Toyota recall may prove costly to company’s image

Toyota recall may prove costly to company’s image



Automotive News | September 30, 2009 – 3:36 pm EST

 

DETROIT (Reuters) — Toyota Motor Corp. says it’s too early to estimate the cost of its largest U.S. recall ever, but analysts suspect the bigger worry is damage to the automaker’s image.

On Tuesday, Toyota said it will recall some 3.8 million vehicles because of the risk that a loose floor mat could jam the accelerator, a problem suspected of causing crashes that have killed five people.

The recall includes the Prius hybrid and would be the largest ever for Toyota, which has built a reputation for safety and quality that helped it surpass General Motors as the world’s top automaker last year. The recall also comes at a critical time for Toyota as it scrambles to squeeze spending to bounce back from record losses forecast this year amid a global collapse in auto sales.

"This is a negative issue and is going to cost (Toyota) very much. (It’s) not good for advertising," said Yuuki Sakurai, CEO of Fukoku Capital Management in Japan.

"But I’m not worried much about this problem and whether it will remain a negative factor for Toyota in the long term. They can overcome it," he said.

Deutsche Securities auto analyst Kurt Sanger estimated the cost at a modest 5-10 billion yen ($50-$100 million).

"Monetarily, I wouldn’t expect it to be a major issue for Toyota," he said, noting that labor costs, which typically make up the bulk of recalls, would likely be minimal.

"The bigger concern is reputational."


» VIDEO: ABC’s Good Morning America report on the Toyota recall


Strictly a U.S. problem

Toyota spokesman Yuta Kaga in Tokyo said today the floor mats subject to the recall are used only in vehicles sold in the United States.

The company is also checking whether the problem originates in the floor mats or the process of placing them in the vehicles, he said, without naming the floor mat supplier.

Toyota and U.S. safety regulators warned owners to remove all driver-side floor mats from eight Toyota and Lexus models manufactured in the last six years as an immediate safety precaution.

Toyota’s largest previous U.S. recall was in 2005 for a problem with steering rods, covering about 900,000 vehicles.

The pending recall will be equivalent to about double Toyota’s annual sales in the U.S. market.

Investigation continues

Toyota’s sweeping recall stems from a safety issue that has been under review for the past several years.

The National Highway Traffic Safety Administration closed an investigation into floor mats in Toyota vehicles that began in 2007 and resulted in a recall of more than 50,000 cars.

That investigation, which focused on the Lexus ES350, concluded that grooves in the mats could trap the accelerator if the mat was not secured with retaining hooks.

Federal investigators also found many owners were not aware that it takes three seconds to turn off the electronic ignition button that comes standard on that model and the Prius.

Many owners also complained that it was not obvious how to put a runaway vehicle in neutral because of the design of the Toyota gear panel.

Broader issues to investigate?

One Toyota owner petitioned NHTSA in April of this year to begin a wider investigation, saying that anecdotal reports of unintended acceleration suggested the problem could not be explained only by the floor mat problem.

NHTSA has not ruled on that request. One auto safety advocate said he also suspected that reported problems could have causes other than slipping floor mats.

"Their response is that this is all floor mats," Sean Kane, president of Safety Research & Strategies, a consulting and advocacy firm based in Rehoboth, Massachusetts, said of Toyota.

"That’s not terribly surprising. They would like it to be floor mats because that is an easily identifiable mechanical issue."

Toyota said it would issue specific recall notices as soon as it had a plan to address each of the models affected.

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