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Toyota faces tough road to redemption after grilling


The logo of Toyota Motor Corp's is pictured outside Tsutsumi plant, where the Prius hybrid is assembled in Toyota, central Japan February 8, 2010. REUTERS/Yuriko Nakao
The logo of Toyota Motor Corp's is pictured outside Tsutsumi plant, where the Prius hybrid is assembled in Toyota, central Japan February 8, 2010. REUTERS/Yuriko Nakao

By Taiga Uranaka and Nobuhiro Kubo

TOKYO/WASHINGTON (Reuters) - Toyota Motor Corp's president apologized to U.S. lawmakers and ended the day in tears, marking a potential climax to his company's safety crisis but leaving it with a long road to rebuild its reputation.

Akio Toyoda, peppered with questions about its massive series of recalls, told lawmakers he was "deeply sorry" for accidents and injuries involving its cars and acknowledged it had lost its way in its pursuit of growth.

Investors, who have knocked about $30 billion off its market value in the past month, appeared to view Toyoda's hearing as a small step forward in what could be a difficult task of recovering the trust of consumers.

"I think Toyoda did a good job, and its stock price shows the market shares the same view," said Kazutaka Oshima, president of Rakuten Investment Management in Tokyo.

"He should have come forward earlier, but his sincere attitude was understood by the audience. I would guess the flow of negative news on Toyota has reached a peak."

Toyota shares ended down 0.2 percent in Tokyo on Thursday, failing to match the 3.9 percent rise in U.S.-traded shares, but outperforming a fall in rivals Honda Motor and Nissan Motor, and the broader Tokyo market.

Cheered by Toyota plant workers and dealers at an event organized by the automaker on Wednesday evening in Washington, Toyoda broke into tears under a giant display bearing the name of the company that his legendary grandfather founded.

"I believe that Toyota has always worked for the benefit of the United States," Toyoda said. "I tried to convey that message from the heart, but whether it was broadly understood or not, I don't know."

He also offered a sober assessment of the challenges still ahead: "We at Toyota are at a crossroad. We need to rethink everything about our operation."

Toyoda's appearance in Washington marked a dramatic peak in a safety crisis that broke a month ago with a series of recalls over unintended acceleration and braking problems that now include more than 8.5 million vehicles globally.

MARATHON

Politicians in Japan continued to express worries about the potential fallout from the crisis. Toyota, with a market value of about $125 billion, is at the heart of a massive supplier network that is vital to the economy's health.

"It was good that the Toyota president himself appeared before the panel and testified," Prime Minister Yukio Hatoyama told reporters in Tokyo on Thursday.

"I don't think this marks the end of everything. He spoke of working to make improvements. This is a matter involving cars -- that affects people's lives, so the important thing is to pay close attention to safety and to fulfill its aim to make improvements where they are needed. I'm hopeful and I think they will do so."

But some warned that Toyota's woes have just begun and that people in Japan, far from the center of the crisis, may be underestimating the potential long-term impact.

"In Japan, many think Toyota's damage from the recalls will be relatively limited in the hope of not hurting the Japan-U.S. relationship, but the reality is very severe," said Koji Morioka, economics professor at Kansai University in western Japan.

"At the hearing, some serious flaws in the company's corporate governance came to light, including that Toyoda had not been aware of key pieces of safety-issue information until recently," he said.

The costs of the recall are set to grow with an agreement with New York state to speed customer repairs and provide alternative transportation, a pact likely to expand to other states.

Toyoda's efforts to reassure U.S. officials and consumers were undercut by a confrontation over a 2009 memo in which Toyota boasts of saving $100 million by persuading safety regulators to accept a relatively cheap recall of floor mats implicated in the unintended acceleration.

U.S. Transportation Secretary Ray LaHood, who preceded Toyoda before the committee, simply labeled recalled Toyota vehicles as "not safe."

Dressed in a gray, pinstripe suit, Toyoda said he, more than anyone, wanted Toyota cars to be safe. "My name is on every car," he said in English before using an interpreter to answer questions.

But Toyoda rejected the possibility that some of the acceleration problems are in the electronics rather than the recalled sticky accelerator mechanisms and floor mats that can trap the accelerator pedal.

Chris Gidez, director of risk management and crisis communications at Hill & Knowlton, said Toyoda gets points for coming from Japan to testify and judgments will not be made in just one hearing. "This is going to be a marathon for Toyota."

In its hometown of Toyota City, anxious employees rallied behind their president.

"There were some tough questions, but I think he answered them earnestly," said Shingo Mori, who works at Toyota's Kamigo Logistics Center. "Now we all need to work together to meet our customers' needs and try to regain the trust that we've lost."

FIVE DEATHS

The unintended acceleration problems have been linked to five U.S. deaths, with 29 other fatality reports being examined by U.S. authorities.

Representative Paul Kanjorski, a Democrat from Pennsylvania, warned Toyoda that his company would have to pay for the deaths and injuries as U.S. lawsuits mount. "You will be called upon to pay compensation," Kanjorski said.

Rep. John Mica, a Florida Republican, called it an embarrassing day for regulators and for Toyota.

"I'm embarrassed for you, sir," Mica told Toyota's North American President Yoshimi Inaba, who was testifying with Toyoda. "I'm embarrassed for the thousands of Americans who work at 10 plants across the United States."

Toyota now faces a criminal investigation and a securities probe in the U.S. as well as unresolved questions about hundreds of incidents of unintended acceleration reported by consumers.

The FBI raided the Detroit operations of three Japanese suppliers of electronic components to the auto industry on Wednesday. Denso Corp confirmed the raids were unrelated to the Toyota recalls.

Other automakers are dealing with recalls as well.

Nissan said on Thursday it would recall 76,415 cars across 10 models in Japan due to a possible defect that may cause engine failure, and another 2,300 for the same problem overseas.

Suzuki Motor said it would recall 432,366 units of two minicar models in Japan.

Toyota has promised internal reforms, including a new committee on safety chaired by Toyoda himself.

Jim Press, a former North American chief for Toyota who left in 2007, said the company had become dominated by "anti-family, financially oriented pirates" and needed Toyoda at the helm.

"Akio Toyoda is not only up for the job, but he is the only person who can save Toyota," Press wrote in an e-mail to industry publication Automotive News.

Toyoda, who took just a few questions from reporters, only appeared to relax at the evening rally organized for Toyota dealers and workers.

One woman who works in a Toyota plant in Alabama, building engines, asked him what she could do to help the company in its crisis. "Let's make a better car," Toyoda said, breaking into English.

(Additional reporting by Kevin Krolicki and Kim Dixon in WASHINGTON; David Bailey and Bernie Woodall in DETROIT; Hideyuki Sano, Taiga Uranaka and Yoshifumi Takemoto in TOKYO; Yoko Nishikawa in TOYOTA CITY; Writing by Kevin Krolicki and Nathan Layne; Editing by Lincoln Feast)

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