Volkswagen AG?s Audi luxury brand spent 15 years rebuilding U.S. sales after sudden-acceleration incidents in the 1980s almost wiped out demand, a possible sign of the difficult times Toyota Motor Corp. faces.
Audi?s U.S. deliveries plunged 83 percent by 1991 from their peak in 1985 following recalls of the German automaker?s 5000 sedan. A class-action lawsuit in 1987 by Audi owners seeking compensation is still being fought.
Audi was then selling no more than 75,000 cars a year in the U.S. and was chipping away at the market for higher-priced models. Last year, Toyota, the world?s largest automaker, sold 17 percent of all cars in the U.S. The Japanese manufacturer?s recall of almost 8 million vehicles, including 5.6 million in the U.S., to fix defects that cause sudden acceleration has prompted the U.S. government to probe the cause.
?There are very strong parallels between the Audi incident and Toyota,? said John Wolkonowicz, an analyst at IHS Global Insight in Lexington, Massachusetts, who worked on product- development analysis for Ford Motor Co. at the time of the Audi recalls. ?I?m convinced this whole mess can take longer than seven years to overcome. It might well have a generational impact.?
The Toyota recall led to a suspension of U.S. sales and production of eight models. Sudden acceleration of Toyota vehicles has been linked to 19 deaths in the last decade, according to Henry Waxman, the U.S. House of Representatives? Energy and Commerce Committee chairman.
Shim Fixes
Toyota?s U.S. sales in January fell 16 percent to 98,796, the lowest monthly total in 11 years. The Toyota City, Japan- based carmaker said this week it will fix the defect by having dealers install shims in accelerators.
The Audi model in the 1980s recall was linked to six deaths and 700 accidents, according to Washington-based Center for Auto Safety, a group co-founded by consumer activist Ralph Nader. The Audi 5000?s sales drop accelerated after a 1986 report on CBS Corp.?s 60 Minutes television news program. The segment was later criticized by business groups for use of unidentified simulations and staged events.
U.S. Sales
Audi?s U.S. sales in the 1980s peaked at 74,061 in 1985, then dropped to 12,283 in 1991, staying at about that level for the next three years, according to company data. Deliveries topped the 1985 number only in 2000, when Audi sold 80,372 cars. Audi?s sales in China, where the VW unit is the top premium- brand seller, more than doubled in January to 16,798 cars and sport-utility vehicles, the company said today. Its deliveries in the U.S. in 2009 totaled 82,716 vehicles.
The recovery in the U.S. was partly helped by a 1994 turnaround strategy, which included the new A4 and A8 models and a reorganization of distribution networks, said Audi spokesman Juergen de Graeve.
?You can?t restore image or reputation overnight,? de Graeve said in an interview. ?We?re talking about a process here that was stretching over many years. Even if it were found out later that the claims were unjustified, the damage was already done.?
Toyota expects sales to drop by about 100,000 cars and revenue to decline by as much as 80 billion yen ($880 million) this fiscal year ending in March because of the recall, Senior Managing Director Takahiko Ijichi said today.
?We are doing everything we can to regain our customers? trust,? Ijichi told reporters in Tokyo.
?Lasting Damage?
Toyota?s situation ?is a bit different? to Audi?s, said Garel Rhys, who heads the University of Cardiff?s automotive industry research center. ?Audi was pushing itself as an up- market brand while Toyota is a huge player and defending its quality-brand image. Toyota has a huge image to lose in the U.S. The potential for lasting damage to their image is enormous.?
Toyota faces at least 23 lawsuits in the U.S. and Canada seeking class action status, including 13 that allege defects in the electronic throttle system. At least eight other lawsuits have been filed by customers or their families alleging deaths and injuries.
1987 Lawsuit
A class-action lawsuit filed in 1987 by Audi 5000-model owners seeking compensation is being contested in county court in Chicago after appeals at the Illinois state and U.S. federal levels. About 7,500 plaintiffs are involved, Robert Lisco, a Chicago-based lawyer representing the car buyers, said.
?I don?t think Toyota will recover from this,? said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler. ?They used to have an edge thanks to quality, but surely that?s been irrevocably shattered now. The impact of this catastrophe on their pricing power and sales will be enormous.?
The Audi 5000 recalls took place from 1982 to 1987, with the first fix aimed at adjusting the distance between the brake and accelerator pedal on automatic-transmission versions, the Rehoboth, Massachusetts-based Safety Research & Strategies said in a June report on Toyota incidents. The final repairs, of 250,000 cars dating back to 1978, added a device requiring the driver to press the brake pedal before shifting out of park, the consumer advocacy group said.
The U.S. National Highway Traffic Safety Administration recommended two of the Audi 5000 recalls, according to an NHTSA document on the Center for Auto Safety?s Web site.
Mitsubishi Motors Corp. had one of the auto industry?s largest recalls prior to Toyota, taking back more than 2 million vehicles to repair defects in 2000 and 2001. That pushed the Tokyo-based automaker to the brink of bankruptcy.
How quickly Toyota will recover depends on how long the carmaker takes to respond, said Anil Valsan, global director of automotive research at Frost & Sullivan in London.
The company?s reaction ?has been pretty poor over the past few weeks,? he said. ?If they can do this quickly and fix it this fiscal year there will still be an impact on sales, but they have an opportunity to at least sustain their position.?
