Toyota Prius Faces Recall

Toyota Prius Faces Recall

Toyota Motor’s (TM - Analyst Report) popular 2010 Prius hybrid automobile faces a recall, adding to the series of the automaker’s recalls in the past few months. Toyota will decide upon the magnitude of the recall this week.

In September last year, Toyota recalled the largest-ever U.S. batch of 3.8 million vehicles, triggered by a high-speed crash in August involving a 2009 Lexus ES350 that killed a California Highway Patrol officer and three members of his family near San Diego. Investigators with the National Highway Traffic Safety Administration have found out a rubber all-weather floor mat in the wreckage that was slightly longer than the mat and could have covered the accelerator pedal.

The September recall included the older version of Prius (2004-09) as well as the Toyota Camry (2007–10 model year), Toyota Avalon (2005–10), Toyota Tacoma (2005–10), Toyota Tundra (2007–10) and Lexus (2007–10 ES350 and 2006–10 IS250/350).

In January, Toyota decided to suspend sales of 8 models involved in another round of recalls of 2.3 million vehicles to correct sticking accelerator pedals on specific Toyota models that did not include the new 2010 Prius.

However, regulators in the U.S. started an investigation into the brakes of the 2010 Prius last week after drivers complained of being briefly unable to stop their cars on uneven surfaces. The Japanese government affirmed stating that it has received similar complaints about the braking system in Prius in Japan as well.

The 2010 Prius has an overhauled regenerative brake system, through which energy from the wheels is used to help recharge the car’s battery. The car also has an antilock brake system. Toyota has found out that the problem with the brake system occurred as the car switched to conventional from regenerative brakes just as the antilock brake system kicks in.

Toyota sold about 311,000 units of 2010 Prius, including 103,000 units in the U.S. and 176,000 in Japan, as of December 2009. According to Bloomberg, the automaker plans to recall about 270,000 units of the model in Japan and the U.S. to repair braking systems.

The recurrence of recalls has no doubt blurred the image of Toyota vehicles. The Toyota loyalists are now giving second thoughts prior to purchasing their vehicles. For years, Toyota has been praised for both maintaining superior quality and high resale value.

In January, Toyota lost more volume than any other auto group in the industry, driven by the recall. Sales fell 16% to 98,796 vehicles, which comprised all the recalled models such as Camry, Corolla and Avalon cars and the Matrix hatchback, the Tundra pickup, RAV4 crossover and SUVs including Sequoia and Highlander.

It was the first time since February 1998 that Toyota's monthly U.S. sales fell below 100,000 vehicles. Car sales decreased 10% to 60,634 units while light truck sales slashed 24% to 38,162 units.

Kelley Blue Book -- the largest automotive vehicle valuation company in the U.S. -- which considered Toyota as the best brand for resale value two months ago, has stated that resale value are now worth $200 to $500 less per recalled models (a decline of 1%–3%). The auto research website Edmunds.com estimated resale or trade-in values to fall up to 10% in the short term. Edmunds' estimate for the trade-in value of a 2009 Toyota Camry has fallen by 4%–6% to $13,967 while the 2009 Toyota Corolla has declined 6% to $11,233.

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