Examining the impact of Toyota's quality issues
According to the company, the recalls of the latest Prius, Lexus HS250 h and the Sai models will likely cost Toyota a total of 80-100,000 cars in lost sales to other vehicle brands in the first half of 2010. And the loss of consumer confidence and the reigning media frenzy have wiped nearly one-fifth of the company's value off the board of the Tokyo stock exchange.
Moreover, the suspension of sales of eight Toyota models in the US will not only dampen first quarter sales figures, but also offer a critical leg in to competitors offering trade-in incentives.
'One of the key concerns for Toyota is the loss in sales of its flagship hybrid Prius to other market substitutes,' said Vigneshwaran Chandran, Frost & Sullivan's program manager, business strategy and innovation group, in a new article entitled: "Total Recall: Impact Assessment of Toyota's Quality Issues on its North American Business."
He added: 'Honda is a brand high on the brand recall list for Americans and the Insight mild hybrid which is competitively priced, could become an immediate alternative for Toyota customers.'
Initial estimates suggest that the accelerator fix alone will cost Toyota half a billion dollars at least, and the overall cost could spiral to at least $1.5 billion. Compounding this is the temporary sales suspension that has already cost the company more than 50,000 cars in lost sales since January and a potential loss of another 50,000 cars over next three months.
The report continues to say that the biggest expense, however, may be the legal fees, with already more than 40 class-action suits filed against Toyota in the US and 13 lawsuits alleging death or injury due to unwarranted acceleration.
In the longer term, Toyota faces tremendous publicity damage, says Frost & Sullivan. As part of its damage control campaign, dealerships are open longer, television campaigns re-iterate the strong quality record of the company and the company has issued an outright apology combined with a commitment to fix things. Despite these efforts, it remains to be seen how the whole issue will affect the long-term performance of the company. This is especially true as other carmakers, including Honda and Ford, increasingly face recalls.
'With an anticipated slowdown in demand due to scrappage incentives coming to an end in most developed markets, we wait to see if the recalls affect overall consumer confidence and purchase behaviour, thus slowing down the market recovery further,' concluded Mr Chandran.