As of February there have been 37 deaths in 29 incidents related to “runaway Toyotas”. The world’s top car company has seen a number of its models including the Carolla, Camry and Highlander experience accelerator pedals jamming causing the cars to speed up uncontrollably without any way of slowing down.

In Washington Toyota CEO Akio Toyoda personally apologized to the United States and millions of Toyota owners for cutting corners in their safety department. The automaker, renowned for it’s reliability and safety, has had “it’s priorities confused” as stated by Akio Toyoda. Toyoda admits that in the company’s quest for growth during the past decade they have cut corners in regards to safety. The deaths have lead to widespread ridicule and a recall of over 8.5 million automobiles. Though the source of the problem is still debated.

Toyoda told congress that he is absolutely positive the problem of the sticking accelerators were not correlated to electronics but in fact a “misplaced floor mat” or a stuck gas pedal. However, outside experts are stating that a misplaced floor mat is unlikely the source of the problem and that the cars’ electrical systems are to blame. Toyoda has also announced that it is going to make changes to cars so that the brake pedal can override the car’s electrical acceleration unit, however this brings up the question as to why they didn’t consider this in the first place.

In addition to the recalls, the company is offering to cover all out of pocket expenses for transportation of its customers, free rental cars during repairs and will pick up the recalled vehicle for free. These efforts and more are being made to smooth over the effects of this enormous blunder but it still can’t stop the inevitable decline in sales Toyota is surely to continue experiencing.

Toyota’s Facing Major Repercussions

Compared to February of last year Toyota’s sales are down %9 while rival automakers such as Ford saw sales increased by as much as %43. GM, Honda and Nissan all experienced double digit growth as well compared to last year.

The source of this decline and the continued decrease in sales is due to the downward spiral in consumer confidence. Once reigning supreme in customer satisfaction in J.D.Power and Associates prior to this blunder, consumers absolutely knew what they were getting when buying a Toyota. However, deaths due to mechanical error and negligence in safety is a sure fire way to tarnish Toyota’s long standing reputation. Though many experts say it is much too soon to tell of the major impacts on Toyota’s image, it is certain that the company will have to earn back the publics trust and respect.

With incentives like two years free maintenance to returning customers and %0 financing the company is already trying to win back sales, but again the company’s most important task in the coming days is to win back the public’s trust and confidence.

According to Ward’s AutoInfoBank, Toyota’s U.S. market share fell to 12.8 percent - a figure said to be at its lowest level since July of 2005. With over 300,000 employees worldwide and nearly 40,000 employees in the US the company is going to have to make sacrifices to deal with the repercussions. In January Toyota already announced they were going to cut 1,000 full-time employees in the US alone to deal with increased costs, one can only imagine how many jobs will be lost due to this blunder. As Toyota’s presence in the U.S. continues to dwindle jobless claims will be on the rise as more and more employees are laid off.

Auto Market Share ~ WSJ

In addition, if the deaths of these incidents can be proven to be tied to an actual mechanical or electronic error on Toyota’s part; not only will the company be responsible to pay compensation to the families and victims but in the future any and all accidents can potentially be linked to the automakers fault. This leaves the door wide open for cut throat lawyers and people to point the finger at Toyota which in turn will potentially cost the company hundreds of millions of dollars and many more jobs.

The Securities Exchange Commission (SEC) voted 3-2 today for limits to be imposed on short-selling.  Under the new rules, short sales are prohibited (by a “circuit breaker”) when a stock falls by 10% or more.  The rule is imposed to prevent market turmoil.  According to Mary Schapiro, chairwoman of the SEC, “The reason this rule makes sense is because it recognizes that short-selling can potentially have both a beneficial and a harmful impact on the market.”  Her comment seems a little like a “yes and no”.  Let’s break it down.   Short-selling is beneficial as it allows for investors to bring overvalued stocks back to their “actual” value.  Short-selling is harmful when stocks are brought way below their “actual” value and investors trying to return the security to its “actual” value, by going long, are forced out of their positions.

The new rule may have some investors worried.  What if a stock really does decline by 10% in value in one day, I can’t profit from it?  Other investors may be upset as they understand the dynamics of a falling stock and now have had their “arbitrage” opportunity stripped away from them.  The politicians, however, are likely happy at the SEC’s divided decision.  The shocks and fear felt by a quickly declining stock (especially one with heavy influence [think Enron]) will not take hold as long as this rule is in place.

Investors got some comfort at least as Bernanke testified before Congress saying interest rates would remain low.  Financial stocks shot up on Bernanke’s words.

The Credit Card Accountability Responsibility and Disclosure (CARD) Act came into affect today.  Some of the new rules that will be facing credit card companies are listed below:

• Credit card issuers can no longer randomly increase interest rates and fees on existing balances.

• Issuers must give 45 days notice of any changes in card terms, and give cardholders who reject the new terms to pay off existing balances without penalty.

• Cardholders cannot be charged over-credit-limit fees unless the cardholder authorizes an over-limit transaction.

• Credit card companies must state their rules clearly and tell customers how long it will take to pay off their balance.

• Issuers cannot increase interest rates within the first year of a customer opening an account.

• The practice of “double-cycle” billing will no longer be allowed.

• Payments in excess of the minimum due must now be applied first to the credit card balance with the highest rate of interest.

• Interest cannot be charged when debt is paid on time.

• Issuers must get the signature of a parent or guardian when extending credit to consumers under the age of 21.

In my post “We Don’t Know When the Recovery Is” I examined consumer credit trends during the last year in light of JP Morgan’s losses on consumer credit.  The credit card companies have been aware of the coming changes and making all the moves they could (as a young adult with fairly new credit I’ve seen my rates skyrocket), but I don’t think it’ll be enough to ease their woes.  Even when consumer credit rebounds as the consumer gains confidence the new rules imposed on the credit card companies will cut into revenues.  We will see a trimming in the number of credit card companies in the industry as natural selection runs its course - cut costs or die.

GM named one of its top critics, Stephen Girsky, as its Vice Chairman for Business Strategy, effective March 1st.  Girsky used to be a high-up auto-analyst for Morgan Stanley.  Grisky has already been on General Motors’ board since the summer.  It’ll be fun to see if he can call the shots when the pressure’s on as well as he could predict/critique them.

United States industrial production rose by .9% in January.  The market had been forecasting a rise of .8%.  The increase beat December’s rise of .7% and was largely helped by manufacturing.  The manufacturing sector jumped 1% with a large portion of their jump attributable to the auto sector which realized a 4.9% increase.

The equities market found this news to be very promising as the S&P 500 closed up approximately .307%.

Industrial production wasn’t the only upbeat news today as housing starts rose 2.8% after December’s numbers were revised.  Interestingly, housing permits dropped 4.9% - possibly backlash from their 10%+ increase in December.  The winter months are known to not yield the best “view” of the housing market as cold, unstable weather makes it difficult for construction to continue.  January was not as cold as December, but I wouldn’t be surprised if housing starts pull back for February as February has been filled with snow storms for much of the nation.  Regardless, today was a “fair weather” for investors.

British Investment Bank Barclays Capital reported large U.S. banks have an exposure of $176B to debt ridden European countries.  73 US banks have exposure of $86B to Ireland, $68B to Spain, $18B to Greece and $8B to Portugal, according to Barclays.

The amount, however, is relatively modest.  The $176B is only 5% of total foreign exposure held by US Banks.  The data to compile the reports was from the Federal Financial Institutions Examination Council, a body dedicated to uniform principles and standards for examination and reports of U.S. financial institutions.

The European debt is still affecting banks, even if it is not a direct threat.  Bank spreads, the differences between the interest rate charged on loans and the interest rate given to depositors, have become very volatile as they are affected by broad market risk tolerance.  Broad market risk from the European debt is due to sovereign risk.