The Irish Independent reports that tens of thousands of mortgage holders will be hit with higher interest payments as Permanent TSB becomes the first lender this year to hike its rates.

The newspaper has learned the bank will announce it is raising its rates by 0.5pc for existing customers on standard variable mortgages "within days".

Permanent TSB's move will impact directly on 70,000 customers.

But mortgage market experts warned last night that all other lenders were now set to follow by pushing up their rates.

About 350,000 homeowners have standard variable rates. Lenders are free to increase the rates on these mortgages whether or not the European Central Bank moves its rates.

It had been expected that interest rates would rise, but the suddenness of this increase means mortgage misery will hit much sooner than anticipated.

Permanent's standard variable rate is 3.19pc, but the move to hike this by 0.5pc will mean it will cost a borrower with a €250,000 mortgage an extra €66 a month to meet repayments.

It is the second time in six months that Permanent TSB has hiked its standard variable rates. Last summer, it was heavily criticised when it upped its standard variable rate by 0.5pc.

AIB, Bank of Ireland and EBS have all said their rates are under constant review.

The expectation is that other lenders will now impose a higher increase than 0.5pc as Permanent TSB will have moved twice now to take its combined rises to 1pc since the summer.

Mortgage experts said the higher costs of wholesale funding meant most lenders were losing money on mortgages.

Seven out of 10 of Permanent TSB's mortgages are tracker rates, which are heavily loss-making because of the cost of securing funding.

Most of those homeowners affected by the rises in standard variable rates are in negative equity -- where the size of the mortgage is greater than the value of the home. These people are unable to switch their loan to another lender, and their only option is to lock into a fixed rate. A source close to Permanent TSB said the higher rate would only mean extra monthly repayments of €15 as, on average, its standard variable rate customers had just €62,000 outstanding on their mortgages.

Mortgage broker Karl Deeter, of Irish Mortgage Brokers, said people with standard variable rates needed to act fast."If you a have standard variable mortgage you're not safe. You need to do something about it."

Frank Conway, of Irish Mortgage Corporation, said the move by Permanent TSB, to be followed by other lenders, would cause problems for those finding it difficult to pay their bills.

Struggling

He advised anyone struggling to meet their mortgage repayments to remain in close dialogue with their lender.

Statistics compiled by a leading lender, which did not want to be named, show there are about 350,000 people with standard variable rate mortgages.

Trackers account for between 140,000 and 200,000 of all mortgages. Trackers were first introduced in 2006, but withdrawn in late 2008.

Between 80,000 and 100,000 people have fixed-rate mortgages, the figures show. This means that standard variable rate mortgages represent around 56pc of the market.

And a hike across the market could push thousands more homeowners into arrears.

Already some 27,000 homeowners have missed repayments for three months or more. Of these, 6,400 have not paid their mortgage for a year.

The Irish Independent also reports that McInerney Holdings, the biggest house builder on the Irish stock exchange, released a gloomy trading update which showed that it built fewer houses last year and remains unable to pay its debts.

McInerney said it completed 756 houses in Ireland, the UK and Spain last year, compared with 1,359 units the previous year. It built just 131 houses in Ireland, less than half the 296 built the previous year. And just 42 people have placed deposits on houses, it added.

The figures for the company's Irish contracting business were even worse: it completed just 31 units, one-tenth of the previous year's output.

"Until we receive more clarity on the company's banking facilities, we remain negative on the stock and reiterate our "reduce" recommendation," said Goodbody analyst David O'Brien in a note to investors.

The Irish market for standard housing products has found a certain degree of price stability, although the level of demand remains very low.

"The group continued to experience challenging trading conditions in the UK and Irish housing markets as weak consumer sentiment and lack of access to mortgage availability constrained demand,"the company said in a statement.

McInerney added that it was in continuing negotiations with both its UK and Irish funders to organise new loans.

The Irish Times reports that the battle lines were drawn on the opening day of the Davos economic summit on US president Obama’s plans to limit the size of banks and restrict the investment activities of retail banks.

Senior bankers warned that the proposals would damage the world economy, while political and public figures gave them a guarded welcome but cautioned against isolated moves by governments to overhaul regulation and eradicate risk-taking by their national banks.

In an opening address to the five-day summit, French president Nicolas Sarkozy supported the US plans to curb the banks’ ability to engage in proprietary trading but warned that the reforms should be introduced in a concerted, global approach led by the Group of 20 leading nations.

“Obama is right when he says that banks must be dissuaded from engaging in proprietary speculation or financing speculative funds. But this debate cannot be confined to a single country, whatever its weight in global finance. This debate must be settled within the G20.”

Among Mr Obama’s measures was a proposal to prohibit banks that hold customer deposits from owning or investing in highly leveraged hedge funds or private equity funds.

Devising safeguards to prevent a future collapse of the global financial system has dominated the opening discussions at this year’s annual meeting, which is being attended by 2,500 delegates, including 30 heads of state and government, 12 central bank chiefs and 1,400 business executives.

Bob Diamond, president of Barclays, warned that there was “no evidence that shrinking banks is the answer” and said the Obama plan could affect jobs, growth and world trade.

A new era of “narrow” banks would be harmful, he said. Large, universal banks were created by market forces in a post-communist world, he said. “They fulfilled an important function in helping governments and corporates to transfer risk, particularly across borders,” said Mr Diamond.

Josef Ackermann, chief executive of Deutsche Bank, and Peter Sands, chief executive of UK bank Standard Chartered, cautioned against using different approaches to regulating banks in different countries, saying that it would lead to “regulatory arbitrage” and damage the global economy.

“The international community should try to resist that as long as possible,” said Mr Sands, chief executive of one of Britain’s Big Five banks, adding that it would increase costs and complexity with different countries following different regulatory systems.

“Will it help the recovery for big banks to be broken up? The unambiguous answer is no,” he said, adding that some business may move to unregulated markets.

Dr Ackermann said that small players in the financial sector meeting the needs of global trade and production would not benefit the global economy. “We are in a global financial market and we need a level playing-field. It would not be productive to have different regulatory frameworks,” he said.

The focus should not just be on protecting individual banks or national banking systems, he added.

Speaking at a private lunch, billionaire investor George Soros told journalists that he supported Mr Obama’s plans but that they were premature and did not go far enough. He warned that any investment banking divisions spun off from commercial banks would still be “too big to fail”.

“The timing of it is wrong – there is no urgency to introduce these long-term reforms,”he said.

Telecoms entrepreneur Denis O’Brien flew in to discuss emergency measures to help Haiti following this month’s earthquake.

The Irish Times also reports that extreme temperatures and water contamination have seriously disrupted production at the giant computer chip manufacturer Intel in Leixlip, Co Kildare.

An Intel Ireland spokesman said the recent cold weather was a “unique situation” and had affected the company severely.

This was due in part to rapidly falling temperatures, which at one point reached as low as -12 degrees at the plant.

Water contamination caused additional problems for the company, which employs 4,200 people directly and indirectly and is the largest employer in Kildare. The US multinational makes computer chips which are used in 90 per cent of the world’s PCs.

There were concerns locally that ammonia and nitrates may have contaminated water after local authorities used an agricultural fertiliser to replace the salt component in grit on roads. This was due to a chronic shortage of rock salt.

Intel has its own pumping station on site and tests water for impurities, as extremely pure water is required for its manufacturing processes. However, it is not equipped to test for ammonia, and water samples had to be sent off-site for analysis.

A spike in ammonia levels was witnessed earlier this month, not long after urea was scattered on the road, the company said.

General water supplies were tested in a number of local authority areas, including Kildare. Although the levels of chemicals were within safe levels, Intel’s water quality requirements are more stringent.

“Clean from an Intel perspective is a level of purity that is unheard of anywhere in the country,” a spokesman for the firm said.

It is understood that production at its Fab-10 plant – an older plant that produces lower-end products such as flash memory – was shut down while the issue was resolved. A number of sources have confirmed the shutdown.

Fab-24, the companys flagship facility which produces the latest microprocessors, was not thought to have been affected by the incident. However, representatives for the company would not comment on production at the Leixlip plant.

The company brought tankers of water into the site as a contingency plan.

“Keeping production lines running is of paramount importance,”the company spokesman said.

The cost of the contingency plan has not yet been finalised. “Water levels are trending back down to normal,” the spokesman said.

Charlie Talbot, spokesman for Kildare County Council, said elevated levels of ammonia had been detected by Fingal County Council, which runs the water supply at the Leixlip reservoir, and corrective measures were taken.

He said the council had used urea on only one night, because it had damaged gritting equipment.

However, he said, it was more likely that the substance appeared in surface water rather than polluting the water table, and any effect would have been “limited”.

The Irish Examiner reports that investors who bought into €650 million bonds sold by ACC Bank are to initiate a group legal action against the bank to recover losses of up to €160m and seek damages.

The ad hoc group have been brought together by Cork-based businessmen Kevin Cross and Tony Conway, who have appointed Lavelle Coleman Solicitors to represent individuals in the group.

Mr Cross told the Irish Examiner that he and Mr Conway placed an advertisement in the Sunday Business Post two weeks ago seeking out other disenchanted investors in the ACC SolidWorld tracker bonds series 4 and 5, sold in 2004 and 2005.

He said they have also held meetings with financial advisor Eddie Hobbs, who has examined the product and its presentation on their behalf. Mr Hobbs confirmed that he is advising the group in their action against the bank.

Mr Cross claims he and others were miss-sold the bonds by ACC and this is the reason for their action.

"Already 70 to 80 people have made contact with us since we placed the ad. Everyone from lawyers, accountants and even ex-ACC staff have been on. There are some very sad cases," he said.

ACC Bank said that the sale of its capital guaranteed SolidWorld Bond products complied with the rules and regulations governing such products at the time of their launch to the market.

Mr Cross said that in most cases investors were provided with massive loans, one for €11m others for €1m, by ACC to invest in the ACC SolidWorld bonds. ACC Bank plc is a wholly owned subsidiary of Dutch bank Rabobank.

"We were told these were blue chip investments but they did not use our money to buy shares in these companies; all they bought were options. The money was left on deposit with ACC not earning any interest and we were still paying interest on the loans, this was never explained to us, it does not make any sense," he said.

It is understood that as many as 100 people have asked Lavelle Coleman Solicitors to include them in the group action against the bank and Mr Cross urged other unhappy investors to contact the Dublin solicitors at their offices at Lower Hatch Street in Dublin.

Mr Cross stressed that as some of the bonds were sold more than five years ago, the statute of limitations could apply unless prospective plaintiffs acted very quickly.

The bonds attracted investors because they guaranteed the investors’ capital while offering some exposure to rising stock markets.

The Financial Times reports that Britain’s top financial regulator called on Wednesday for authorities to be given fresh powers to control availability of credit to prevent asset price bubbles.

Speaking at the World Economic Forum, Lord Turner, who chairs the UK’s Financial Services Authority, warned that the world must return to the idea that authorities can limit credit before it becomes too dangerous.

“We need a new set of macro-prudential tools – not just interest rates – to address the quantity of credit,” Lord Turner said. He would detail his proposals in a March lecture.

His remarks develop a review he led for the FSA last year and a Bank of England consultation document about the same subject, giving more details of how far authorities can and should go to prick asset price bubbles.

To address excessive lending, Lord Turner said, banks should face higher capital requirements. Borrowers should face limits on loan-to-value ratios, preventing them from borrowing when asset prices rose too far.

Lord Turner floated the idea of forming “some sort of macro-prudential committee, charged twice a year with looking at what is going on in the UK market”, with the power to pull a macro-prudential lever if it were seen as appropriate.

Pre-empting the difficulties of wider agreement, he added: “It does perhaps have to be done at a national level.”

The proposed tightening of capital requirements is similar to the Bank of England’s suggestion that the risk-weights of certain assets should be raised when the authorities believe lending has got out of hand. His view also chimes with the central bank’s assessment that a move to restrict the risks individuals can take would also be necessary.

How his thoughts will align him almost exactly with the Bank of England, with the Treasury still sticking to its view that some issues such as loan-to-value limits can be taken only by elected politicians.

Lord Turner said that he thought similar rules could be introduced by many countries on a unilateral basis and did not need co-ordination at the Group of 20 level or by the Financial Stability Board, a global regulatory group.

The exception to the national ability for countries to try to prick bubbles by restricting credit was in Europe, he said, where he believed there needed to be some co-ordination between governments, since banks are allowed to lend to people in European Union countries without setting up a separately capitalised business there.

Even so, he added, there would be a benefit even within the eurozone for unilateral action. It would allow countries to have different credit conditions even with a common monetary policy.

The FT also reports Poland is set on Thursday to launch reform measures aimed at reducing the budget deficit, public debt and the future pensions bill as the country seeks to build on its success as the only European Union member to have avoided recession in the global downturn.

Donald Tusk, prime minister, outlining the plans in an interview with the Financial Times, said he would stick with the market-oriented economic policies that he said were responsible for the country’s growth last year.

“When I have been asked how Poland is managing better in the crisis than other European countries, I have said it is more to do with an Anglo-Saxon than a Slav approach. That means the need for responsibility, savings and financial rigour.”

Mr Tusk, a liberal former Solidarity activist, recognised Poland’s economic gains were giving it unaccustomed bragging rights in the EU.

The Polish economy grew by an estimated 1.5 per cent last year and Mr Tusk described the recent economic performance as “possibly the largest success in Polish history”. He added: “Who would have thought we would see the day when the Polish economy is talked about with greater respect than the German economy?”

But the prime minister, normally a diffident man, made clear he did not want to be seen to be preaching to others, especially when EU members still faced serious economic challenges.“I don’t want to lecture anybody . . . Poland is affected by the problems, as are most other European countries, of rising debt and a serious budget deficit.”

Outlining his key measure, Mr Tusk said he would use a two-day conference starting Thursday to announce plans to limit increases in discretionary public spending to 1 per cent annually.

He would rely on economic growth to help reduce the budget deficit slightly from 6.3 per cent of gross domestic product last year to about 6 per cent in 2010, he said. Poland would reach the 3 per cent level needed for joining the euro by 2013, he added.

Background

Donald Tusk, 52, comes from Gdansk, northern Poland, the cradle of the Solidarity movement, which is where he got his start in politics in 1980, writes Jan Cienski in Warsaw.

During the martial law crackdown against Solidarity in 1980s, Mr Tusk was unable to get a state job and worked as a chimney painter, before re-emerging as a politician in 1989 when the communists lost control of the country.

Mr Tusk has been associated with market liberals, but was long seen as a second-rank player. He created the centrist Civic Platform party in 2001 after quitting the Freedom Union following his failure to win the party’s chairmanship.

He lost the 2005 presidential elections, but then led his party to victory in the 2007 parliamentary elections, becoming prime minister.

Although Mr Tusk did not give a date for entering the common currency, the plan would allow Warsaw to introduce it in 2015. He said: “We will return in a responsible way to [the matter of] the date when we are certain we are able to fulfil those criteria, which are a prerequisite of membership in the zone.”

Mr Tusk said Thursday’s announcements would include reducing pension benefits for uniformed services such as the military – but only for new recruits. The farmers’ pension scheme would be reformed by moving wealthier farmers from the programme and into the less generous national social security system, although the bulk of poorer farmers would not be touched. Meanwhile, the government would continue limiting early retirement programmes, which built on moves that had raised the average retirement age from 57 to 62.5 years.

Economists say the government’s proposals are reasonable given that they are based on an official GDP growth prediction for 2010 of 1.2 per cent when other forecasts stand at about 3 per cent.

The 52-year-old prime minister is hoping to capitalise on his economic record in presidential elections later this year, where his centrist Civic Platform party will attempt to win the presidency from Lech Kaczynski, the rightwing incumbent.

The crucial issue is whether the popular Mr Tusk himself will run. Polls show he would easily beat the lacklustre Mr Kaczynski and complete the political rout begun in 2007 when Civic Platform defeated the conservative Law and Justice party headed by Jaroslaw Kaczynski, the president’s twin brother.

However, Mr Tusk is struggling to make up his mind. “I have a serious dilemma,” he said.“On the one hand presidential elections are the highest profile political race, with the highest turnout, but on the other hand they lead to the election of a president who has little power besides a legislative veto.”

Mr Tusk fears giving up his extensive prime ministerial powers. However, if he puts forward an alternative candidate who then loses, it would be a big political defeat. Removing Mr Kaczynski would eliminate one excuse for not undertaking deeper reforms. However, Mr Tusk said he would still take care not to implement changes too quickly.“Reform must be effective, and a key to that is achieving the acceptance of at least part of those affected.”

Today’s announcement will include reducing pension benefits for uniformed services such as the military – but only for new recruits. The farmers’ pension scheme will be reformed by moving wealthier farmers from the programme and into the less generous national social security system, although the bulk of poorer farmers will not be touched. Meanwhile, the government will continue limiting early retirement programmes which builds on moves which have raised the average retirement age from 57 to 62.5 years.

The New York Times reports that President Obama vowed Wednesday night not to give up on his ambitious legislative agenda, using his first State of the Union address to chastise Republicans for working in lock-step against him and to warn Democrats to stiffen their political spines.

Mr. Obama appealed for an end to the “tired old battles” that have divided the country and stalled his efforts on Capitol Hill. He promised to focus intently on the issue of most immediate concern to the nation, jobs. And with his top priority, a health care overhaul, delayed in the wake of the recent Republican Senate victory in Massachusetts, he offered a pointed message to both parties.

“To Democrats, I would remind you that we still have the largest majority in decades, and the people expect us to solve some problems, not run for the hills,” Mr. Obama said in his nationally televised speech.“And if the Republican leadership is going to insist that 60 votes in the Senate are required to do any business at all in this town — a supermajority — then the responsibility to govern is now yours as well. Just saying no to everything may be good short-term politics, but it’s not leadership.”

The speech, Mr. Obama’s third to a joint session of Congress, comes at a particularly rocky point in his presidency, with many Americans — including some fellow Democrats — complaining that the president has lost sight of the priorities of ordinary people. And Mr. Obama acknowledged their doubts, conceding that some of his political setbacks “were deserved,” a striking admission for any president.

His tone was colloquial, even relaxed; at one point he joked that the bank bailout was “about as popular as root canal.” But at the same time Mr. Obama struck a defensive note, reminding the nation yet again that he inherited a mountain of problems and insisting that, one year after he took office, “the worst of the storm has passed.”

At a time when many Americans are concerned, even angry, about the economy and about the performance of government more generally, Mr. Obama sought to restore public confidence in his administration and to persuade Americans that he is directing his attention more fully to the economy. While he did not offer any sweeping new agenda or far-reaching legislative program, he put forth a handful of new initiatives, including plans to provide small businesses with tax breaks and better access to bank loans.

After refusing to set a timetable for the repeal “Don’t Ask, Don’t Tell,” the military’s policy barring openly gay men and lesbians from serving, he vowed to work with Congress this year to repeal it. He called for the reauthorization of No Child Left Behind, his predecessor’s signature education law. In a nod to the growing political and economic pressure to begin reining in the budget deficit, he proposed a freeze on a portion of the domestic budget.

Mr. Obama campaigned on a promise to change the culture of Washington and to make government transparent. But on Wednesday night, he suggested that he believed he had not done enough, and spoke of a “credibility gap” that must be closed by curbing the outsized influence of lobbyists. “We have to recognize that we face more than a deficit of dollars right now,” he said.

Reprising a line he used in last year’s address to Congress, he said, “We face a deficit of trust — deep and corrosive doubts about how Washington works that have been growing for years.”

He called for new rules requiring lobbyists to disclose each contact they make on behalf of a client with Congress or with his administration. And, in a rare flash of open confrontation between the White House and the Supreme Court, Mr. Obama declared that a recent court ruling would “open the floodgates for special interests,” and perhaps foreign companies, to exert more influence in political campaigns. Justice Samuel A. Alito Jr., breaking with decorum at such events, shook his head and appeared to mouth the words, “No, it’s not true.”

Republicans said they welcomed the president’s partial freeze on domestic spending. But they warned against what they regard as the president’s big government agenda. In delivering his party’s response, Gov. Robert F. McDonnell of Virginia, a newly elected Republican, declared, “The circumstances of our time demand that we reconsider and restore the proper, limited role of government at every level.”

But rather than retreat from his ambitious agenda, Mr. Obama sought Wednesday to repackage it, by explaining how his top priorities — the health measure, tough new regulations on banks, energy legislation — fit into his broader initiative to put the economy on sounder footing for the long run.

On health care, Mr. Obama did not chart a specific path forward for Congress. Rather, he appealed to lawmakers to “take another look at the plan we’ve proposed” once temperatures cool after the Republican win in the Massachusetts Senate race. He added, “Do not walk away from reform. Not now. Not when we are so close. Let’s find a way to come together and finish the job for the American people.”

Still, after a year of working to get health care passed, Mr. Obama said his No. 1 issue is now the economy and jobs. “Jobs must be our No. 1 focus in 2010,” Mr. Obama said, adding“People are out of work. They are hurting. They need our help.”

To that end, the president renewed his call for Congress to pass a jobs bill that would spur investment in green jobs and clean energy, though he did not offer specifics of what it would cost. He proposed investment tax cuts that would put more cash in the pockets of small business owners and a new program that would take $30 billion from the fund used to bail out troubled banks and automakers, and redirect it toward an initiative to encourage community banks to lend to small businesses.

He set a goal of doubling exports over the next five years — an increase that he said would support two million jobs. And, as he pledged to do earlier in the week, Mr. Obama also outlined a series of proposals intended to help the middle class, including new tax credits for child care and a cap on student loan payments for recent graduates.

And Mr. Obama offered a very public show of confidence in one of the architects of his economic plan: Treasury Secretary Timothy F. Geithner, whose close identification with Wall Street has made him a focus of some of the populist anger directed at the White House. When Mr. Obama strode into the chamber of the House of Representatives to deliver the address, he stopped to face Mr. Geithner, who had just spent the day getting grilled on Capitol Hill and put both hands encouragingly on the secretary’s shoulders.

Strikingly, for a president who is prosecuting two wars and trying to protect the country against the threat of a terrorist attack, Mr. Obama spent only nine minutes in an address that lasted more than an hour on foreign policy. He renewed one of the most popular promises of his campaign for election, to bring the troops home for Iraq, saying “Make no mistake — this war is ending, and all of our troops are coming home.”

But he devoted only one paragraph to a far less popular decision, escalating the troop levels in Afghanistan. “There will be difficult days ahead,” Mr. Obama said. “But I am confident we will succeed.”

As have presidents before him, Mr. Obama grappled with how to describe the state of the union. In the end, he settled on the formulation that many of his predecessors have used, with a twist:“Despite our hardships, our union is strong.”

The NYT also reports that Toyota executives set an ambitious goal in 2002 to own 15 percent of the global auto industry by 2010, meaning it would surpass General Motors as the world’s largest carmaker. To get there, it would have to grow by 50 percent. It would have to build new plants in the United States, China, and elsewhere in Asia, and introduce dozens of new models.

Toyota managed to win bragging rights as the world’s biggest car company. But that focus on rapid growth appears to have come at a cost to its reputation for quality, creating an opportunity for others to potentially take back market share they lost to Toyota.

On Tuesday, after prodding by the Transportation Department, Toyota announced it was temporarily stopping production and sales of eight models that make up more than half of its annual sales in the United States, after two major recalls since November, while it tries to fix a problem with their accelerator pedals.

“There was always a question about how fast they could go,”James P. Womack, an author and expert on Toyota’s manufacturing methods, said of the automaker’s growth.“I’m sure they regret that they stomped on the gas so hard.”

Mr. Womack said Toyota was also paying for taking its eye off the message that has been central to its marketing. “When your whole deal was quality, every mistake is a big deal,” he said.

Transportation Department officials in the United States said Wednesday that they had advised the automaker to act quickly. “The reason Toyota decided to do the recall and to stop manufacturing is that we asked them to,” Raymond LaHood, the transportation secretary, said.

In an interview with WGN radio in Chicago, Mr. LaHood added,“We were the ones that really met with Toyota, our department, our safety folks, and told them, ‘You’ve got to do the recall.’ ”

Japanese media raised fears that Toyota’s problems might damage the reputation of other Japanese companies.

“The discrediting of Toyota could even destroy the world’s trust in Japanese manufacturing, which relies on its reputation for high quality,” warned the Tokyo Shimbun, a daily newspaper.

But fears about lasting damage to Toyota may be overblown, given the short attention span of consumers, said Jeffrey K. Liker, a professor of engineering at the University of Michigan and the author of the best-selling book “The Toyota Way.”

“This is an unfortunate series of events that aren’t a good reflection of the health of the company,” he said.

“But if they aren’t selling cars, nothing else matters.”

Toyota announced a similar halt to sales and production in Canada, where it has two assembly plants in Ontario. It is considering the same steps in Europe, although it has not yet come up with a plan.

Late Wednesday, Toyota added 1.1 million more vehicles to its November recall, which already was the largest in its history.

Halting production and sales of the eight models in North America represents the latest setback for Toyota’s president, Akio Toyoda, who has been buffeted by problems since taking the job seven months ago.

He has already apologized for the company’s losses, its bland cars and its overconfidence. Last fall, Mr. Toyoda said the automaker was“grasping for salvation.”

At the time, it seemed an overstatement. Despite its red ink, Toyota still has ample cash, and it gained market share in 2009 in the United States, where it ranks as the second-biggest player behind G.M.

On Monday, before Toyota announced the sales and production shutdowns, the company said it expected its global sales to grow by 6 percent in 2010, to about 8.27 million vehicles.

But as it has gained sales, Toyota has moved away from some of the business practices it adopted in its years of slow but steady growth.

One example is its decision to buy parts from companies around the world, rather than from a small group of Japanese suppliers that have been longtime partners. For example, the pedals in the vehicles affected by the production and sales stoppages come from a supplier’s Canadian plant.

The move to expand its supplier network was necessary to save money, given cost pressures on Toyota and other manufacturers, said Ulrike Schaede, professor of Japanese business at the University of California, San Diego. But the shift also makes it harder for Toyota to control quality. “At one level, it’s the right thing to do,” Professor Schaede said. “At another, what you pay is what you get.”

In Japan, “many of us weren’t surprised over the big recalls,” said Masahiro Fukuda, manager of research at Fourin, a global automotive research company based in Nagoya, Japan.“We were more surprised that it took Toyota so long.”

For Toyota, the timing of this problem is working somewhat in its favor. The production and sales halts are coming at one of the slowest times of the year, allowing the company to begin repairs before the car market picks up in the spring.

On Wednesday, Mr. LaHood said engineers at the Transportation Department were working closely with the company to find solutions.

Mr. Womack said an open question is whether consumers will be patient with the company, because they could choose from a variety of well-built cars from many other companies.

“They’re trying to regain their image of quality at a time when everyone has gotten so much better,”he said. “If everyone else is building almost-perfect vehicles, you have to make absolutely perfect products.” Mr. Womack said he was still rooting for Toyota to fix its problems.

“I’m saddened to see a company known for building good things make some unnecessary mistakes,”he said.