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Toyota resale value, reputation fall from heights

/ Source: The Associated Press

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 Monday, 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 long seen as money in the bank for their owners.

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," says 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 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 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 on Tuesday.

Toyota Motor Corp. has so far recalled more than 8 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 says.

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,'" says Michelle Krebs, senior analyst for Edmunds. "Values will stay down for a bit. But Toyota's got really strong brand equity."

The news has unnerved more than a few consumers who had viewed Toyota as a bulletproof brand for quality.

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 says.

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."

Chuck Eddy, a Chrysler dealer in Youngstown, Ohio, said he's heard of other dealers refusing to take recalled Toyotas in trade, but said he'll still take them at reduced values.

Two auction houses, where dealers sell trade-ins if they decide not to keep them, have told his dealership that they won't take recalled Toyotas due to legal liability fears. Eddy says customers are nervous about buying Toyotas and the auction houses have further limited his resale options.

Despite the problems, many drivers appear to be sticking with the brand, however uneasily., which acts as matchmaker between buyers and sellers of car leases, says that of several thousand people on a waiting list to take over Toyota leases, fewer than 30 have canceled.

American drivers pushed Toyota's reputation to an unrealistically high level and now a natural adjustment will occur that benefits Ford and General Motors, says John Wolkonowicz, a senior auto analyst for North America at IHS Global Insight in Lexington, Mass.

Another recall beyond the Prius would be absolutely devastating for Toyota, according to Wolkonowicz.

"Toyota has a loyal corps of baby-boomer buyers who have owned Toyotas for decades," he says. "They're going to stand by Toyota unless they feel they'll look foolish for doing so. All hell will break loose if there's another recall."

Jack Fitzgerald, who owns 12 dealerships including two Toyota stores in the Washington, D.C., area, said he would buy every used Toyota he can get because he's confident they will retain their value.

Fitzgerald said the recall concerns are overblown and should pass quickly once Toyota gets the repair parts to dealers.

"I'm buying every one I can get," he said. "I can't wait for the village idiot to dump his Toyota for nothing. I can certainly make money on it."