Engine problem is latest issue to dent automaker's reputation
Jeff Meckstroth's dispute with Toyota Motor Corp. might have ended quietly on March 1, 2001, when an arbitration panel unanimously agreed that Toyota was liable for the damage to the engine of his 2-year-old $37,000 Lexus RX300 sport utility vehicle.
Instead, it escalated. As the two Toyota representatives packed up their papers, they referred casually to other, similar cases they were handling. "Then we had our suspicions up that this isn't an unusual case, that Lexus knows about the problem, and has formed a response -- just deny, deny, deny," said Meckstroth, a 47-year-old New Orleans stockbroker. "We decided to sue."
His case mushroomed into a class-action suit representing prior and current owners of nearly 4 million Toyota and Lexus vehicles that may have suffered engine damage due to thickening oil, or sludge. It can accumulate and deprive the engine of necessary lubrication.
Toyota agreed last fall to settle the case but maintains that its engines were not defective. It said the settlement terms mirror a program to reimburse customers for sludge-related engine damage or repairs that it put in place in 2002. A Louisiana state court is expected to approve the settlement this week after a hearing today.
With engine replacements costing as much as $10,000, the final tab could run into the billions. But the damage to Toyota's reputation might be even more costly for the Japanese automaker.
Toyota is not the only automaker that has received complaints from consumers whose engines are damaged by sludge -- and the source of the problem and who bears responsibility are disputed issues.
But the high-profile case is the latest in a series of recalls and other signs suggesting that the Japanese automaker's quality controls aren't foolproof.
"It would be accurate to say that there have been enough issues with Toyota in the past couple of years that they don't have the spotless image they had a couple of years ago," said Karl Brauer, editor in chief of Edmunds.com, an automotive research Web site.
But he adds that problems at Toyota attract a disproportionate amount of attention because of the automaker's sterling reputation for quality. "Most companies wouldn't get noticed for these problems."
Further complicating matters, sludge issues aren't clear-cut. Excessive heat, sediment, poor oil condition or a combination of those factors may thicken the oil. In engines with very narrow passages, small amounts of sludge may get stuck, causing damage.
DaimlerChrysler AG's Chrysler Group and Volkswagen AG are among the automakers that have faced complaints about engine sludge in their vehicles.
"There are reasons to believe that the engine design could be contributing to it, but there are also reasons to think that lack of maintenance or proper customer care is contributing," Brauer said. "Everything I've read indicates something kind of in between."
Gary Gambel, an attorney at Murphy, Rogers, Sloss & Gambel in New Orleans, argued that Toyota's engines had a defect giving them a propensity to develop sludge.
But "the terms of the settlement and the settlement itself have no finding of defect in the product," Toyota spokesman Xavier Dominicis said. "They're not saying these engines are predisposed to sludge."
The settlement covers certain model years between 1997 and 2002 for the Toyota Camry, Solara, Avalon, Celica, and Lexus ES300 cars, and the RX300 and Highlander SUVs. The settlement amount "is tailored to what your damages are," Gambel said.
Toyota does not expect the rate at which customers are coming in for engine repairs in those vehicles or for compensation to change as a result of the settlement, Dominicis said.
Toyota remains among the quality leaders by any measure, but some question whether it can continue to grow rapidly and maintain top standards. Its sales targets suggest Toyota may overtake General Motors Corp. to become the world's No. 1 automaker this year.
In a recent interview, Yuki Funo, Toyota's highest-level U.S. Toyota executive, said he thought Toyota had "come through the worst period."
He noted that the company's U.S. recalls were lower last year than in 2005. "We are on the right track to get our arms around this issue, and I think we should see better signs in the future," Funo said.
Most experts say it takes years for brands to lose -- and restore -- their reputations.
"The sludge issue was a significant blow," said Art Spinella, president of CNW Marketing Research Inc. in Bandon, Ore. "Toyota's in the position that GM was in back in the 1970s. A lot of people were buying GM products in the '70s because they were GM products, but they had fractures at the edges. It took 15 years before GM started to suffer from that long-term negative word-of-mouth."
At Toyota, he said, "it's going to hurt them if they don't turn it around."
