Spike in Prius complaints may not be all it seems (AP)

Wednesday, March 10th, 2010 | Finance News

NEW YORK – Reports of sudden acceleration in the Toyota Prius have spiked across the country. But that doesn't mean there's an epidemic of bad gas pedals in the popular hybrid.

Experts on consumer psychology say the relentless negative media attention Toyota has received since the fall makes it much more likely that drivers will mistake anything unexpected — or even a misplaced foot — for actual danger.

"When people expect problems, they're more likely to find them," said Lars Perner, a professor of clinical marketing at Marshall School of Business at University of Southern California.

In just the first 10 weeks of this year, 272 complaints have been filed nationwide for speed control problems with the Prius, according to an Associated Press analysis of unverified complaints received by the National Highway Traffic Safety Administration.

By comparison, only 74 complaints were filed in all of last year, and just eight the year before that.

For problems with the brakes, rather than the gas, the figures are even more stark: 1,816 filed so far this year versus just 90 in all of 2009 and fewer than 20 in every other year of the last decade. Toyota recalled 440,000 Priuses on Feb. 8 because its antilock brakes seemed to fail momentarily on bumpy roads.

It's doubtful the Priuses of the past two years suddenly became more dangerous than those made in years past. After all, Toyota's own recall for Prius floor mats that can trap gas pedals covers model years 2004 to 2009.

Earlier this week came one of the most high-profile case of any Toyota problem so far: A man driving on a Southern California freeway said his 2008 Prius sped out of control, reaching 94 mph, before a patrol officer helped him bring it to a stop.

Then, in suburban New York, the owner of a 2005 Prius said his housekeeper was driving it forward down the driveway when the car lurched forward, crossed the street and hit a stone wall.

"She appears to have all her faculties," Capt. Anthony Marraccini of the Harrison, N.Y., police said of the housekeeper Wednesday. "She didn't appear to be disoriented in any way. There's nothing at this particular time that would indicate driver error."

Investigators from the federal government and Toyota are looking at both cases, and authorities have not suggested either case is anything but legitimate.

Toyota has continually said it has found nothing wrong with its electronic throttle controls and that it is confident they work properly.

The automaker has recalled 8.5 million vehicles worldwide — more than 6 million in the United States — because of acceleration problems in multiple models and braking issues in the Prius. Regulators have linked 52 deaths to crashes allegedly caused by accelerator problems.

Electronics experts say the computers, sensors and wires that control the throttle can be compromised by electronic interference. Toyota insists the problems with its cars have been mechanical.

Toyota has a "quite lengthy" procedure for its specialists when they evaluate cars, including a diagnostic check, an oscilloscope to test electronics and a checklist of potential problems, spokesman Brian Lyons said.

The 2008 Prius, the model involved in the California freeway runaway, would have been equipped with a backup mechanism designed to cut power to the wheels if the gas and brake pedals are depressed at the same time, Toyota says.

The driver, James Sikes, said he jammed the brake repeatedly, even stood on it, before he was able to bring the car under control.

A Toyota spokesman, John Hanson, said Toyota engineers talked with Sikes on Tuesday, but he did not know what was said in the interview.

Toyota's engineers, as well as investigators from the National Highway Traffic Safety Administration, will check physical evidence from the Prius and compare that with what Sikes said in the interviews, Hanson said.

The government does not give statistics on how many of the reported car problems are actually confirmed. Toyota keeps its own stats — and, perhaps not surprisingly, does not release them.

So there's no way to know how many runaway cases are for real — even as the figures pile ever higher.

The phenomenon has plenty of parallels.

In 2003, thanks to a media blitz by the police union, New Yorkers were convinced the cops were on a ticket-writing spree, for everything from sitting on a milk crate to resting on the steps of subway station. It turned out tickets were actually on the decline.

Think of medical students who learn about all sorts of disorders and then suspect they may be stricken by them. Or muckraking journalist Lincoln Steffens, who competed for police scoops with his fellow newspapermen and once wrote: "I enjoy crime waves. I made one once."

Even the heightened number of complaints is relatively small compared with how many Priuses are on the road. Toyota sold about 750,000 of them from 2004 to 2009.

But as long as reports of Prius profile keep rolling in — just look at the extensive coverage given to a single crash in that New York suburb, something that would have gone utterly unnoticed a year ago — expect complaints to keep rising.

"We are basically anticipating them happening, and we may be prone to jump to conclusions," said L.J. Shrum, a marketing professor who specializes in consumer psychology at University of Texas at San Antonio.

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AP Auto Writer Tom Krisher reported from Detroit. AP Auto Writer Dan Strumpf in New York and Associated Press writers Jim Fitzgerald in Harrison, N.Y., Emily Fredrix in New York and Elliot Spagat in San Diego contributed to this report.

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Palm Inc. teeters in crowded smart phone market (AP)

Wednesday, March 10th, 2010 | Finance News

SAN FRANCISCO – Last year, Palm thought it had all the pieces for a turnaround in the market it pioneered: A new CEO known for making the iPod a household name, a sleek new smart phone called the Pre and fresh, intuitive operating software.

Instead, the company is in danger of going the way of its 1990s Palm Pilot, making it the latest innovator to learn that great technology and an accomplished leader don't guarantee success.

Several analysts say Palm Inc. might not remain an independent phone maker for more than a year or two. It just could be too late to stop the momentum enjoyed by Apple Inc.'s iPhone and Research In Motion Ltd.'s BlackBerrys — not to mention a growing crop of phones running Google Inc.'s Android software.

Palm spokesman Derick Mains said the company had no comment.

Consumers have gravitated toward smart phones for their versatile features, such as Internet access and applications that can be downloaded. One out of six U.S. adults had a smart phone last year, according to Forrester Research.

But Palm — a leader in the early days of handheld computing — was slow to adapt. It began fighting back in earnest in January 2009 at the International Consumer Electronics Show. It unveiled the stylish touch-screen Pre and webOS, software that allows Palm phones to do something the iPhone can't — run multiple apps simultaneously.

Ed Colligan, who was then Palm's CEO, said at the time that the new products somewhat marked a relaunching of Palm itself. But it hasn't gone as smoothly as Palm hoped.

Palm released the Pre last June, for use on Sprint Nextel Corp.'s wireless network, and followed it in November with a cheaper model, the Pixi. Verizon Wireless started selling upgraded models of these phones in January, and AT&T Inc. plans to offer webOS phones later this year.

Despite widespread availability and positive reviews, consumers haven't really embraced the products. Palm sold 810,000 phones in the quarter that ended Aug. 28. In the next quarter, sales fell to 573,000. And Palm's latest report, due March 18, is not expected to be bright. Palm recently cut its forecast for that period, citing sluggish sales.

Discouraged investors have sliced the company's stock price by more than half since the Pre hit stores. In that same time, shares of Apple have risen nearly 50 percent to all-time highs, while RIM shares have fallen 11 percent.

One big problem for Palm is standing out in a crowded market dominated by Apple and RIM. Many analysts believe Palm's latest products are good, but the company simply hasn't been able to make potential customers realize this.

Not for a lack of trying: Palm spent $74.1 million on sales and marketing in its last reported quarter, up 64 percent from the previous year.

Verizon and Sprint have advertised the Pre and Pixi, too, but now probably aren't doing it as aggressively as they would if they had the phones exclusively.

On Palm's end, at least, the marketing push is likely to last for several more quarters as it tries to connect with consumers, said Deutsche Bank analyst Jonathan Goldberg.

For a larger phone maker such as Motorola Inc., in the midst of its own comeback attempt, an advertising blitz might not be such a big deal. But Palm is much tinier than its key competitors. It takes Palm an entire quarter to sell as many phones as Apple sells in a less than a week. RIM spent six times as much on a category it calls selling, marketing and administrative expenses in its last quarter as Palm spent on sales and marketing.

One thing Palm has: a CEO who helped make Apple what it is.

Right before the Pre launch, Colligan was replaced by Jon Rubinstein, 53, who spent a decade at Apple during its own comeback run. He started in 1997 and was a pivotal figure behind the brightly colored iMac computers and the iPod.

He came to Palm in 2007 as executive chairman under a deal in which Palm sold nearly a third of the company to private equity firm Elevation Partners.

Still, even the most astute leadership isn't enough in such a competitive market, Canaccord Adams analyst Peter Misek said.

"It takes distribution, it takes cash, it takes luck. It takes a lot of things, and if all those things don't click your probability of success is low," he said.

It also takes time. And Palm wasted it during many years of corporate restructuring, according to Donna Dubinsky, a former Palm CEO and board member.

Dubinsky and Jeff Hawkins founded Palm in 1992, and in 1995 it was bought by U.S. Robotics, a modem maker that was acquired by 3Com Corp. in 1997. Palm spun off as its own company in 2000, two years after Dubinsky and Hawkins left to form a rival startup, Handspring, that made influential early smart phones. In 2003, Palm acquired Handspring and spun off PalmSource, which made the PalmOS handheld computing software, as an independently traded company. PalmSource was bought by Japan's Access Co. in 2005.

Dubinsky said all the shuffling took "critical resources and attention from product development." And even though it happened years ago, she called the decision to spin off PalmOS a "huge strategic error."

"As RIM, Apple and Palm all have demonstrated, these devices need to be highly integrated hardware and software developments in order to optimize the user experience," Dubinsky wrote in an e-mail to The Associated Press. "When Palm no longer could advance the OS, and had to create a new one, it lost several years."

So what will happen to Palm now?

Misek thinks the company could keep spending its cash — it had $590 million at the end of its most recently reported quarter — and run out of gas in a year or two. Or, it could try to conserve funds and angle to be bought out. But Misek thinks a buyer could be dissuaded by the year or two it might take to get webOS working on new phones.

Kaufman Bros. analyst Shaw Wu thinks Palm could be purchased in the next year by a company such as Motorola or Dell Inc. That would give those companies their own smart-phone software rather than making them rely on software found on many kinds of devices.

In fact, Wu said, Palm's best asset is its intellectual property. Palm has patents on its own style of the touch-screen technology that Apple popularized and is now suing phone maker HTC Corp. over.

Ultimately, Wu thinks the smart phone market will look like the PC market, which was crowded with competition early on but eventually produced a short list of winners and a smattering of losers.

"Palm's almost on that list of losers," he said.

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Budget deficit sets record in February (AP)

Wednesday, March 10th, 2010 | Finance News

WASHINGTON – The government ran up the largest monthly deficit in history in February, keeping the flood of red ink on track to top last year's record for the full year.

The Treasury Department said Wednesday that the February deficit totaled $220.9 billion, 14 percent higher than the previous record set in February of last year.

The deficit through the first five months of this budget year totals $651.6 billion, 10.5 percent higher than a year ago.

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