Strategy & Operations

Maintaining cars is an expensive business. Just ask Toyota: this problem with the accelerator pedal on several of its models is apparently going to cost it $2bn. However, if this new problem with the brakes on its hybrid Prius turns out to be a bigger issue than Toyota’s admitting, the total bill is likely to be a lot higher – and that’s not to mention the long-term impact this disastrous episode will have on its brand and reputation. Although on the plus side, at least it might do those knackered US carmakers a favour...

Toyota actually came out with some positive financial news for the market today: having previously predicted that it would make an annual loss of ¥200bn, it’s now expecting to make a profit of about ¥80bn (£550m) – apparently a better-than-expected last quarter has allowed it to hike its sales forecast from 7.03m to 7.18m cars. After a year in which its share price has plummeted by a fifth, destroying about $30bn of shareholder value, that’s a step in the right direction.

However, this nugget of good cheer was rather overshadowed by its admission of just how big a financial hit it is taking from this fiasco. The Japan-based carmaker has now had to recall 8m vehicles – including 180,000 in the UK – because of a problem with defective accelerator pedals. Apparently the part that fixes it is currently winging its way to Britain, but with lawyers warning that Toyota drivers shouldn’t use their cars because they might be liable for any accident, it continues to have a damaging effect on the brand. In fact, Toyota said today that the cost of fixing all these cars, plus the inevitable dip in sales that will follow, is going to cost them about $2bn.

But the financial damage will be much worse if this problem with the latest version of the Prius, its trendy hybrid model that has already sold 1.6m vehicles worldwide, turns out to be widespread. Toyota admitted today there was a software problem with the brakes; apparently it’s now been fixed, but presumably further recalls might be needed. Then you’ve got the potential lawsuits, not to mention the possibility of people steering well clear of their models in the future. After all, there’s no shortage of choice - so why take risks? And if Toyota has to slash prices to keep sales up, margins will be hammered.

Incidentally, we noticed that one of the highest-profile voices warning about the dangers of driving Toyotas yesterday was US transport secretary Ray LaHood – though he did later back-track, suggesting it was a ‘mis-statement’ (a Bush-ism if ever there was one). Still, we’re sure the fact that the ailing US carmakers stand to benefit from Toyota’s woes didn’t affect his opinion either way.

In today's bulletin:
Bank stops printing money - for now
1,000 job cuts in the pipeline at Shell as profits slide
Toyota counting the cost of 8m safety recalls
Sun CEO resigns in (Japanese) style - on Twitter
Good customer service not enough to rescue banks