Toyota Motor Corp. (NYSE: TM) one of the world’s largest and most widely distributed automakers is due to report third-quarter earnings for fiscal 2010 on Thursday. The automaker is currently devising a serious damage control plan in an attempt to calm consumers and dealer concerns following a U.S. recall for 2.3 million vehicles tied to a possible gas-pedal malfunction.
The recall has continued to spread to Europe and China despite Toyota’s initial claims that the number of defective cars was limited. In a preventative effort, Toyota has stopped selling the eight affected models, and is suspending production in the U.S. Most automotive analysts believe Toyota will report solid earnings thanks largely to its massive cost-cutting efforts, though that very campaign may have contributed to company’s quality problems. That undermining of the company’s once stellar reputation for quality control directly followed the automakers partial recovery from its worst ever loss in the financial year ended March 2009, when it, along with almost every other car manufacturer, was hammered by the slump in the North American auto market. In addition the weak dollar will continue to erode Toyota’s profits in the U.S.
Toyota’s third-quarter numbers are not likely to reflect the damage the massive recalls will eventually cause due to the fact that the announcement came, technically, after the fiscal period had ended. However, the number of lost vehicle sales, which some analysts estimate at a staggering 20,000 vehicles a week, as well as the actual costs of the recall, will take its toll in the months to come.
The recall for faulty gas pedals, affecting a total of 4.2 million vehicles follows a November 2009 recall for floor mats that could potentially get entangled in the gas pedal. When both recalls are combined, the total amounts to approximately 7 million vehicles worldwide. In another blow to the Japanese car manufacturer, the U.S. House Oversight and Government Reform Committee is launching an investigation, and has scheduled a February 10 hearing to review the cases. Additionally a House investigative panel is planning a hearing on February 25.
Before the recalls surfaced, Toyota was expecting a $2.2 billion loss for the fiscal year through March 2010, its second straight year of losses. A small group of analysts who are intimately familiar with the subject insist that Toyota is being cautious with its forecast and will likely do much better as the fiscal year draws to a close. These same analysts are of the belief that the company will most likely post a profit somewhere north of a $350 million profit.
Although every analyst agrees that those profits depend entirely on how quickly Toyota can resume its prior level of North American sales of the eight suspended models, including the best-selling Camry, and on how quickly it can rebuild its reputation for dependability and quality that the company has come to be known for.
