Toyota's Recalls: Why the Government Reports Aren't an All-Clear


Government reports released last week found no electronics-based cause of unintended acceleration in Toyota vehicles. The news seemed to give the world's largest automaker a chance to restore its battered reputation for safety and quality.

But the twin reports -- one from NASA and the other from the National Highway Traffic Safety Administration -- aren't themselves enough to end the fallout from two big recalls involving Toyota and Lexus vehicles that suddenly accelerate out of control. Toyota Motor (TM) last year recalled about 8 million cars worldwide, most of them in the U.S., to fix sticky gas pedals and to prevent accelerators from catching on rubber floor mats.

Very Little Impact at Trial

Toyota's bungled handling of those and one other recall led to a record $48.8 million in fines by the federal government. The media blitz that accompanied the recalls, which included high-profile TV coverage of several congressional hearings, drove down sales in the U.S. and led to numerous lawsuits, including two class actions alleging economic loss now being waged in U.S. District Court in California.

Sponsored Links

In a statement last week, Toyota said it hoped the studies' findings would "put to rest unsupported speculation" about its electronic throttle control system and its potential as a source for unintended acceleration. But whether the results prove enough to give Toyota a leg up in its legal battles remains to be seen.

Toyota, obviously, is happier with the outcome than if the government had been able to find some link to electronics, says Steven Goldberg, law professor at Pace University.

Nevertheless, "it's very hard to assess whether this will have much effect," Goldberg says. The finding is likely to have very little impact at trial, though "It might have effect on settlement and it might have effect on the opinions of people in the jury pool," he says.

Further, a government report isn't infallible. In releasing the findings last week, NASA lead engineer Michael Kirsch said he couldn't rule out electronics entirely. Rather, he said, they aren't likely the source of unintended acceleration. The reports also don't absolve Toyota of the problems that led to the recalls in the first place: bulky rubber floor mats and sticky gas pedals.

Not Cleared From All Wrongdoing

Plenty of people still have lawsuits pending because of those and other issues besides electronics, says David Sullivan analyst with AutoPacific, a California-based research firm. The reports may allow Toyota to more easily reconcile issues with some people, he says, "but it doesn't exonerate them of all wrongdoing yet."

Further, Sullivan says, the news isn't likely to aid Toyota sales this year as it seeks to recover from a lackluster year in the U.S. in 2010. Part of Toyota's problem is that its lineup of cars is aging, including two of its high-volume, bread-and-butter passenger cars: the Camry and Corolla sedans. Newer models introduced by Ford Motor (F), Hyundai Motor and General Motors (GM) are far superior to the Camry and Corolla, he says.

Toyota has also done a less-than-stellar job in the court of public opinion. In the days immediately following the recalls last year, company President Akio Toyoda refused to take questions from the media before eventually making several tearful apologies for his company's lapses.

Denial Mode

"I think Toyota blew it early on," says Paul Kurnit, clinical professor of marketing, also at Pace University. Acting not unlike a deer caught in headlights, Toyota management went into denial mode, he says.

Kurnit says despite its mishandling of the recalls, Toyota still enjoys a large, loyal customer base. "This absolution is likely only to be good for sales," he says, adding that the automaker shouldn't gloat about the reports' findings. "Just stay the course and keep tending and attending to quality."

Get info on stocks mentioned in this article