Toyota supply, recalls cause profits to tank

DETROIT --- Toyota should have owned the road this summer. When gas prices go up, American drivers go for smaller, fuel-efficient cars. The last time prices at the pump spiked in 2008, Toyota captured the title of world's No. 1 automaker.


Now gas costs almost $4 a gallon, but Toyota is struggling. It's been hammered by supply disruptions from the Japan earthquake and can't escape the stigma from its safety-related recalls last year. And its rivals are making flashier cars with great gas mileage.

Toyota said Wednesday that its quarterly profit fell more than 75 percent, mostly because of production problems from the March 11 quake and tsunami. The automaker's CEO, Akio Toyoda, said executives are "gritting our teeth" to keep jobs in Japan.

In the United States, Toyota is losing market share faster than any of its competitors, falling to 14 percent from 17 percent in a little more than a year. North America is Toyota's largest market.

Meanwhile, Ford, Nissan, Kia and Hyundai have all introduced sexier, more chiseled designs. General Motors and Chrysler are gaining market share.

By its own admission, Toyota lost sight of quality in its pursuit of global sales.

"They lost their way ... lost what made them a valued brand and a valued company," said Aaron Bragman, an analyst for consulting firm IHS Automotive.

For decades, Toyota's strength was reliability. Then Toyota recalled 14 million vehicles last year. In a J.D. Power and Associates study of vehicle quality, it slipped to sixth place in 2010 from third place in 2009. It has moved up to fifth this year.

"You're getting acceptable levels of quality, reliability and dependability from pretty much every manufacturer," said Jack Nerad, the editorial director of Kelley Blue Book. "That takes a big arrow out of Toyota's quiver."

Toyotas are also not holding their resale value as well. For the 2011 model year, Kelley Blue Book predicts all Toyota brands will be worth an average of 39 percent of their purchase price after five years. In the 2009 model year, Toyotas were expected to hold 47 percent of their value.

Production ahead

North American production will rise to 70 percent of normal in June as Toyota begins to recover from parts shortages caused by the earthquake in Japan.

The company cut production to about 30 percent of normal in May by idling factories for several days or reducing their hours. It warned dealers to expect shortages of some models well into the summer.

Toyota now says the parts situation is improving and it can increase production faster than expected.

-- Associated Press