The world's largest auto maker, Toyota Motor Corp. (NYSE: TM) announced Tuesday that is was about to issue the biggest recall in the company's history, as problems with some floor mats has led to numerous accidents and at least five deaths.

The recall involves eight different models of Toyota and Lexus vehicles manufactured and sold in the U.S. over the past six years, and include the popular Prius hybrid. Apparently, there is a problem with the driver side floor mats that result in the mats coming loose and jamming down the accelerator.

One of the few hopes the U.S. car companies have had is that they have been perceived as closing the quality gap with Japanese models. Recent JP Power data shows Detroit running in a dead heat with imports in the consumer satisfaction race.

That bubble has been at least partially burst due to new information from the University of Michigan's American Customer Satisfaction Index. According to the AP, "U.S. car buyers are growing less satisfied with their purchases from domestic automakers while their Asian and European competitors continue to improve."

In the new survey, BMW and Lexus tied for the top spot followed by Honda (NYSE: HMC) and Toyota (NYSE: TM). Several brands from GM (NYSE: GM) and Ford (NYSE: F) dropped down the rankings.

At the risk of stating the obvious, Detroit is in such deep trouble that a perceived drop in the quality of its cars can only make its recovery more difficult. There are several ways around that, but none of them are very palatable.

GM yesterday introduced buyer incentives across most of its brands. That means its margins on those vehicles will be lower. It may pick up some market share, but any victory there will be costly. The U.S. car companies are cutting their marketing budgets, so they cannot "advertise" their way out of the problem.

Effectively giving cars away can certainly help hurdle the quality barrier, but losing a lot more money could sink a large U.S. auto company.

Douglas A. McIntyre is an editor at 247wallst.com.

In a bow to the power of the weak U.S. dollar, AP reports that Toyota Motor Corp. (NYSE: TM) is raising prices on some of its lower-priced cars. A weak dollar relative to the Yen puts downward pressure on earnings for Toyota since sales in dollars get translated into fewer Yen -- the currency in which Toyota reports earnings.

So, Toyota is trying to raise prices on its more popular, higher gas mileage models in the U.S. figuring it will lose less market share because of the strong demand as consumers -- sickened by paying so much of their income for gasoline as it powers through $4 a gallon -- scramble for Toyota's more fuel-efficient vehicles.

AP reports that Toyota's price increases, which will start in the middle of May, include a hike of $200 on the 2008 Yaris sedan, which will cost $12,425. The 2009 Camry will go up $200 to $18,920. The hybrid Camry, introduced as a 2007 model in late 2006, will cost $300 more, at $25,650. For example, the price of the Lexus IS 350 entry sports sedan will rise $300 to $36,305. However, the pricing of the 2008 Lexus IS F high-performance sports sedan won't change.

With recession fears, housing market worries and high gasoline prices, retailers have been facing tough times and so have luxury car dealers. March proved another tough month for carmakers, with overall U.S. sales declining after the weakening economy put a curb on consumer spending.

Amid the challenging market conditions, even the rich are joining the general anxiety. With the dollar losing ground each day it is difficult to know how much your savings are valued at any more. Then, a simple question appears "Can I afford to buy a luxury car?" It seems like not too many gave a positive answer as most luxury car brands faced sales declines last month.

Sales for BMW fell 8.7%, while Lexus saw a plunge in sales of 13.6%. And even Mercedes-Benz was down nearly 4 percent. Overall luxury vehicle sales fell almost 13% compared with the same month last year, according to Autodata.

As the saying goes, if you can't beat 'em, join 'em -- or at least hire 'em to join you. Ford Motor Co. (NYSE: F) announced late yesterday that it has hired James D. Farley as its new marketing chief. Until recently, Farley was a VP at Toyota Motor Corp. (NYSE: TM) and general manager of Toyota's luxury Lexus division. Before heading Lexus, he helped launch Scion, Toyota's successful new brand aimed at youthful buyers.

The Detroit News, which covers the car industry like a hungry dog on a juicy ham bone, has this to say: "It's hard to overstate the symbolism of Farley's appointment by Ford. That a rising Toyota star, the head of Lexus and a founder of its Scion youth brand would bolt the Japanese juggernaut for the struggling Blue Oval is a testament to Mulally's leadership, the strength of Ford's current lineup, the promise of its future products and the upside in it all."

Ford is not the first American car company to raid the world's leading auto producer. A month ago, Chrysler snagged James Press, the top-ranking Toyota executive in North America who joined the Chrysler Group as Vice Chairman and President. And it hired Deborah Wahl Meyer, the former head of marketing for Lexus, to be its chief marketing officer.

It's hard to see this as anything but good for Ford and the American car makers. Decades ago, foreign producers visited Detroit to learn how the world leaders made cars. Now the playing field is much more even, with Toyota in particular giving Ford and General Motors (NYSE: GM) a run for the money. In the recent hiring of Toyota executives, we can see that the American companies have finally admitted that they are no longer the best at what they do, and that they are willing to learn from their competitors. With any luck, the end result will be stronger American cars that can better compete with already excellent products coming from overseas.

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The sad part about this subject is watching these two companies going in almost opposite directions -- at least for now. General Motors General Motors Corp. (NYSE: GM) has a current market capitalization of $18 billion versus the behemoth Toyota Motor Corp. (NYSE: TM) with a massive market capitalization of $236 billion, over 13 times bigger than GM. Yet on the surface one would never guess these numbers as their revenues are fairly close in comparison: GM for 2007, estimates revenues of $173 billion, and Toyota's at $200 billion.

It's what's underneath the hood that distinguishes these companies.

Toyota has just come off a five-year period of growth in its per-share earnings at 26% per year, an astounding accomplishment for such a large company. General Motors has experienced flat to negative earnings per share growth over the same five-year period. Toyota is opening new plants, both in Japan and the U.S., to handle demand, while General Motors is closing plants to save costs and resources.

Toyota has set itself apart as the undisputed world leader with the hybrid auto: half combustible engine, half battery powered. The hybrids are still at a price premium to comparable standard combustible, gasoline-powered models, but they will close that gap over the next two or three years. The hybrids come in luxurious lines of the Camry, the Highlander SUV, and the Lexus RX series, as well as the economical Prius model. GM has yet to enter the hybrid field in a serious way.

Someone put hallucinogenics into the drinking water at General Motor Corp. (NYSE:GM). The big car maker's Buick unit announced that it believes it can get up to 40% of its new customers for the Enclave crossover SUV from Acura and Lexus.

Acura is owned by Honda Motor (NYSE:HMC) and Lexus is part of Toyota Motor Corp. (NYSE:TM), and both have owned GM in market share for several years now.

Acura's recent growth in the U.S. market has been fueled by sales of its SUVs and crossovers. Of course, they plan to willingly give a large portion of this market to Buick.

Lexus also showed sales gains in October. As part of the world's most successful car company, the luxury brand is also likely to hand market share to Buick so that the GM unit can do better.

Recent sales at Buick have not even kept pace with GM's overall numbers. In October GM's total unit sales rose almost 22%. Buick was up a little over 15%.

There is something to be said for hoping to take shares from rivals that are doing better, but telling the press and the competition about it?

Well.

Douglas McIntyre is a partner at 24/7 Wall St.