The company is facing the largest quality recall in history, at least 30 lawsuits, and damage to its brand and safety credibility across the world, as news of a new recall involving the Toyota Prius hybrid in Japan and likely the United States due to a brake problem.
The U.S. Department of Transportation has commenced a formal investigation into the brakes of 2010 Prius models, due to reports that the Prius’s braking capacity could be disabled when driving on uneven road surfaces, potholes, ice, or bumps.
The Prius has been a promoted as the prototype hybrid vehicle for the future, primarily due to its environmentally sound fuel consumption based on gasoline and electricity. It seems the only challenge Toyota had with the Prius is keeping up with demand, due to its immense popularity. Toyota, which put the world’s first hybrid car on the road in 1997, has a goal of reaching global annual sales of 1 million hybrid vehicles soon after 2010—more than double what it sold in 2007. It has sold a total 1.5 million hybrids since the first Prius was launched over a decade ago, according to Reuters.
The Prius, which boasts a class-leading 50 miles per gallon, has been the most popular hybrid vehicle globally.
Toyota has recalled in excess of 8 million vehicles already and according to Nikkei—Japan’s largest business daily—the company’s other hybrid cars Sai and Lexus HS250h may also be affected with the same issue as the Prius.
Financial Downturn
In the last quarter of 2009, Toyota announced a net income of 153 billion yen (US$1.68 billion). Its latest estimate of financial losses due to the recall fiascoes could be around $2 billion in terms of sales and costs for 2010.
Senior Managing Director Takahiko Ijichi said the company was unsure about the impact beyond the end of this financial year, but investors expressed their concerns, sending Toyota shares down precipitously last week.
“The company’s forecast earnings and profitability will surely decrease because of the recall,” said Benedicte Mougeot, fund manager of HSBC’s GIF Japanese equity fund in Hong Kong, in an interview with Reuters. “Taking into account the increased risk and reduced profitability, we will review our investment.”
Formal Hearings and Lawsuits
Toyota has at least 30 class action lawsuits in the United States and Canada, according to data from Bloomberg. It is predicated that the number of cases to be brought to court is likely to increase.
A federal congressional hearing will occur on Feb. 10 and Toyota’s North America President Yoshimi Inaba is scheduled to testify in response to the numerous recalls and quality issue of the company’s vehicles.
Damage Control
Akio Toyoda, the grandson of Toyota’s founder, formally apologized at a news conference in Nagoya, Japan, on Feb. 5, “I would like to take this opportunity to apologize from the bottom of my heart for causing many of our customers concern after the recalls across several models in several regions.”
Competitor Ford Motor Co. has announced that it has a remedy for its own brake problems with two of its hybrid cars, the Fusion and Mercury Milan. A fix for the Toyota pedal recall would take “about 30 minutes” and dealers nationwide should have received the parts, information, and training to start the damage control, according to the company.
