Auto Dealers Expedite Repairs After Toyota Recall

Experts say setback won't have long-term effect on automaker

20070514-toyota-logoLast week, Toyota announced the recall of some of its most popular vehicles. The Japanese automaker shut down factory production lines and told dealers to stop selling prime inventory on their lots.

The Camry, Corolla, Highlander, RAV4, and Tundra account for 60% to 70% of the Toyota sales for Benton Harbor, Michigan-based Signature Automotive Group (No.70 on the B.E. Auto Dealers list with $21.337 million in sales).

“This is probably the most significant auto recall in recent history,” says John Wolkonowicz, senior auto analyst for Lexington, Massachusetts-based IHS Global Insight. That’s because it concerns the safety of products from a company whose reputation is built on bulletproof safety and reliability.

The recall, however, may not turn out to be a disaster for BE100s dealers. Much of what they lose from sales of new and used cars will be made up by the estimated $150 to $200 they will earn from service work they will do to each recalled vehicle, Wolkonowicz says. About half of a typical car dealership’s profitability comes from its parts and service department.

During the first week of February, Toyota is shipping pedal upgrade kits to dealers around the country. Dealers will modify cars that have already been sold or that are on their lots. “My service department will perform the fix on these cars,” says Winston R. Pittman Sr., CEO of Louisville, Kentucky-based Winston Pittman Enterprise (No. 8 on the B.E. Auto Dealers list with $203.633 million in sales), which owns Chatham Parkway Toyota in Savannah, Georgia. “We are scheduling people to work around the clock seven days a week to get our customers in and get them back on the road. We don’t want any doubt in our customers’ minds when they are traveling out there, so we want to get it fixed as soon as possible.” His Toyota dealership has received many inquiries from customers about what they can do and what to expect from their cars. “Most of our customers haven’t had a problem,” he says.

Winter is a very slow auto sales season. Still, the January 27 recall hit at the worst time for that month. Pittman says two-thirds of his sales are in the final week of any month, so the recall will affect the store’s profitability.

“There is never a good time to be short on Toyota product,” says Joe Briglia, service and parts director of Landers McLarty Toyota in Fayetteville, Tennessee. The dealership is part of Robert L. Johnson’s Bethesda, Maryland-based RLJ McLarty Landers Auto Group (No.3 on the B.E. Auto Dealers list with $410.25 million in sales). “We have been advised that the counter measure should be coming very soon,” Briglia says. “Toyota quality is top-shelf and will continue to be. Our customer base has been very understanding as we advise them of information we have. Together with Toyota, we are sure this will be brought to a speedy resolution.”

Will dealers be able to get loans for operating expenses? “Although no formal announcement has been made by Toyota, [the company] is looking at mechanisms such as providing floor plan assistance as a way to ease the financial burden on the dealers until they are able to sell the vehicles again,” says Damon Lester, president of the Lanham, Maryland-based National Association of Minority Automobile Dealers (NAMAD).

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