Scenarios: With image under fire, Toyota looks for fix

By Chang-Ran Kim, Asia autos correspondent

TOKYO (BestGrowthStock) – Japanese automaker Toyota Motor Corp, revered in the industry for making reliable quality cars, is caught in a mass recall debacle that has spread from North America to Europe and China.

Toyota may have to recall close to 8 million vehicles worldwide for two separate issues relating to floor mats and sticky accelerator pedals, both with the potential to cause unintended acceleration.

Below are scenarios for how the issue could play out, and the business implications for Toyota.

(RELATIVELY) QUICK FIX

Toyota gets clearance from U.S. safety authorities for a proposed remedy: shipping a “spacer” or “shim” to its U.S. dealers — parts that would increase tension in the accelerator and help prevent it from sticking.

Alternatively, or parallel to that, CTS Corp, the supplier of the accelerator pedals, promptly ships out a redesigned pedal allowing Toyota to limit — to just a week — a planned production halt of eight models across North America.

A sales suspension would also be lifted relatively quickly, limiting the damage to Toyota’s sales and bottom line.

But even here, Toyota could incur warranty costs of around $230 million in the U.S. alone, based on an estimated cost of below $100 for the shim or spacer fix, times 2.3 million vehicles.

Other costs would include repairs related to the floormats, financial support for dealers and increased sales incentives, plus the potential for costly lawsuits from car owners.

RECALL CASE DRAGS ON

Toyota struggles to get swift regulatory clearance and the recall turns into a full-blown political issue in the United States.

Congressional investigators are already seeking documents on the matter, and the House Energy and Commerce Committee plans a hearing on the matter on February 25.

Meanwhile, Toyota continues to suspend sales and/or production of the designated models, which made up more than half its U.S. sales last year.

Consumer sentiment turns against Toyota, hurting sales of its other models, and shifting buyers into the showrooms of rivals such as Honda Motor Co, Hyundai Motor Co and Ford Motor Co. Resale values of Toyota cars fall, indirectly hitting future sales.

RECALL CASE SETTLES, BUT DAMAGE CONTINUES

Solutions are put in place for repairs and recalls, but the damage to Toyota’s brand image and reputation is done.

Consumers begin to shun the Toyota brand — Toyota is No.1 in selling cars to retail customers in the United States — chipping away at market share.

Earnings also suffer. The United States is Toyota’s biggest market, both in terms of volume and profit. Toyota has said it expects to sell about 2 million vehicles in the U.S. this year — about 27 percent of its total sales — but that was before it expanded the recall and stopped sales of several models this week.

Stock Market News

(Editing by Ian Geoghegan)

Scenarios: With image under fire, Toyota looks for fix