Toyota Recall Already Denting Residuals, Resale Values

By Bengt Halvorson

Bengt Halvorson

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Some of the most respected companies that look at depreciation are predicting that Toyota (NYSE: TM) vehicles won't be worth as much as much as previously predicted when customers go to trade them a few years from now.

Yes, even the ones that aren't recalled. But how much they'll fall in value depends much on how well Toyota Motor Sales addresses the recall effort, sources agreed.

According to Automotive Leasing Guide spokesman Fernando Ubeda, the recall has already docked most Toyota products between a half and three-quarters of a percent in unrecoverable long-term value.

"So far the adjustments aren't very dramatic," Ubeda told TheCarConnection.com. "What's really going to affect values in the long term is how well Toyota approaches the recall."

Between the Toyota quality issues and the initial hit due to this recall, Ubeda says that Toyota products could potentially take up to a three-point reduction in their three-year residual. That could, for Toyota's more expensive products, like the 2010 Toyota Highlander, Sequoia, or Avalon, amount to more than $1,000 in the long run for those who plan to keep their vehicle for just a few years.

ALG had already adjusted Toyota values downward by about a percent across the board because the firm has seen that recent quality survey results—including the ALG's Perceived Quality Score—had started to affect the brand's reputation.

From an internal survey of 406 shoppers, Kelley Blue Book found that 46 percent had been considering a Toyota prior to the recent recall. Afterward, 21 percent of those who had been considering the brand dropped the Toyota from their consideration.

In that same Kelley Blue Book poll, 60 percent of Toyota owners erroneously thought that since their Toyota wasn't affected by the recall that it won't lose any value. ALG attributes some of a vehicles resale value to its brand equity, which will remain bruised for years due to this recall, even for vehicles unaffected by the recall.

Kelley Blue Book predicted a cumulative depreciation of 4 to 5 percent on used Toyota vehicles by the time the recall effort is complete—which could potentially lead to an increase in value for some vehicles that directly compete with Toyota models.

"A continuing focus on volume could signal that future recalls from Toyota will continue," KBB cautioned in its February market report. The company also predicted that inventories of used Toyotas would build, in a turn of event that could temporarily push down trade-in values.

KBB points to the building supplies of used Toyotas as a worrisome trend: "Additionally, as manufacturers such as GM, Chrysler, Ford, and Hyundai continue offering additional conquest trade-in credit for used Toyotas, the supply of unsellable used Toyotas will continue to grow."

Toyota is currently managing a recall that affects about 5.4 million vehicles in all, with 2.3 million covered for sticky-throttle issue, 4.2 million for a pedal-entrapment issue with floormats—with 1.7 million vehicles covered by both recalls. Toyota is reportedly working out the details of a third recall, affecting the brakes of the company's iconic Prius.

Toyota Recall: Everything You Need To Know

[USA Today]