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The Honolulu Advertiser
Posted on: Tuesday, February 9, 2010

Recalls drive down resale values of Toyotas

By Dave Carpenter
Associated Press

Hawaii news photo - The Honolulu Advertiser

Laura Benin is reluctant to drive her 2009 Toyota Corolla even after having its potential acceleration problem fixed.

ROBERT MECEA | Associated Press

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CHICAGO The Toyota in your garage is losing value by the week.

Kelley Blue Book dropped the resale values of recalled Toyotas for the second time in four days yesterday, leaving them as much as 4 percent or $300 to $750 lower than a week ago, depending on the model.

Recalls and a slow response to safety questions have put a dent in the market value of cars.

As values drop and safety issues keep surfacing, the world's No. 1 carmaker faces increasing risks that even long-steadfast customers will defect.

After all, a key factor in Toyota's rise to the top was its reputation for quality vehicles with high resale values. If its used cars no longer live up to their formerly lofty reputation, then getting buyers in the showroom may be harder and its long-time market strength could be in jeopardy.

"Toyota has fantastic loyalty, but this is definitely going to have a real erosion in that," said Juan Flores, director of vehicle valuation for Kelley, which just two months ago named Toyota the best brand for resale value.

The auto research Web site Edmunds.com estimates resale or trade-in values could fall up to 10 percent in the short term. How far they drop over the longer haul will depend on how long the confusion lingers.

Already, some dealers are refusing to accept Toyotas for trade while others are paying considerably less than they did just two weeks ago.

The latest reduction by Kelley reflects both Toyota's apparent lack of confidence in its vehicles and a dramatic drop in customer interest in Toyotas, according to Flores. It does not take into account a possible recall involving its prized Prius gas-electric hybrid over a brake problem, which news reports in Japan said was expected to be announced today.

Toyota Motor Corp. has so far recalled more than 7 million cars in the U.S., Europe and China over a sticky accelerator and floor mats that can get caught in the gas pedal.

"If the recall is expanded, we could see some further softening," Flores said.

Since the first recall for sticky accelerator pedals on Jan. 21, Edmunds' estimate for the trade-in value of a 2009 Toyota Camry has fallen by 4 percent to 6 percent to $13,967 while the 2009 Toyota Corolla has declined 6 percent to $11,233.

"My advice to a consumer would be 'If you don't have to trade one in, wait,' " said Michelle Krebs, senior analyst for Edmunds. "Values will stay down for a bit. But Toyota's got really strong brand equity."

Laura Benin, 34, of New York City chose a 2009 Corolla for her first car purchase a year ago because of Toyota's stellar reputation. Now she's reluctant to drive her car even after the potential acceleration problem is fixed, but knows this is a bad time to try to sell it.

"It's a little bit scary to think the car with the greatest reputation for safety is in the situation it's in now," she said.

Those who are anxious to sell without waiting for a value rebound can turn to the Japanese automaker's rivals. GM, Ford and Chrysler all have announced similar programs that involve offering $1,000 in incentives to Toyota owners who buy their vehicles.

Car dealers are also facing uncertainty.

At River Oaks Chrysler-Jeep in Houston, general manager Alan Helfman told his used car manager to knock 30 to 40 percent of the book value off any recalled Toyotas or Prius hybrids traded in.

"You've got to get them fixed," he said. "You've got to take them in at greatly reduced value."