Despite Quality Woes, Toyota Turns a Profit, Admits Prius Brake Problems
February 04, 2010

Despite recalls, stop-sales orders on some of its best-selling models and other mounting quality concerns, Toyota announced Thursday it had earned money in the previous quarter and raised its earnings forecast for the year, saying it will return to profitability this year.

Toyota's profit forecast comes as the automaker's quality issues are increasing. Toyota's latest quality problem involves its high-profile Prius -- the world's best-selling hybrid car -- that company executives admitted Thursday has brake issues.

Prius Brake Problems

Toyota executives told reporters in Japan that they had found the antilock braking system interferes with the regenerative brakes on the Prius. The automaker said it considering recalling the Prius, though they describe the problem as a "drivability issue," not a safety issue. The design flaws are on Prius models, which are only assembled in Japan, sold before late January; Toyota has corrected the defect on models sold since then.

Toyota acknowledged that Japan's transportation ministry had directed the automaker to look at consumer complaints on the latest generation of Prius, which went on sale last year. Company officials described the situation as the Prius responding "sluggishly" on bumpy or icy roads.

U.S. safety officials have received similar complaints, not only on the latest generation Prius but on earlier models as well. American consumers describe a surge forward or temporary loss of braking when the Prius travels over a pothole or uneven surface.

Toyota has sold 1.2 million Priuses worldwide since its 1997 introduction, about half in the U.S. It is Toyota's third best seller in the U.S.

Tacoma Questioned

Meantime, in Washington, D.C., New York representative Edolphus Towns, in a letter to Toyota, requested additional information from the automaker on its Tacoma pickup truck due to complaints the National Highway Traffic Safety Administration has received regarding  "unintended acceleration" on 2006 to 2010 models.

The U.S.-built Tacoma was recalled as part of Toyota's campaign late last year regarding the floormat trapping the gas pedal, but was not part of the more recent sticky gas pedal recall that covered eight of Toyota's best sellers since the Tacoma has a Denso-made pedal mechanism, not one made by U.S. supplier CTS.

Still Profitable

Despite quality issues, Toyota said its profits in its third quarter, which ended December 31, rose 10 percent. In fact, Toyota's quarterly profit of $1.7 billion significantly beat analysts' forecasts. A year ago, Toyota reported a loss for ther quarter.

Toyota's strong quarter led the automaker to raise its forecast for fiscal 2010, which ends March 31, to forecast a profit of 80 billion yen ($880 million) from a previous estimate for a loss of 200 billion ($2 billion).

In a conference call Thursday morning, Toyota Motor Corp. Managing Officer Takuo Sasaki said costs of the recalls for the floormat-gas pedal issue and sticky accelerators -- and subsequent lost sales -- had been factored in and spread equally over the third and fourth quarters of the current fiscal year.

Sasaki said Toyota was assuming "quality-related expenses" involving the two recalls would cost the automaker 100 billion yen ($1 billion). In addition, he said the lost sales and reduced resale values would cost Toyota another 70 to 80 billion yen ($770 million to $880 million), which would be included in fourth-quarter results. He said Toyota expects it will lose 100,000 vehicle sales globally as a result of the recalls.

One financial analyst suggested to Sasaki that Toyota's estimate of lost sales from the recalls is too low. Sasaki responded that Toyota is assuming it will lose 80,000 sales in the U.S. and 20,000 elsewhere. He said Toyota came up with its estimates based on talking with its sales experts in the field.

He said Toyota is making a "maximum, all-out effort to restore customer confidence and minimize the reduction in sales."

Sasaki said any measures that might be taken in regard to the latest issues surrounding the Prius had not been included.

Toyota credited its better-than-expected financial performance for the quarter and the year to higher sales as well as the automaker being well ahead of cost-cutting targets.

And Toyota forecasts its financial picture will improve. In a statement, Toyota said it revised upward its forecast for the 2010 fiscal year, which ends March 31, as a result of increased sales volume and a richer mix of models sold combined with overall cost-reductions. -- Michelle Krebs, Senior Analyst and Editor at Large

Photo by Toyota

Toyota Prius

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