Treasury is failing to force banks to lend, warn MPs
Government efforts to boost lending not working, says Commons committee
Sarah Arnott - The Independent
Britain's bailed-out banks are still not lending to cash-strapped businesses and there is little the Treasury can do to improve the situation, a group of MPs will warn this morning.
Having stepped in with £850bn of support for the teetering financial system last year, the Government succeeded in maintaining stability and securing retail deposits, a report by the House of Commons Public Accounts Committee (PAC) will say. But the ultimate cost to the taxpayer is still uncertain and attempts to use public ownership of large amounts of a bank's equity to force it to increase lending are not proving successful, according to Edward Leigh, the Tory MP who chairs the all-party committee.
"The poor performance of the bailed-out banks, most notably Royal Bank of Scotland (RBS) and Lloyds Banking Group, in meeting commitments to lend to struggling businesses has occasioned widespread dismay," Mr Leigh said. "The Treasury does not seem to know why the banks are not lending, and has few sanctions available to make them change their minds."
When further lending commitments are put in place for the next financial year, the Treasury should use a better understanding of changes in borrowing patterns to devise "effective and enforceable sanctions if the banks continue to fall short of their commitments", the committee says.
Government bailouts last year left taxpayers owning 84 per cent of RBS and 43 per cent of Lloyds. According to targets fixed last March under the terms of the Asset Protection Scheme (APS), which offers insurance against losses on potentially toxic assets, RBS was expected to raise its net lending by £9bn in mortgages and £16bn in business lending this year; Lloyds's target is £3bn for mortgages and £11bn to business. But it emerged before Christmas that neither of the two banks are on track to fully meet their lending commitments. Both institutions claim their mortgage targets will be met, helped in part by the retrenchment of some international banks, but business lending is sluggish.
The banks maintain they are a victim of circumstances – they insist that they have massively increased lending as directed, but any net gains have been swallowed up by a rush of businesses paying back their loans, which is usual in a recession.
"That the targets are not being met is more about the way the targets have been set up than about us not lending," one banking insider said yesterday.
But owners of small businesses have often complained they are still finding it hard to obtain support from banks. In August, the Federation of Small Businesses warned that a quarter of its members were still struggling to access affordable finance, two years after the credit crunch started and six months after the APS was introduced.
The Treasury denies the accounts committee's suggestion that it does not know the true picture and has little control in any case. In an effort to bridge the gap between banks' claims and those of the business community, it has forced lenders to publish a "consumer charter" proving that the terms and conditions on offer are not artificially depressing demand.
But the outcome of the measure is still being evaluated and further data will not be available until the banks report results for the current quarter.
The PAC report also notes that the Treasury has been "extremely stretched" in dealing with the responsibilities of the credit crunch, and that the department should now examine whether its own expertise is sufficient without it continuing to rely on external advice.
It also criticises the Chancellor's failure to notify Parliament for 13 months of an £18bn indemnity to the Bank of England against potential losses from the emergency support to RBS and HBOS. Mr Leigh described the issue as "of significant constitutional importance".
Capitalism won't die. It will only emerge stronger
Myners argues bonuses are bleeding pension funds
Helen Power - The Times
Lord Myners will renew his attack on institutional investors this morning, telling them that an excessive bonus culture in the financial services industry is hitting British pensions.
The City Minister, who wrote to big shareholders last month demanding to know what they planned to do to limit bankers’ bonuses, will use a speech to the National Association of Pension Funds (NAPF) to emphasise that the real losers in the failure of institutional pension funds to control bonuses are the funds’ own clients.
The NAPF and other industry bodies have fought back against the Government’s criticisms that they helped to cause the banking crisis by being “absentee landlords” in the groups in which they hold shares.
The association will launch a new governance code this morning that will urge pension funds and other institutional investors to engage more actively with boards in order to promote better standards.
David Paterson, the NAPF’s head of corporate governance, said: “These initiatives aim to promote a stronger corporate governance culture and thus help to protect and enhance the value of the investments that funds oversee on behalf of their members.”
Lord Myners will tell the NAPF that the reason financial services businesses have cut dividends in recent months is that they are spending too much on bonuses. Over the past ten years, he will add, pension fund investments in the sector have yielded nothing for their customers.
The City Minister will say that companies should be run for the benefit of their owners, not for their highly paid employees. One of the Government’’s biggest problems is with Royal Bank of Scotland, which is in discussions with the Treasury about a bonus pot that could reach £1.3 billion.
The storm over executive pay appears to be moving on from the banks. Grainger, the property group, faces a shareholder revolt tomorrow over a multimillion-pound payoff to Rupert Dickinson, its outgoing chief executive. Both the Association of British Insurers and Pirc, the investor consultancy, are advising shareholders to vote against the £2.9 million payment, equating to six times Mr Dickinson’s salary, at the company’s annual meeting.
The company said: “The payment to Rupert was made strictly on legal advice and consisted of unpaid salary in lieu of notice and accrued but unpaid bonus for past performance, together with a payment to meet the company’s legal responsibilities.”
Wednesday’s vote could be close, as 20 per cent of Grainger’s shares are held by one institutional investor, Schroders, and the turnout at an AGM is usually only 60 per cent. Schroders declined to comment, but a source said that it would be hard for the fund to vote in favour of a remuneration report condemned by corporate governance experts.
Greek crisis intensifies as Joe Stiglitz calls for Europe to 'teach the speculators a lesson'
Edmund Conway - Telegraph
Pressure on the Greek government to put its books in order or face a bail-out intensified as investors continued to flee its debt, pushing the country further towards a possible debt spiral.
Yields on Greek debt rose by 14 basis points, as investors digested the fact that G7 and eurozone finance ministers refused at their weekend summit to provide more detail on a rescue package for the troubled economy.
Alongside Portugal, Spain, Italy and Ireland, Greece has been the focus of widespread market selling over the past few weeks, with investors fearing the countries may be unable to repair their balance sheets alone. The interest rate on Greek 10-year benchmark debt is now 6.75pc, compared with fellow euro member Germany’s rate of 3.14pc.
Suspicions that the Greek crisis could give way to a full-blown attack on the euro have been reinforced as it emerged that currency speculators have increased their bets against the currency to the highest level since its creation.
Contracts on the Chicago Mercantile Exchange (CME), a closely-watched speculation barometer, showed that in the past week net short positions against the euro rose from 39,500 contracts to 43,700 – worth €5.5bn ($7.5bn). Greek prime minister George Papandreou has characterised the behaviour of capital markets, which have put a rising premium on interest rates to his government, as part of a broader speculative attack on the currency.
The CME figures will spark fears that, much like George Soros in the early 1990s, hedge funds will lay siege to the single currency. Since Greece, Portugal, Spain and Italy, all of whom are facing similar issues, cannot devalue or inflate their way out of the crisis, economists suspect that they will have to receive assistance from other euro nations to avoid inflicting cuts of unprecedented ferocity on their economies.
Economist Joe Stiglitz, who is advising the Greek government, last night denied that the country would require a bail-out, and urged national authorities to intervene in markets to "teach the speculators a lesson". Likening the situation to the Asian financial crisis, in which even healthy economies were targeted as hedge funds and investors withdrew from the region, he told the Sky's Jeff Randall Live show: "The speculators will always look for the weakest link. What they're doing now is a version of the Hong Kong double play in 1997 /1998.
"What Hong Kong did in response was to raise interest rates and intervene in the stock market. They burnt the speculators and Europe needs to do the same thing."
Numbered accounts profit from bank crisis
Nicole della Pietra - Swissinfo
The fabled numbered Swiss bank account is shrouded in mystery – a mystery scarcely less deep than that surrounding their holders' identity.
Bankers shut up like clams at the mere mention of these accounts, as swissinfo.ch discovered. Questions about how many there might be, or what kind of person opens one, get short shrift in Geneva, Zurich or Lugano.
In the public imagination they are associated with spies, scandals and slush funds – quite undeservedly so, according to bankers.
“These accounts are subject to exactly the same duty of diligence as any other banking relationship,” UBS spokesman Dominique Gerster told swissinfo.ch.
“We are obliged to know the origin of the funds and the identity of the beneficiary. If we receive a legal request, we can supply the authorities with information, just as we can for any other account,” he said.
“We always know the identity of our clients, whether the account is a numbered one or not,” said Jan Vonder Mühll, head of media relations at private bank Julius Bär in Zurich. But more he would not say.
If a numbered account does not provide total anonymity, the fact remains that all documents containing the client’s name and address are placed in a safe and only a very limited number of authorised bank officials have access to it.
“A colleague from another branch of our bank couldn’t discover the identity of a client who has an account with us,” an asset manager at the Ticino branch of a cooperative bank told swissinfo.ch.
In contrast to other kinds of accounts, there is no database matching the name of the holder and the account number. “This gives extra protection to the client’s privacy,” he explained.
Last bastion of liberty
Even if the accounts are not – quite – as secret as the public likes to imagine, they are evidently still attractive to some.
“This is one of the last areas where there is still a little bit of freedom in the face of increasing regulation of banking activities,” said Chantal Bourquin, head of communication for the Association of Swiss Private Bankers (ASPB). “That explains why financial institutions are still keen to be discreet.”
James Nason, spokesman for the Swiss Bankers Association in Basel, laughed off the mysterious reputation of such accounts – after all, all accounts have numbers, he joked. But he was no more ready to spill the beans than any of the banks when it came to specific questions.
Increasing demand
Even if no one was prepared to give facts and figures, it seems that these accounts are more popular than ever, thanks to recent cases where whistleblowers have revealed the names of suspected foreign tax evaders to their home governments.
“Foreigners are now going for numbered accounts as a precaution, although this kind of banking was already highly valued by wealthy clients in the past,” said the Ticino asset manager, whose bank has benefitted from the flight of funds which weakened some of the major banks.
“There’s no doubt that given the attacks by the Italian government in particular, or to ensure that their details do not fall into the hands of some untrustworthy bank employee, our customers are becoming more and more demanding as far as confidentiality is concerned. And there is nothing better than a numbered account to respond to their expectations,” he explained.
Representatives of the other big banks approached by swissinfo.ch would neither confirm nor deny these remarks. Nason did admit that there could be a trend in this direction but did not say whether the members of his association were already benefitting.
Who needs anonymity?
It is not only for tax reasons that a numbered account can be attractive. In cases of divorce, inheritance or even blackmail it gives the holder additional protection. If there is a court case, the plaintiff has to name the bank where he believes the funds in question are held before proceedings can go ahead.
And that is a major advantage for potential victims of blackmail, such as politicians or celebrities.
Most bank orders pass through several hands within a bank and any bank slip normally includes the client’s name and address, but a numbered account avoids these risks.
It’s a protection which comes at a price, as Nason explained: the administrative procedures are more complicated, and as a consequence the costs are higher.
So most of us will never be any the wiser about them.
UK sales fall prompts fears of 'double-dip' recession
Edmund Conway - Telegraph
Fears that Britain may already be succumbing to a "double-dip" recession materialised as it emerged that 2010 opened with the worst January for the high street since comparable records began 15 years ago.
The VAT increase and unprecedented blizzards last month contributed to a sudden and unexpected collapse in retail sales, according to the British Retail Consortium. Its sales monitor registered a 0.7pc drop in like-for-like sales last month, compared with a year before – the steepest January fall since the survey began in 1995, and in stark contrast to economists' expectations of an increase of 0.5pc.
The figures come amid concern about Britain's capacity to finance itself in the international capital markets, with the spread between interest rates on benchmark UK gilts and German bunds widening, and arrive only days after the Bank of England signalled an end to its Quantitative Easing programme.
January is among the most important retail months, with New Year sales boosting earnings, even throughout most of the crisis. Stephen Robertson, director general of the British Retail Consortium, said the figures represented "An awful start to the year and [a] stark contrast to an upbeat December.
"This is the worst January sales growth in the 15 years we've been running the survey," he added. "The VAT change brought some sales forward to December, but customers are becoming cautious again in the face of economic and political uncertainty. Retailers will be hoping these results are mainly a snow-induced blip, rather than an indication of further difficulties."
However, the figures come alongside a growing tide of disappointing news on the economy. The Office for National Statistics reported late last month that the UK economy grew by a mere 0.1pc in the final quarter of the year, and, in contrast to the BRC, said that retail sales in December remained disappointing. With the temporary VAT tax cut having been withdrawn and the car scrappage scheme finishing at the end of March, economists put a significant probability on Britain dipping back into contraction early this year.
Howard Archer, economist at IHS Global Insight, said: "Households face still very challenging conditions, including high unemployment, still markedly falling full-time employment, low earnings growth, high debt levels, and January's VAT hike. Meanwhile, still serious concerns about the economic outlook and jobs are likely to maintain consumers' desire to improve their personal finances."
In light of the subdued economic news, David Cameron has apparently softened the Tories' language on spending cuts, proposing that any reductions in the deficit in the first year of a Conservative government need not be "extensive", amounting to little over £1bn.
However, this has further undermined the government debt market, with investors worried that without further deficit cuts, the Government could fall victim to a sudden increase in its funding costs.
Mother of all carry trades faces an inevitable bust
Forget cuts and keep spending, Brown told
Fiscal stimulus is more important than reducing deficit - Joseph Stiglitz
Sean O'Grady - The Independent
One of the world's leading economists has urged Gordon Brown to reject "fiscal fetishism", defy the markets and maintain, or even extend, the fiscal stimulus of the British economy.
Joseph Stiglitz, who won the Nobel Prize for Economics in 2001 and has served as chief economic adviser to President Clinton and chief economist at the World Bank, warned that the financial markets were like a "crazy man" that could not be appeased with cuts to public spending.
"You're dealing with a crazy man. You're asking what I can do to placate a crazy man? Having got what he wants he will still kill you," he said.
In an exclusive interview with The Independent, Mr Stiglitz rejected the idea, put forward by David Cameron, that some symbolic trimming of the budget deficit in the current year might regain the confidence of the financial markets. He also said that it was "unconscionable" for the ratings agencies to threaten to downgrade Britain's creditworthiness, given their poor record in the crisis. "Fiscal fetishism is really dangerous," he said.
If the financial markets refused to buy British government bonds, or gilts, as Mr Cameron has suggested they soon might, the Bank of England could buy them instead, Mr Stiglitz said, as it did during its recently paused programme of quantitative easing, which mopped up about £200bn of gilts.
His intervention adds to the growing criticism of Mr Cameron's economic policy and will be seized on by Gordon Brown as evidence that Labour's policies are being backed by the world's leading economists.
Mr Stiglitz said that Mr Brown should make plans for how he might administer a further boost to the economy, in case the economic recovery proved to be even slower. "The likelihood is of a marked slowdown from current growth, which is very weak," he said. "Whether that means negative territory or stagnation will depend on what the Government does. If there is a premature withdrawal of stimulus it is more likely that there will be a 'double dip'."
He added: "You want to show a sensitivity towards the deficit but also sensitivity towards the timing [of a withdrawal of stimulus], and the fact is that recovery is not robust."
Mr Stiglitz said that European governments should offer the Greeks and other economies currently "under attack" much more support, to help restore confidence in their efforts to restore stability and help prevent the financial crisis spreading.
Mr Cameron has argued that comparatively small, but immediate reductions in public spending and the budget deficit, perhaps as small as £1bn out of a total deficit of around £175bn, could persuade the markets that an incoming Conservative government was getting the public finances under control. Mr Stiglitz however, stressed the continuing threats to recovery. The UK has emerged more slowly and more feebly than any other advanced economy from recession, and must be presumed to be the nation most at risk of a relapse into recession.
Mr Stiglitz, who dined with the Prime Minister and the Chancellor yesterday evening, said that the current Obama plan to break up the banks and restrict their ability to undertake proprietary trading – that is, trading on their own accounts – "doesn't go far enough". He criticised the US President for "muddling through" his response to the financial crisis, but said he was encouraged by the most recent developments in reforming regulation. However Mr Obama wants to extend the scope of US financial regulation both in the US and abroad to encompass the types of securities that are traded. Some especially complicated securities – which the boards of the banks that issued them famously couldn't understand – were held to be partly at fault for spreading and escalating the scale of losses seen during the credit crunch.
The boost to the US economy from President Obama's near $800bn package of tax breaks and public spending plans was also criticised by Mr Stiglitz for taking insufficient account of the decline in spending by individual states, which he argues has negated much of the federal initiative.
The British Government, which has rejected the Obama plan, was nonetheless warmly praised by Mr Stiglitz for its record: "What Brown has done in terms of banks so far is far better than what the US did; he demanded better compensation for providing money, better accountability, better attempts to restart lending, than in the US."
Guided by an invisible hand
Biggest Boeing 747 takes off a year late
Boeing's giant 747-8 freighter, due to enter service late this year, will target Airbus in the air cargo transport market
Mike Harvey - The Times
Boeing's
biggest jumbo jet has taken off for its maiden fight as the
company targets competitor Airbus in the air cargo transport market.
The giant 747-8 freighter
rumbled down the runway and into the clouds
above Seattle a year late, a delay which has already cost Boeing more
than $1 billion in charges.The freighter version is due to enter service late this year. The first delivery was to have been in late 2009 and the first passenger version, dubbed the Intercontinental, in late 2010, but Boeing pushed back the dates due to design changes, limited engineering resources and an eight-week strike that shut down factories.
The plane, which Boeing hopes will corner the high-capacity, long-haul air cargo market for the next 20 years, took off for its test flight from Paine Field in Everett, north of Seattle.
The massive freighter jet is a stretched version of the current 747-400 jumbo jet. At 250 feet long with a wingspan of 225 feet, the freighter has a payload of 295,200 pounds, or 133.9 tons. Boeing introduced the first version of the 747 jumbo jet more than 40 years ago.
Boeing's new plane faces slack customer demand amid a sharp industry downturn due to the recession. Cargo traffic has just suffered its steepest decline in history — down 10 per cent in 2009 compared with the previous year, according to the International Air Transport Association.
Boeing has only 76 orders for the freighter and 32 for the 747-8 passenger jet. The jet has a list price of more than $301 million, though airlines commonly negotiate discounts.
The company has admitted that making the plane profitable will be "a huge challenge". Boeing took a $1 billion write-down on costs associated with the program in October. Marketing vice president Randy Tinseth said last week: "After taking the charges, we still believe that there is a strong demand for the airplane. It is a good case, but clearly not the business case that we expected, when we launched the program".
The company said the 747-8 will be much quieter, more fuel efficient and have lower emissions than current 747-400 models. The plane has a new aerodynamically efficient wing, updated flight-control avionics, and new GE engines. Operating costs will be 16 per cent lower than the current 747-400.
After completing the test program, the first freighter will be refitted and delivered to Cargolux of Luxembourg which has an order for ten planes.
The 747-8 freighter and passenger jets are smaller than the Airbus A380 counterparts, which Boeing has touted as an advantage. It says the planes will cost less to operate than A380s and will be able to serve more markets.
The 747-8 passenger version will carry up to 467 people in three classes, with a range of just under 7,000 miles. Boeing says assembly of that plane is to begin around mid-2010, with the first delivery in the fourth quarter of 2011.
Meanwhile, Boeing is racing to complete tests of its long-delayed 787 Dreamliner in time for scheduled fourth-quarter deliveries. The revolutionary lightweight plane finally took to the air in December last year.
Boeing has taken about 851 firm orders for Dreamliners from more than 50 customers around the world. But analysts believe that the production schedule is ambitious for a totally new plane and they expect further delays.
A delivery delay for the 787 would hinder significant cash flow for the world's second largest plane-maker after Airbus. It also would further sully Boeing's reputation, which took a beating in the last two years as Boeing repeatedly put off the first Dreamliner test flight. Boeing has invested more than $10 billion in the project and will have to give some sort of compensation to customers for late planes.
Aerospace analyst Alex Hamilton said: "Will it come as a surprise if that schedule slips? I don't think so. I think it's a well-accepted fact that it's likely to slide."
The 787 Dreamliner promises greater fuel efficiency through the use of durable, lightweight composite materials and would use 20 per cent less fuel for comparable missions in similarly sized airplanes.
Capital One doubles credit card rates
Capital One has nearly doubled the interest rates it charges some of its credit card customers, it has emerged.
The group, which has imposed rate hikes of up to 7pc on credit card holders, blamed the move on the "economic environment".
Some people have seen the interest they are charged on outstanding balances jump from 8.01pc to 15.31pc.
The rate increases will come into force after customers receive their March statements, with the new interest rates shown on their April ones.
The group declined to say how many of its customers were affected by the move.
A Capital One spokeswoman said: "The economic environment has changed dramatically and we must adjust rates to account appropriately for the increased risk of lending to consumers in an economic downturn.
"This significant downturn means that we have had to increase rates for some of our customers by up to 7pc.
"This decision reflects similar moves throughout the credit card industry."
But the group is giving customers who do not want to accept the rate increase the choice of staying on their existing interest rate but no longer using their credit card, and instead gradually repaying the balance.
Halifax has also increased the rates it charges some of its credit card customers by up to 5pc.
The group, which reviews customers' rates on a monthly basis, said some people had seen their rate increase, while others had had it cut.
But it stressed that the changes affected only a small number of customers.
A Halifax spokesman said: "In common with other credit card issuers, we continuously review our pricing structure and will adjust interest rates on cardholder accounts from time to time.
"We do this for many reasons including market and competitor conditions as well as risk based assessments which reflect a customers individual circumstances. As part of this activity rates will go down as well as up."
The interest rates charged on credit cards have been steadily increasing during the past year, as providers factor in the increased risk of customers defaulting on their debt.
The average rate charged on a credit card had reached 16.25pc by the end of December, up from 15.58pc 12 months earlier and the highest rate since October 2006.
The UK Cards Association estimates that 6.4 million credit card customers had the interest rate they are charged increased between January and October last year.
Married couples pay a third more tax in Britain than other OECD countries
Kirsty Walker - Daily Mail
Married British couples on modest incomes pay a third more in tax than their counterparts in other countries, a report reveals today.
The proportion taken from middle-income families has more than doubled in 40 years, despite having stayed the same for single people, it says.
It adds that Britain is almost 'unique' among developed countries in not recognising marriage in the tax system.
The report, from the Christian social policy charity CARE, found that families where one parent stays at home are worst hit.
A one-earner married couple with children, earning up to £33,000 a year, pays almost one third more tax in the UK than the average in the 30 countries in the OECD, and 18 per cent more than the EU average.
There are two and a half million such families in Britain. In the U.S., a one-earner married couple pays 48 per cent of the tax paid by a single person with no family responsibilities. But a comparable couple in the UK pays 75 per cent.
Leonard Beighton, co-author of the 'Tax Burden on Families' report, said Labour's refusal to recognise the family in the tax system was 'damaging the social fabric of the country and must be addressed by an incoming government.'
Dan Boucher, CARE's Director of Parliamentary Affairs, added that the system was 'trapping children in poverty'.
The report comes as the Conservatives and Labour trade blows over tax breaks for married couples. David Cameron has made recognising marriage through the tax system one of his party's flagship policies ahead of the General Election.
But Schools Secretary Ed Balls claims this will penalise women whose husbands have walked out on them.
India Car Sales Soar in January
Nikhil Gulati and Santanu Choudhury - Wall Street Journal
India's auto makers reported their highest-ever monthly car sales in the local market in January with a 32% rise from a year earlier as an economic recovery, availability of low-cost loans and introduction of new models encouraged more people to buy vehicles.
Sales in the past month rose to 145,905 cars from 110,300 a year earlier, data issued Tuesday by the Society of Indian Automobile Manufacturers showed. The previous highest--129,358 cars--was in March 2009.
The growth in January follows a 40% rise in December and a 61% increase in November, which was the fastest pace since February 2004.
The comparisons, however, were benefited by a lower base as sales a year earlier were hit by higher borrowing costs and the economic slowdown, analysts said.
Expectations that the government may raise taxes in the federal budget for the next fiscal year starting April 1 have led to advance buying of vehicles in India, they said.
The government is scheduled to announce the budget Feb. 26.
Automobile sales in India, especially of trucks and buses, were hit in the financial year ended March 31, 2009, by a slowdown in the local economy and commercial banks' reluctance to lend for vehicle purchases. Sales started recovering in February last year after a series of stimulus steps by the federal government and a reduction in loan rates.
"Improved economic conditions, fiscal stimulus benefits, easy availability of credit and new product launches have all helped the auto sector to come back to normal level after a recessionary year of low activity," Sandeep Patil, an analyst at Mumbai-based Kisan Ratilal Choksey Shares & Securities Pvt. Ltd., said in a recent note. "Overall, the outlook for the auto sector looks good with all auto makers posting growth on positive territory."
Local sales at Maruti Suzuki India Ltd., India's biggest car maker by sales and a unit of Suzuki Motor Corp., rose 19% in January to 70,029 cars, while those at the local unit of Hyundai Motor Co. climbed 41% to 29,601 cars.
Car sales at Tata Motors Ltd., maker of the Nano minicar and Manza sedan, increased 47% to 22,707 cars.
Toyota recalls 437,000 Prius cars as Lexus sucked in
Toyota confirmed this morning it is recalling about 437,000 Prius and other hybrid cars worldwide to fix brake problems — the latest in a string of embarrassing safety problems at the world's largest carmaker.
The recall affects 8,500 Prius models in Britain made before January 27 and centres on concerns over the software governing the braking system on slick surfaces.
Toyota President Akio Toyoda said: "We have decided to recall as we regard safety for our customers as our foremost priority."
Earlier today Toyota officials went to Japan's Transport Ministry to formally notify officials the company is recalling the 2010 Prius gas-electric hybrid — the world's top-selling hybrid car — and two other hybrid models - the the Lexus HS 250 and the Toyota Sai.
The Lexus hybrid is sold in the United States and the Sai saloon is marketed only in Japan.
It is understood that Toyota’s luxury brand has been dragged into the crisis because the Lexus HS 250 hybrid is essentially built on the same platform as the third-generation Prius and shares the same software fault.
About 15,500 Lexus hybrids have been sold since the model was introduced last summer. Both it and the Prius are built in Japan.
The Prius and the Lexus hybrid became the subjects of a class-action lawsuit in Canada last week, which claims that the vehicles’ brake systems are defectively designed. That suit is separate from more than 30 other actions that have been initiated across North America over sudden acceleration in Toyotas that has been blamed on faulty throttle pedals. Claims allege that 19 deaths are related to the issue.
In Japan Toyota has recalled nearly 200,000 Priuses sold from April last year until yesterday, according to papers the carmaker filed with the ministry.
There have been nearly 200 complaints in Japan and the US of drivers experiencing a short delay before the brakes kick in. The delay does not indicate a brake failure.
A fix requires new software that oversees the controls of the antilock brakes, the papers say.
Toyota had earlier said a fix was already in cars in production starting late last month, but it was unclear if the recall includes those cars as well.
“We have decided to do a recall,” said Hiroyuki Yokoyama, a Toyota manager, as he handed papers for the recall to a government official. “We will do our best to regain customers' trust.”
The news follows last month’s recall of eight million Toyotas over fears of accelerator pedal defects in several models. In Britain, the owners of 180,000 Toyotas have been told that their cars may have problems which lawyers in the US claim have led to 19 deaths.
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