Toyota (TM) has encountered yet another problem that will further damage its reputation and add to its financial challenges and possible product-liability issues.
The No.1 car company in the world was ordered to look into potential brake defects in the latest version of its hybrid Prius, one of its best-selling cars.According to the BBC, "The U.S. National Highway Traffic Safety Administration has received about 100 of the reports, while 14 have been received in Japan." This again raises the question as to how long it will take Toyota to get clear of its product problems and the attendant financial costs. Like Audi in 1986, it may take Toyota a decade to rebuild its reputation for quality. 60 Minutes did a story that year on "unintended acceleration" in Audi 5000 cars, and sales fell off dramatically.
Toyota's plate is already overflowing with 8 million recalls on three continents, a shutdown of plants that build eight of its popular vehicles -- including the Camry and Corolla -- and a 16% drop in U.S. sales in January. The plunge could get worse in February as more people appear to be switching to competitors for their new and used cars.
Diminished Brand Equity
Toyota has spent billions of dollars building the models that created its reputation for unequaled quality. The Japanese company routinely ranked at the top of customer satisfaction surveys done by research firms like J.D. Power and Consumer Reports.
It's not clear at this point what the legal costs of Toyota's recall will be, but it's safe to assume that the figure will be tremendous. There are cases, at this point perhaps only anecdotes, that some other Toyota and Lexus models were in accidents due to accelerator problems. The Wall Street Journal reports that "U.S. regulators accused the company of dragging its feet on fixing defective gas pedals and threatened civil penalties and further reviews of Toyota products."
Recently Interbrand ranked Toyota as the most valuable brand, worth $30.5 billion in 2010. That number, which was just reported by the brand consultancy, may now be down to zero.
What's your investing game plan?View Course »