U.S. to Open Formal Probe of Corolla Steering Problems

Toyota's (TM) recall woes may be about to get even worse. In addition to the recall of 8 million cars with accelerator problems and brake issues on some versions of firm's Prius Hybrid, several media outlets have reported that the U.S. regulators are expected to begin a formal investigation of Corolla steering problems as early as Thursday. The probe will examine 2009 and 2010 versions of the model and will cover nearly 500,000 cars. The NHTSA has received 163 complaints about the steering issue, and Toyota may have to recall all of the vehicles to fix them.Toyota is in an extremely difficult position because it may have to face recalling three different sets of vehicles with three different sets of problems. The Corolla issue will almost certainly further undermine that company's reputation for quality, which has been built over a period of three decades The Corolla problems could also substantially increase the number of class actions and liability suits filed against the automaker.

When Toyota announced its earnings for last quarter it said it would set aside $2 billion for the current quarter to cover the recall of the 8 million cars with accelerator problems. But that did not include the recalls of the Prius and probably didn't take into account the rising number of suits against the company -- the cost of which is impossible to project. The Financial Times reported that the claims against Toyota could reach $3.6 billion.

Toyota will probably cut its car production for the current year by 100,000 to 7.4 million vehicles, but if the consumer backlash against the company becomes more severe because of safety concerns, that figure is bound to go up. The $2 billion that Toyota has set aside for its recall trouble may not be nearly enough.

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