Toyota dealers move past recall

Buyers are coming in, they say

March 03, 2010|By Lorraine Mirabella and Jamie Smith Hopkins | Baltimore Sun reporters

The tempest might continue for Toyota's corporate leaders for months if not years to come, but Maryland car dealerships are endeavoring to move on.

After a two-week sales shutdown of some of Toyota's top models following the unprecedented recall of more than 8 million vehicles, dealerships are completing repairs and starting to see buyers back in the showrooms. To spur sales, they are offering financing deals and taking steps to reassure consumers.

Steve Smeltzer, owner of Jones Junction, a Toyota dealer in Bel Air, said he was pleasantly surprised to sell 20 new Toyotas on Saturday, attributing the sales rebound to intractable loyalty to the brand and to pent-up demand.

"Our showroom was flooded with people, and they were not just shopping, they were buying new cars," he said of business over the weekend. "For the most part, the people who own Toyotas still believe in them because they've had them and have never experienced this sudden, unexpected acceleration."

Dealers of all vehicle makes are seeing some glimmers of improvement as credit becomes more readily available to buyers, consumer confidence rises and the high percentage of older cars on the road reach replacement age, said Peter Kitzmiller, president of the Maryland Automobile Dealers Association.

"Obviously, people are still worried about the economy and their jobs - and cars are the second biggest purchase" for most consumers behind homes, Kitzmiller said. "But I think things are starting to get a little better."

Problems with pedals that become stuck or trapped below floor mats, which the National Highway Traffic Safety Administration has linked to accidents involving 52 fatalities, led to the production and sales shutdowns for Toyota, as well as federal investigations and congressional hearings. Hearings continued Tuesday before the Senate Commerce Committee.

Toyota, which has been running national advertisements designed to restore confidence in the brand, is fixing what it calls a rare problem by installing steel reinforcement bars on the recalled models' pedal assemblies to eliminate excess friction. In other cases, pedals had become stuck when they became entangled with car mats.

The Japanese carmaker's troubles have compounded a tough year for the auto industry in Maryland and elsewhere - from the widespread closure of Chrysler and General Motors dealerships amid corporate cutbacks to the snowstorms this winter that buried cars and dampened sales.

"It's been a very difficult year," Kitzmiller said.

At least 40 Chrysler and GM dealerships in Maryland have been closed or are slated to close, with many of the business owners choosing to fight the automakers' cuts through arbitration this year, Kitzmiller said. Chrysler has closed 19 dealerships in the state and GM plans to close an undisclosed number, but about 20 GM dealers who are targeted will likely go to arbitration, he said.

Turmoil within the industry happened against a backdrop of depressed auto sales.

Some dealerships whose franchises were revoked by manufacturers switched to used-car sales or became repair shops, said Daraius Irani, director of applied economics at Towson University's Regional Economic Studies Institute. But the ones that closed left empty swaths of pavement in communities.

"When a dealership closes, it looks pretty bleak," Irani said.

Closure is also a drag on the immediate area's economy. When jobs go away, so do the impacts of those workers' salaries, from lunches bought at local shops to gas pumped at nearby stations. That's particularly true in rural areas, where a dealership might be a community anchor, Irani said.

At a state level, the real economic impact of dealers isn't how many are operating or even whether some are inundated with recalls, said John Wolkonowicz, senior auto analyst at IHS Global Insight, an economic forecasting company in Lexington, Mass. The key is total auto sales, because sales mean tax revenue.

And it seems people are finally buying more cars. Ford Motor Co.'s February sales nationally were up more than 40 percent from a year earlier - and up 34 percent in the Washington region, including Baltimore. Meanwhile, GM sales rose 12 percent. Even Toyota's month was not as bad as analysts had expected, as sales fell 8.7 percent from a year ago.

"The pie is getting re-cut, but the sales are going up," Wolkonowicz said. "So some manufacturers, like Ford, are going to do very well. And other manufacturers, possibly like Toyota, aren't. We don't know the ultimate outcome of Toyota yet until we see how the rest of this plays out."

IHS Global Insight is forecasting a nearly 12 percent increase in auto sales nationwide this year, with sales getting back to a normal level by 2012.

It helps, Kitzmiller said, that many questions surrounding the recalled Toyotas have been answered over the past few weeks.

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