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Toyota repair plan gears up; January sales to take hit

Investors gave an early blessing to Toyota Motor Corp.'s repair plan and attempt to restore its reputation. Now the question is whether customers will remain loyal and minimize any permanent damage from the auto maker's recall crisis.

Toyota's share price, rebounding from a selloff last week as the crisis erupted, jumped $2.94 (U.S.) or 3.8 per cent to $79.94 cents in trading on the New York Stock Exchange on Monday, as investors analyzed the company's response to a firestorm of negative publicity.

The debate about how much the crisis has damaged Toyota's reputation and whether any setback is temporary will rage on for months. But a freeze on sales of its most popular vehicles for up to two weeks has caused an immediate sales hit.

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Toyota Canada Inc. is expected to report Tuesday that January sales fell 13 per cent from year-earlier levels.

The full impact of the hit on January sales in North America will be revealed when Toyota and other auto makers release complete sales figures for Canadian and U.S. markets.

"Obviously, you're going to lose some customers forever," said Joe Phillippi, a long-time industry analyst who heads Auto Trends Consulting Inc. in Short Hills, N.J. "How many is anybody's guess."

The recall crisis has dented Toyota's long-standing reputation as the leader in quality and reliability among auto makers, while giving its rivals an opening to trumpet their own improvements in quality and potentially reverse the Toyota juggernaut that has carried it to global sales leadership.

The recall caused by sticky accelerator pedals has damaged Toyota because of the size - 2.3 million vehicles in North America and up to 1.8 million more in Europe - and the timing. It came after a recall late last year that was related to floor mats causing accelerator pedals to stick.

Dealers said showroom traffic has fallen off.

"Another recall would kill us," said one Canadian dealer who insisted on anonymity.

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But for now, Toyota is gearing up to begin fixing vehicles later this week with a steel bar to be installed into the accelerator pedal assembly. It will eliminate the excess friction that can cause pedals to stick.

"It's simple, it's also easy to install and it's durable," Toyota Canada managing director Stephen Beatty said.

Sales of recalled vehicles - which includes the Corolla, Camry and RAV4, the company's best-selling vehicles in Canada and the U.S. - could resume by this weekend, Mr. Beatty said.

He and Toyota Motor Sales USA president Jim Lentz went on television and held conference calls with reporters yesterday in a full-blown public relations offensive. The blitz ended almost a week of silence by senior North American executives after the company suspended sales of eight vehicle lines last Tuesday and announced a halt in production that began yesterday.

The media blitz continues Tuesday with full-page advertisements in most major Canadian daily newspapers, and is expected to include national television commercials.

Mr. Lentz said the company is "truly sorry" for causing its customers concern.

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But even as Toyota prepared to notify customers of the repair plan, two Canadian class-action lawsuits were launched, adding to several that have been filed in U.S. courts.

One Canadian suit comes from Regina-based lawyer Tony Merchant of Merchant Law Group LLP - which represented victims of residential schools in a massive lawsuit against Ottawa - and another filed by Joel Rochon of Toronto-based class action firm Rochon Genova LLP.

The representative plaintiff in Mr. Rochon's case is Steven Hamilton of Toronto, who bought a 2010 RAV4 on Dec. 16 for about $40,000.

Mr. Hamilton said in a statement of claim filed in Ontario Superior Court that his vehicle has not had sudden acceleration problems. But he says his dealer should have warned him that there was a defect before he bought it and demanded his money back, unsuccessfully, after news of the accelerator problems erupted last week.

The claim seeks $100-million in punitive damages from Toyota and parts maker CTS Corp., which made the parts at its plant in Mississauga.

In the other class action, Mr. Merchant says he has filed statements of claim in Ontario, Manitoba, British Columbia and Saskatchewan and is representing plaintiffs who have had sudden acceleration problems that caused accidents and minor injuries.

Neither lawsuit has been given the necessary green light by a judge to proceed. None of the allegations have been tested in court.

Mr. Beatty declined to comment on the lawsuits during a conference call.

Toyota will have to reverse the tide of bad publicity by making sure the process of repairing the vehicles goes smoothly, Mr. Phillippi said.

In addition, he said, "you take every customer with a car that's got a problem and you send them a certificate for $500, $1,000 to counter what GM, Ford and Chrysler and Hyundai have done already.

"How about extending their warranty for a year? Maybe longer than that."

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