Congress probes Toyota recalls

WASHINGTON/TOKYO (Reuters) - Toyota Motor Corp faced scrutiny from Congress over its biggest ever safety recall as investors and consumers weighed the impact of an unprecedented halt in U.S. production by the No.1 automaker.

House Energy and Commerce Committee Chairman Henry Waxman said he would hold a hearing next month to consider "how quickly and effectively" the car maker responded to complaints about unintended and dangerous acceleration.

"Like many consumers, I am concerned by the seriousness and scope of Toyota's recent recall announcements," Waxman said in a statement.

The unusual action by the government comes just hours after the Toyota recall for accelerator problems was widened to include China and Europe.

Toyota this week suspended North American sales and production of eight models including its best-selling Camry after pressure from regulators.

Japan's largest company, studied for its devotion to quality, Toyota's recalls on the problems including sticking pedals and slipping floormats could amount to about 8 million vehicles -- more than the number of cars and trucks it sold worldwide in 2009.

In Tokyo, some worried about the knock-on effects to Japan's image and economy.

"If Toyota has hard times, there's a high probability that also Japan will," said Takeo Namekata, 62. "Particularly, trade will suffer."

REPUTATION SULLIED

Analysts say the financial impact will depend on how long the safety problems shut production and whether Toyota's famously loyal customers begin to abandon the brand, an issue hotly debated on blogs and online forums.

"I know in the next year or so, I am going to have to look at buying another car, and I am likely to buy used," said one reader of The Consumerist calling themselves theblackdog. "I don't think I could trust buying a used Toyota that was manufactured in 2005 or later, so I guess I will be scratching Toyota off of my list to look at."

Others, however, applauded Toyota's response.

"Although Toyota's reputation has been sullied since the recalls started taking place, the company is sending a message that it cares more about safety than income," wrote DREA on Business Pundit. "I bet that in the long run, this move will have been worth the risk."

Shares of Toyota have dropped 17.6 percent since January 21, when it announced it was broadening its recalls by a further 2.3 million vehicles. The stock ended down 2 percent in Tokyo on Friday.

RECKONING THE DAMAGE

Industry analysts and executives estimate that it will cost some $250 million in warranty costs alone to address the smaller of the two recalls underway in the United States.

The automaker also faces the fallout from the larger recall that began last year and was broadened this week for vehicles at risk of having floormats that can become jammed under accelerator pedals.

Then there are the still unknown costs for lost production, financial support to dealers and sales incentives the company has told its retailers it is considering in a bid to keep customers being wooed by rivals.

In addition, Toyota is certain to face lawsuits from people who claim injuries from the defects or class-action claims on behalf of consumers who will claim the crisis has damaged the value of their cars, analysts say.

Toyota has not released an estimate for the number of incidents of unintended acceleration. Consumer advocates say there are hundreds of such cases in Toyota vehicles.

Meanwhile, Toyota said it was racing to fix one of the recurring problems with sticky accelerator pedals that has forced it to shut down sales and production of most vehicles in the United States.

MONTHS OF WORK AHEAD

In consultations with its dealers on Thursday, Toyota said it would take months to complete repairs on the recalled vehicles since it would send notices to affected customers in batches of ten thousand to avoid overrunning repair shops.

CTS Corp the manufacturer of the accelerator pedals that led to the sales half said on Thursday that it has completed work on a redesigned accelerator pedal and was rushing that fixed part into production for Toyota.

Cars sold in Toyota's home market of Japan use accelerators supplied by Denso Corp. Toyota representatives said it was not clear if Denso could supply enough accelerators to help meet the demand surge caused by the U.S. recall. Denso said it was still reviewing the situation and declined further comment.

($1=89.70 Yen)

(Additional reporting by Bernie Woodall, Soyoung Kim, Chang-Ran Kim, Kevin Krolicki and Nobuhiro Kubo; Editing by Lincoln Feast)