Cost To Fix The Problem Won’t Exceed $400 Million
VW Modular Plans Potentially Threaten Similar Ructions
Toyota’s massive, 7.4 million vehicle recall isn’t the big deal it might have seemed initially and will be relatively cheap to fix, with no nasty ramifications for brand integrity, unlike the last one.
Investment bankers estimated the cost to Toyota at between $128 million and $380 million, barely one per cent of annual operating costs.
Investors in Volkswagen might be little nervous though at the implications. VW has been basking in the glory of estimates that it will save a gross €14 billion by 2019 when its MQB modular engineering system is used on half of its more than eight million output. Not if there’s a big recall, it won’t.
The latest recall for Toyota, to fix malfunctioning power-window switches on the Yaris, Corolla, Auris, Camry, RAV4 and other vehicles, will take about 40 minutes to fix and consists of either applying a special grease, or replacing the switch. This isn’t likely to reverberate amongst potential buyers like the unintended acceleration recall a couple of years ago and cover-up allegations. It won’t be nearly as damaging as the earthquake and tsunami disasters, or the rioting in China as a territorial dispute turned destructive for Japanese cars.
Deutsche Bank has a litmus test to measure the potential damage from recalls.
“First, was anyone injured or killed by the problem? The answer here is no. Second, is it an expensive part to fix? Again the answer is no. Finally, is it a labour intensive part to fix? Again the answer is no. Our overall assessment of this recall is that it should have no material impact on the share price,” said Deutsche Bank analyst Kurt Sanger.
According to the FT’s Lex column, the latest news from China is more significant for Toyota.
Most symbolised
“The fallout in China, however is a bigger problem for Toyota. Its sales there halved from a year earlier in September. This was a steeper decline than for Japanese peers as the car giant is the marque that most symbolises Japan. But then only one-tenth of Toyota’s global unit sales are in China, compared with more than a quarter for Nissan,” Lex said.
The strength of the yen is another problem for Toyota, which makes around half its cars in Japan, and plans to move some output across Asia and America. This has implications for quality, says Reuters’ BreakingViews correspondent in Asia Wayne Arnold.
“Rivals such as South Korea’s Hyundai have narrowed the gap in terms of perceived quality, making it harder for Toyota to charge the premium required to justify making half its cars at home in Japan. The yen has risen 49 per cent against the U.S. dollar in the past five years, and Toyota estimated that this cost $3 billion in the latest fiscal year,” said Arnold.
“Toyota is planning to shift about a seventh of Japanese production to India, Thailand and North America. That will help cut costs, but losing the “Made in Japan” label may only make it harder for Toyota to convince consumers that it can steer clear of alarming product glitches in future,” Arnold said.
Fresh angst?
One fact which emerged after the recall news might cause Toyota some fresh angst. A report from the U.S. National Highway Traffic Safety Administration said Toyota first learned of the switch problem more than four years ago, but the Japanese company was unable to pinpoint the problem after complaints from drivers about smoke and unusual smells emanating from the doors.
Neil Winton – October 14, 2012
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