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Toyota Faces Lawsuits, Losses, Congressional Hearings

Posted: Feb 01, 2010 11:14 a.m.

If last week wasn’t bad enough for Toyota, this week might be.  The company plans a media blitz to stem a tide of bad publicity, but it might not be enough, as public reaction to two separate recalls has Toyota’s back to the wall.

Bloomberg reports, “The company's stock plummeted 14 percent last week, the worst five-day performance since October 2008, wiping out 1.9 trillion yen ($21 billion) in market value.”

The embattled company has issued two separate recalls, each involving more than 4 million vehicles, in recent weeks.  In the first instance, Toyota called back more than 4.1 million vehicles due to a faulty floormat retainer, which could allow the driver’s side floormat to come loose and trap the accelerator pedal in the depressed position.  In the second, the company recalled another 4.2 million vehicles (some cars are covered by both recalls) due to an accelerator pedal that can stick in the depressed position without a floormat present.  Both issues could cause a car to accelerate without driver input.

The company faces a class-action lawsuit from owners.  Two law firms, Autoblog reports, “Are joining forces in a bid to sue Toyota's pants off.”  Representing owners of Toyotas built between 2005 and 2010, the two firms allege that “as a result of these recalls, Toyota owners lost the use of their vehicles, and sustained, among things, economic losses and severe emotional distress.”

Consumer groups and the automotive press are re-evaluating Toyota’s reputation for high-quality vehicles.  Consumer Reports has “temporarily suspended its ‘recommended’ status for eight Toyota vehicle models and one Pontiac model.”  The discontinued Pontiac Vibe, we should note, was built by Toyota.

Congress is piling on as well.  Edmunds Inside Line reports, “Saying it is concerned by the ‘seriousness and scope’ of Toyota's recalls of vehicles with faulty accelerator pedals, the U.S. House of Representatives' Energy and Commerce subcommittee said Thursday it will hold hearings on February 25 ‘to examine the persistent consumer complaints.’”

What can Toyota do to protect its image?  The automaker has already launched a “media blitz,” Bloomberg reports, aimed at rehabilitation.  “The automaker ran an informational ad in newspapers today.”  The ad portrayed the company’s decision to halt sales and production of eight popular models as a “temporary pause to put you first.”  President Akio Toyoda, meanwhile, “Gave a 75-second apology last week in Davos, Switzerland,” at a meeting of world leaders discussing the ongoing recession.

Toyota USA President Jim Lentz appeared on NBC’s Today Show this morning to discuss the recalls.  Autoblog reports, “Lentz [gave] the answers you'd expect any exec under siege to give, which is to say we don't learn much that we don't already know.”

Still, some aren’t sure that the company’s efforts will make a difference in public perception.  ABC News reports, “Crisis-management experts said Sunday that the recall of millions of cars and trucks isn't the Japanese auto maker's only problem: its message to Toyota owners -- delivered in full-page ads Sunday in 20 major newspapers -- isn't as clear and reassuring as it needs to be.”

Part of the company’s problem may be that the Japanese press doesn’t seem to see the issue the same way the U.S. media has portrayed it.  The Wall Street Journal explains, “In the U.S., Toyota's massive recall and production stoppage is widely portrayed as an embarrassing stumble for a quality-proud giant….Many Japanese newspapers and magazines have portrayed the issue as the resurgence of 1980s-era trade tensions, and hostility to Japanese commerce.”  The Journal cites a quote from the popular Japanese weekly business magazine Toyo Keizai to illustrate the attitude of the Japanese press.  “After the collapse of GM, the U.S. auto industry has lost its morale," the magazine says. It continues, “Obama may also move to protect its own auto makers in order to win the mid-term election in fall. One possible misstep by Toyota may lead to further 'Toyota bullying' which may be even more emotional.”

With what we’ve seen so far in the courts, the markets and the Congress, an appearance on The Today Show may not be enough to stop the “Toyota bullying.”   

In a study released Wednesday by the auto analysts at CNW Market Research, Kicking Tires reports, “Toyota fell to seventh place for 2010 models -- from second place in 2009 -- among 20 mainstream brands in perceived quality.”

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