Whether the cause of sudden acceleration incidents in Toyota cars was due to mechanical flaws or electronic interference could be a key factor in determining the Japanese auto maker’s market share going forward.
The mechanical versus electronic debate has come before Toyota and the National Highway Traffic Safety Administration (NHTSA) in the past. As it has done before, Toyota continues to express its view that electronics were not the root cause of the problem. NHTSA is nonetheless going to take a closer look at potential electronic throttle control system flaws, so these probes are worth monitoring.
“We believe the electronic interference issue stands out as the one potential incremental threat to Toyota’s brand reputation, beyond any damage already done,” said Itay Machaeli, an analyst at Citigroup. “As we understand it, the present fix applied in the Toyota recall is mechanical in nature, so any conclusive evidence of electronics related causes would not only refute Toyota’s recent assertions, but could render the fix incomplete.”
While Toyota is at the forefront of the sudden acceleration issue because it has absorbed most of the related incidents and complains so far, there have been others. Mr. Machaeli noted that complaint data compiled by Consumer Reports for the 2008 model year counted well over 100 complaints. Toyota lead the way at 41%, followed by Ford at 28%, Chrysler at 9%, General Motors at 5%, Honda at 4% and Nissan at 3%.
While a complaint doesn’t necessarily mean there was a vehicle malfunction, this shows that automakers as a group face headline risk if the Toyota investigation escalates further. There could also be the potential for fail-safe regulations that will force automakers to adopt new technologies across all vehicles. The related costs will be more significant if this is required quickly.
Toyota’s new plan for fiscal 2009 reflects a roughly ¥180-billion impact from the two recalls related to floor mats and accelerator pedals (recall costs ¥100-billlion + ¥80-billion in decreased sales). At the company's third quarter results briefing, it said the string of recalls associated with floor mat and accelerator pedal problems would cost it about 100,000
units in lost sales (80,000 units in North America, 20,000 units in Europe).
“The company’s fundamental profitability is recovering, but in addition to near-term economic losses, including from repairs and sales opportunity losses, there are concerns in the market about significant long-term adverse effects on Toyota’s reputation, sales and earnings,” UBS analyst Tatsuo Yoshida said in a note to clients. “The company is likely to come under intense scrutiny in official investigations and Congressional hearings and concerns are very likely to be inflated by media reports.”
However, as long as Toyota does not make any mistakes in terms of its response to customers, the media, regulatory officials, or Congress, lingering long-term adverse effects on the company’s reputation, sales or earnings are unlikely. But the media storm has to pass first.