TOYOTA FINALLY ADMITS TO DEFECT, BUT RECALL IS LIKELY TO HAVE LONG TERM IMPLICATIONS | Dallas, Texas Personal Injury Attorney Blog

For months, Toyota denied its vehicles were defective. Even after an October, 2009 statement from the National Highway Traffic Safety Administration (NHTSA) forced a recall of Toyota and Lexus vehicles because it found that the vehicles have an “underlying defect” that involves the design of the accelerator pedal and the driver’s foot well, Toyota continued to deny the existence of a defect. Toyota Motor Corp. was challenging NHTSA’s claims of a defect as being “inaccurate and misleading” statements. In fact, as late as October, Toyota was asserting that no defect existed in the 3.8 million vehicles it recalled.

Now, Toyota is telling a different story, but its initial response and denials of defects is leading to criticism of Toyota. Toyota has recalled more than 7 million vehicles in the United States in recent months to address what it acknowledges are two acceleration-related issues:

1. Reports of uncontrolled acceleration in its cars, and
2. Gas pedals that can stick or fail to spring back properly.

Jim Lentz, CEO of Toyota, denies that Toyota dragged its feet on the gas pedal issues, but has acknowledged that Toyota had a technical report in October 2009 regarding the issue, around the same time that Toyota was claiming NHTSA’s claims of defects were inaccurate and misleading. The first recall was announced in late September and the second on January 21, 2010 and admitted that, “We’ve been investigating this for a long time.”

 

Toyota Denies Other Causes for Uncontrolled Accelleration

Considering Toyota’s original denial of any defect, it is no wonder why many people are skeptical about Toyota’s new claims that it is completely confident it has solved this problem.

Lentz denied that the uncontrolled acceleration issues are linked to problems with electronic sensors. Toyota vehicles utilize a drive-by-wire acceleration system in which pressure on the gas pedal sends an electronic signal to the throttle. Lentz talked on the Today Show and said we [Toyota] have tested the electronics and are convinced that the electronic are not the problem, that the problem is with the accellerator. Lentz claims Toyota is completely confident that we have a fix for that. Between those two things (the sticking accellerator and the floor mats), this will be under control.

 

Congressional Hearings Scheduled

Two Congressional panels will hold hearings this month on how Toyota and the National Highway Traffic Safety Administration handled hundreds of reports in recent years of unintended acceleration in Toyota vehicles — more than any other automaker, according to U.S. government records.

 

Current List of Affected Vehicles

The recall affects the following vehicles:

• 2007-2010 model year Toyota Camry,
• 2004-2009 Toyota Prius,
• 2005-2010 Toyota Avalon,
• 2005-2010 Tacoma,
• 2007-2010 Toyota Tundra,
• 2007-2010 Lexus ES 350 and
• 2006-2010 Lexus IS 250 and IS 350.

 

Working On A Fix

Toyota announced that parts are being shipped to dealers to repair the sticking accellerators, and that customers will be mailed notices later this week. However, Lentz did not have a good answer for what customers should do while they wait for the company to mail out recall notices and for the dealerships to train their employees on how to handle the millions of vehicles that will be the subject of the recall. Previously, Toyota told customers to pull the floor mat out. This morning, Lentz said the problem with the sticky pedal “comes on over time.” He urged people whose “gas pedals either don’t feel smooth when they’re pressed or are slow to return to contact their dealer.” However, the dealerships have not yet been trained on how to fix the problem and they do not have the parts needed to fix the problem.

Toyota Is Not Agreeing to Put Its Customers In a Rental Car Until the Problems Are Fixed.

Hopefully, Toyota is correct about the source of the problem. However, for customers who own and drive an affected vehicle, there is little short term comfort in the news of a forthcoming recall as those customers will still be forced to make a decision about whether it is safe to drive their vehicle while they wait for their fix. Based upon statements from Jim Lentz during his interview on the Today Show, Toyota is not willing to agree, or to at least announce publicly, that it will reimburse its customers for rental car expenses while they wait for their vehicle to be “fixed.”

 

Used Car Values

Even if this problem is addressed, the consumer is likely to lose in the end. For years, Toyota vehicles enjoyed a reputation as being a good investment because the vehicles retained a high value in the used car industry. However, with the damage to the Toyota brand, and the risk of a possibly recurring safety issue, customers are not likely to be able to sell their vehicles for anything close to what they could have just a few months ago. In addition, the news is bad even for those owners of a Toyota or Lexis vehicles affected by the recall that do not plan to sell their vehicle in the short term. Those owners have to hope that their vehicle is not involved in an accident that renders the vehicle a total loss as insurance companies are likely to reduce the value they are willing to pay for the damage to the vehicle as a result of this recall and the loss of the reputation for Toyota and Lexis vehicles much the same way that insurers have done for owners of Saturn and Saab vehicles over the past few months. Moreover, the long term damage to the reputation of Toyota vehicles may impact the value of used Toyota and Lexis vehicles for years to come.

 

Long Term Implications for Toyota

If Toyota’s confidence turns out to be misplace, there is no telling how devastating the effects will be for Toyota. Toyota Motor Corp.’s recalls and sales stoppages is estimated to have cost the company around $1 billion. However, it is the long-term damage to its brand and reputation that is at stake, not to mention the safety of its customers. If evidence reveals that the uncontrolled accelleration issues are linked to the electronics in the vehicle as some are saying, one would expect that additional incidents will continue to occur and that more people will be injured or killed because those issues are not being addressed.

In the meantime, analysts believe Toyota will be forced to spend a small fortune on advertising, sales incentives and possible legal bills. In the previous fiscal year ended March 31, 2009, it spent 389.2 billion yen, a 20% decline year-to-year as the company scaled back spending amid the global economic downturn.

Automotive Lease Guide, a Santa Barbara, California-based company tracking the residual value of cars and brand values, believes Toyota’s perceived quality score could fall 20%, leading to a 4% drop in the residual value of its cars, if it doesn’t resolve the situation quickly and without further recalls. Toyota may have to put aside more reserves if the value of autos coming off leases declines. A fall in residual value also decreases the amount of money consumers get at trade-in or when they try to resell a used car.

While Toyota hasn’t disclosed the impactfrom the production and sales halt, along with related recalls in Europe and China, the company’s market value has dropped 18%, or 2.55 trillion yen, ($28.2 billion) since it issued a second recall for the sudden acceleration problems on January 21, 2010. Kurt Sanger, car analyst at Deutsche Bank in Tokyo, says Toyota has halted production on about 60% of its North American manufacturing capacity and the sales stoppage of eight models could cost the company up to 18,600 units of sales per week. Mr. Sanger estimates that the direct costs to Toyota from the recall and factory stoppage are in the 50 billion yen to 60 billion yen range. With indirect costs factored in, including paying for rent-a-car costs and subsidizing dealers for inventory they can no longer sell, the total cost for Toyota could be 100 billion yen. However, those estimates don’t even include less tangible factors like a weaker brand image, litigation risk and possible increase in advertising expenses.

Koji Endo, analyst at Tokyo-based research firm Advanced Research Japan, says he thinks the sales suspension could last for a month, resulting in a sales loss of about 100,000 vehicles. Since the average gross profit margin on the affected models are around 700,000 yen per vehicle, Mr. Endo estimates that it will cost Toyota about 70 billion yen.

As of the end of March 31, 2009, Toyota has set aside 429.2 billion yen for warranties on vehicles that it has sold, although the company says that reserve is different from cash set aside to pay for the cost of recalls.

With more than $29 billion in cash on its balance sheet and very low levels of borrowing, Toyota doesn’t stand out as a credit risk, but ratings agency Fitch last week placed the company’s “A+” rating on negative watch. Fitch said the recall and sales suspension casts a negative light on Toyota’s reputation for quality. Meanwhile credit services Moody’s and Standard & Poor’s have said there is no impact from the current freeze, but S&P warned last week that its rating could be lowered “if Toyota’s brand image is weakened.” A reduction in a company’s credit rating can make it more expensive to raise money in the debt market.

If you or a loved one have been injured by one of the issues related to these defects, you need to contact an attorney immediately, particularly before the damage is repaired so that evidence of the defect can be preserved. Contact Rachel Montes or Tom Herald at the Montes Herald Law Group, LLP at (214) 522-9401 for a free, no obligation case consultation. Visit our website at www.MontesLawGroup.com for more information about our law firm and our attorneys. Our office is located in the Las Colinas portion of Irving, Texas in between Dallas and Fort Worth. However, we handle cases across the State of Texas and across the United States.