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Drive Time: Don't Count Out Toyota

By Jessica L. Anderson, Associate Editor, Kiplinger's Personal Finance, Source: Kiplinger Consumer News Service

Talk about awkward. No sooner had Kiplinger's finished our annual vehicle buyer's guide -- with several Toyota vehicles named Best in Class, Best New or Best Resale winners -- than Toyota was in the news for huge recalls that affect nine of its models.

If you're thinking about buying a Toyota, contrarian as it sounds, the time to act is now. Prices on used Toyotas have taken a hit, but we believe that once Toyota's fixes are in place and the media attention dies down, long-term resale values -- a key component of our rankings -- will rebound and our picks will continue to offer superior overall value. At the same time, it would be shortsighted to trade in a Toyota while used-car values are depressed.

Toyota has a long history of quality and reliability. Over the past decade, Toyota has had fewer complaints per vehicle sold than all but three automakers, according to the National Highway Traffic Safety Administration.

But reports that Toyota was aware of the problems and stayed mum, prompting a public apology from Toyota president Akio Toyoda, have shaken customer loyalty. "It's not really a product problem," says James Bell, of Kelley Blue Book, which supplies our resale values. "It's an image problem. These statistically small problems have taken on a very large perspective."

Even Consumer Reports, which suspended its recommendations of the recalled vehicles largely because of the halt in sales, is in a forgiving mood. "We anticipate being able to reinstate the recommendations once we are satisfied that the problems have been remedied," says auto editor Rik Paul.

Grab a deal? Buyers in the market for new wheels have started to shun the brand, as well as sister nameplates Scion and Lexus. Kelley Blue Book predicts that new- and used-vehicle values will continue to soften as cars sit on dealers' lots.

That means lower prices for buyers, plus a lot more room to haggle. Kelley says that 2010 Prius models are selling for close to invoice price -- a $1,000 to $1,500 drop from sticker price. (Even used Prius models unaffected by recalls have seen a 1.5% drop in value.) Edmunds.com expects Toyota to offer goodwill incentives, probably on all its models. You may also get a sweet deal on a used Toyota. Kelley is reporting that used cars now on dealers' lots have sunk in value by as much as 4.5%.

Already a Toyota owner? Resist the urge to trade in your car, at least for now. Several manufacturers (including Chrysler, Ford and General Motors) are offering $1,000 rebates for Toyota trade-ins, but the lower trade-in value will likely erase your savings. The best thing to do is to get your vehicle fixed and wait a few months for values to settle before you decide whether to trade in or not.

Advice for owners. Recalls for two forms of unintended acceleration -- pedal entrapment by floor mats and sticking accelerator pedals -- affect eight models, and the company even temporarily suspended sales at the end of January. Then the 2010 Prius was added to the list of recalls -- for a software glitch that affects the braking system. Now the best-selling Corolla is being investigated for possible steering problems.

Toyota has begun mailing letters to owners of the recalled vehicles letting them know when to bring in their car for a fix. For more information on the recall, go to www.toyota.com/recall.

If your gas pedal sticks, Consumer Reports recommends that you put the car in neutral, so that no power goes to the wheels. Then apply the brakes steadily until you can stop the vehicle. Shut off the engine with the transmission in neutral and then put the car in park. Do not pump the brakes; doing so can deplete the vacuum assist and require stronger brake pressure. And don't turn off the vehicle until you've stopped unless absolutely necessary -- that can lock up the steering.

Ask Jessica a question at janderson@kiplinger.com, or write to her at 1729 H Street, N.W., Washington, DC 20006.

All contents copyright 2008 The Kiplinger Washington Editors, Inc.