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Did Toyota's recall troubles harm its gold-standard resale value?

Wed, 03/03/2010 - 9:46am
Steve Mertl-Associated Press

For decades Toyotas have been the gold standard for used cars, with resale prices often exceeding their book values.

An entire generation grew up in the last three decades expecting Toyota models to provide high initial quality and long-term reliability with low maintenance costs.

Old high-mileage Toyotas are handed down in families like heirloom china.

So it's worth asking what has the recall debacle done to that reputation?

More than eight million Toyotas, including popular Corolla, Matrix and Camry models, have been recalled worldwide due to problems related to their accelerators.

Toyota, the world's biggest automaker, initially played down the issue — just a problem with floormats, easily fixed.

But the problem mushroomed, forcing the company to halt production and sales of affected models until a hurriedly designed fix was rushed to dealerships.

Akio Toyoda, grandson of the company founder, went before the U.S. Congress to apologize and admit Toyota had mishandled the whole thing.

Recalls are not unusual — witness General Motors and Nissan recalls this week.

But this one seemed to puncture Toyota's copper-bottomed image of quality. It revealed a company with a reputation for perfection might be just an ordinary fallible automaker after all.

It was a little like learning your trusted family doctor, though competent, got his medical degree from a Central American diploma mill. Or the people running the Canada Savings Bonds program took a flyer on sub-prime mortgages.

Earlier this month car valuator Kelly Blue Book lowered the resale value of some recalled Toyotas a couple of percentage points.

But Dennis DesRosiers, Canada's best-known auto analyst, says it's probably too early to gauge the long-term effect on the brand's used-car cachet.

If new-car sales are anything to go by, Toyota should weather the storm. While U.S. sales slumped, sales in Canada were up substantially in February despite a 10-day sales shutdown.

"The consumer appears to be giving them the benefit of the doubt at least for now," DesRosiers says.

George Iny, president of the Automobile Protection Association, also thinks the company has enough goodwill stockpiled with consumers that if there's a used-car price dip it won't last long.

"Our sense at APA is that it's temporary, if it exists at all," Iny says.

But Iny also says his office has heard complaints some Toyota dealers initially refused to accept vehicles on the recall list as trade-ins before the company delivered the fix for sticky gas pedals.

U.S.-based Edmunds Inc., which tracks automotive data for consumers and the industry, says on its website that it still thinks Toyotas are a good, safe buy.

"We don't mean to minimize the severity of Toyota's recent recalls, but so far none has changed our determination of the overall performance, reliability, safety or value offered by the Toyota vehicles recommended on our site," it says.

If anything, it says the controversy is a useful tool for shoppers who want to drive a better bargain on a Toyota.

"In negotiations, you can create leverage to get a lower price by expressing your concern over the safety issue in the recall," Edmunds suggests.

But it does warn resale values potentially could be reduced by the recalls.

"Toyota's image has been damaged, but it's unknown how long this stigma will remain," the Edmunds article says.

"Three years from now, when you go to sell or trade in your Toyota, this incident might be just a distant memory. But if these recalls trigger a steady downward trend it could cost you some money."

It also recommends anyone buying a used Toyota run its vehicle-identification number to see if it was subject to the recall, then confirm the defect was repaired by checking its service records.

Iny says he doubts the controversy will depress Toyota resale values in the long term because most people still have confidence in the product.

But that golden aura of unassailable quality may dim.

"What they don't necessarily have is a premium they may have once had over certain other brands," says Iny. "It's still a line of cars and trucks that would be the envy of most manufacturers."

What may harm resale values, he says, is Toyota's own efforts to hold onto its customers with new-car incentives, including cash rebates it used to shun, low-interest financing and other promotions.

They'll narrow the gap between the cost of a new Toyota and a comparable three-year-old one, says Iny.

"That will have a bigger impact than the fact that used car buyers might be shying away from them."

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