth in developing markets, it also faces tough and intensifying competition in China and elsewhere from global and aspiring local rivals.

Still, its strong position across the developing world, compared with its biggest Japanese competitors means that overall, it is benefiting more from the boom in sales to emerging markets, said Koji Endo, managing director at Advanced Research Japan in Tokyo.

“There is no question that the Indian and Chinese markets are going to be very, very important in the coming years,” he said. “It won’t take long for those two markets to be more profitable than the U.S. for major automakers, including Toyota.”

Newspaper appeal

NEW YORK (Kyodo) Toyota Motor Corp., in a full-page newspaper ad Thursday, promised to do all it can to regain customer confidence in the carmaker in the wake of massive recalls.

In “our commitment to customers,” carried in major newspapers such as The New York Times and The Washington Post, Jim Lentz, president and chief operating office of Toyota Motor Sales U.S.A. Inc., said great companies can learn from their past mistakes.

“That’s why all 172,000 people working for Toyota and our dealers are doing more than ever to make things right for our customers today and for the future,” he said.