DTN News: Toyota Puts Cost Of Defects At $2-Billion ~ Automobile News

DTN News: Toyota Puts Cost Of Defects At $2-Billion ~ Automobile News *Source: DTN News / Globe and Mail Update Barrie McKenna (NSI News Source Info) WASHINGTON - February 6, 2010: The price of Toyota Motor Corp.'s defect fiasco is now $2-billion (U.S.) and counting, as the Japanese car maker faces a U.S. government investigation of the brakes on its prized Prius hybrid. Toyota Motor Corp President Akio Toyoda (L) and Executive Vice President Shinichi Sasaki (2nd L) attend a news conference in Nagoya, central Japan February 5, 2010. Toyota Motor Corp President Toyoda apologised on Friday for a massive global recall that has tarnished the reputation of the world's largest car maker. The U.S. National Highway Traffic Safety Administration launched a formal investigation into the braking problems on the 2010 Prius on Thursday, and Japan's Nikkei newspaper reported that the company is poised to recall 270,000 gas-and-electric Prius vehicles sold in the United States and Japan between May and December of last year. A Toyota spokesman declined to comment. With Toyota's Prius braking problems, the auto maker's escalating recall crisis spread beyond the company, as at least one other auto maker was spurred to take a closer look at its hybrids' braking systems. Rival Ford Motor Co. said Thursday it will pay for a software fix to correct braking issues on its 2010 Mercury Milan and Ford Fusion hybrids. The sign of a Toyota garage is pictured in front of an advertising billboard in Vienna February 5, 2010. Toyota Motor Corp, already reeling from two massive recalls, faced the possibility of a third when U.S. safety regulators opened a probe on Thursday into a braking problem on the Prius, the world's top-selling hybrid. Ford took action after Consumer Reports said one of its engineers ran a stop sign when the brake pedal on a Fusion hybrid sank further than normal and warning lights lit up on the dashboard. Ford said it has received a handful of complaints related to the hybrids' braking systems. Toyota, which has recalled eight million cars worldwide over sudden acceleration problems since late last year, is facing at least a dozen lawsuits in Canada and the United States. More than $23-billion worth of its stock market value has been wiped out. And there's growing concern that the company and regulators still don't have a firm grip on why some of its vehicles may speed dangerously out of control – exposing Toyota to untold future liabilities. The hybrid braking issues are likely to add to the damage for Toyota, which early Friday in Tokyo announced that it has launched a probe into its luxury Lexus hybrid in Japan and the United States. Toyota said that while it has not received any complaints about the Lexus HS250h model, it uses the same braking system as the Prius. For the first time since its massive recall of last week, Toyota offered an estimate of what the recalls to date will cost: $2-billion. That number includes $1.1-billion for repairs and $770-million to $880-million in lost sales. The car maker is expecting to lose 100,000 vehicle sales because of the recall fallout, 80,000 of them in North America. The major beneficiaries are likely to be Honda, Ford and GM, analysts said. No decision about a Canadian Prius recall has been made, according to officials of Transport Canada and Toyota Canada Inc. Transport Canada officials said they are investigating six complaints about Prius brakes made by Canadian drivers. Officials said they are trying to get their hands on one or more of the cars to see if they can duplicate the problems the consumers have experienced. “We’re actively looking at those very closely. We have our field investigators following up,” a Transport Canada official said Thursday. Toyota said Thursday it still expects to sell 150,000 more cars than initially forecast in the fiscal year ending March 31. The company is already gearing up to sell the public, once again, on the reliability of its products. “Quality is our lifeline,” said senior managing director Takahiko Ijichi. “We want our customers to feel safe and regain their trust as soon as possible.” But analysts warned it could take years and billions more to restore Toyota's envied standing among car buyers, built up over three decades as an export powerhouse. “It's a huge threat to their reputation,” said John Paul MacDuffie, co-director of the international motor vehicle program at the University of Pennsylvania's Wharton business school. Part of the famed Toyota manufacturing system is that any worker can shut the assembly line if they see a problem. Now, Prof. MacDuffie said, the company is “having to stop the line at the corporate level in a big way.” The best-case scenario for Toyota is that the damage is already contained, and that the bill will be limited to $2-billion or $3-billion, said Susan Helper, an auto industry expert and economist at Case Western Reserve University in Cleveland. “Another possibility is that this episode shows that Toyota has finally taken on too much complexity and there's a whole edifice that comes crashing down,” she said. Since early this decade, Toyota has grown dramatically, adding numerous models and boosting sales outside of Japan by more than 50 per cent. Dr. Helper said Toyota did a lot of cost-cutting over that period to achieve that growth, while protecting its existing market share from rivals. “Some of that was definitely cost-cutting, without content-cutting, but some it may have crossed that line,” she said. The most likely outcome for Toyota is probably somewhere between a contained problem and a full-blown corporate crisis, Dr. Helper suggested. Other car makers have survived, and even thrived, after taking their licks over safety problems, including Ford Motor Co., which was rocked by rollover problems linked to its use of Firestone tires. “Look at the Ford and Firestone problem; now Ford is the hero of the hour,” Dr. Helper said. “They have done a lot of things right since. So I don't know that this is something Toyota can't recover from.”