The costs confronting Toyota as a result of its quality crisis will keep climbing

Article by Christian Andrei, on August 25, 2010

The barrage of recalls may have halted, but Toyota Motor Corp. isn't any closer to a clear resolution. In fact, analysts say that the costs will keep rising. Toyota estimates that the worldwide recalls will cost the company $2 billion. But it should be pointed out that this figure only covers the recalls from last Autumn until January that covers the floor mat and sticky-pedal actions.

The Prius antilock brake recall in February would still have to be accounted for. The $2 billion estimation also fails to consider the rise in incentives and advertising costs as well as the costs to deal with the lawsuits that have been received in the last two months.

Let's also not forget about the record $16.4 million fine imposed April 5 by the US government. Some analysts estimate that the total bill could exceed $4.43 billion.

Toyota attempts to get itself out of this rut while at the same time, aiming to bounce back after it suffers its first operating loss in seven decades. In response to its dilemma, Toyota has postponed the production of the US Prius, cut labor costs by reducing hiring in Japan, realigned its Japanese manufacturing base, and suspended production in Europe.

Last March 30, a task force was launched to improve global quality control. It is believed that the changes to be proposed by the group, as well as actions in response to consumer complaints and other internal quality-control committees, would add to the overall cost.

Kurt Sanger, an auto analyst at Deutsche Securities in Tokyo, said that before this issue, Toyota had already needed to be restructured and to have its costs reduced but the current pressure on earnings just makes it "even more challenging."

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