(TM) Toyota Recall Cost Will Exceed $2 Billion Estimate, Lawyers Say
By Margaret Cronin Fisk
Feb. 8 (Bloomberg) -- Lawsuits against Toyota Motor Corp., the world’s largest automaker, will push the cost of recalls linked to sudden acceleration past a $2 billion company estimate for warranty payments and lost sales, customer lawyers say.
People who purchased Toyota vehicles in the U.S. have filed at least 34 class action lawsuits against Toyota, seeking damages that range from loss of car value to a return of profits. Toyota faces at least 12 individual lawsuits claiming deaths or injuries caused by unwanted acceleration of vehicles. Customer lawyers said they’re considering filing dozens more.
In similar class actions against carmakers, some customers settled claims by taking discount coupons for future purchases, most of which were never used. Toyota customers will demand cash, said attorney Michael Louis Kelly, who has filed two such suits in California. The Kelley Blue Book, the used-auto pricing service used as a guide in private-party transactions, reported last week that values of Toyota vehicles had already suffered a loss of up to 3 percent of resale value.
“The damages could be in the billions of dollars in the loss of value alone,” Kelly said in an interview. “I don’t think we’re talking about coupons under any circumstances.”
In a Feb. 4 earnings call, Toyota, based in Toyota City, Japan, estimated it will have to spend $1.12 billion on warranty expenses and will lose as much as $895 million in lost sales over the recall. It also reported about $23 billion in cash and near cash.
Mike Michels, a Toyota vice president of corporate communications, declined to comment on the potential loss, saying the company didn’t have an estimate on potential litigation costs. He said the company had liability insurance, without elaborating on its extent, and that it did not cover warranty costs, which were budgeted before the recalls.
No Reserves Announced
In the earnings call, Toyota didn’t provide details on any reserves to cover the costs of its recalls, which affect 5.6 million vehicles in the U.S. and Canada, not including Prius and other hybrid vehicles that may be recalled to fix a company- recognized defect in their automatic-braking system.
Toyota fell 1.1 percent to 3,280 yen today in Tokyo. Toyota’s market value tumbled 19 percent through Feb. 5 from Jan. 20, just before recalls were announced to fix sticky-accelerator pedals.
Class actions claiming product defects rarely go to trial in the U.S., usually settling for cash or coupons or a combination, court records show. Coupon-only settlements frequently have little participation by consumers, reducing the ultimate cost to manufacturers, past settlements show.
Ford in 2007 settled a four-state class action offering $500 discounts to owners of the company’s Explorer sport-utility vehicles after a tire recall. By June 2009, less than 1 percent of eligible consumers used the vouchers for new Fords.
Cash Required
Toyota’s recalls won’t cover losses by consumers, requiring a cash settlement, Kelly said.
“Toyota will do what they think they should do to fix these automobiles, but I don’t expect them to reimburse for the lost value of these cars,” he said.
Lawsuits claiming personal injuries or deaths may cost the company more, said law professor Carl Tobias of the University of Richmond in Virginia.
“It’s important to distinguish the personal-injury cases from the product-disappointment or lemon cases,” he said in an interview. “The latter are worth a lot less, in terms of payment.”
The adverse publicity over recalls may also affect the attitudes of prospective jurors hearing the death and injury cases, he said. That would drive up the cost of settling or taking these cases to trial, Tobias said.
Jurors Affected
“All of this can color the juries’ view on the cases that do go to trial,” Tobias said. “The company seems less trustworthy, more worried about the bottom line than safety.”
A change in juror attitudes will affect cases that have nothing to do with unintended acceleration, said attorney John Kristensen of O’Reilly Collins in San Mateo, California.
Kristensen represents the family of Michael Levi Stewart, 18, who died when his 1991 Toyota pickup truck rolled over into a ditch in Idaho Sept. 15, 2007. The lawsuit, which claims a defect in the steering relay rod, is set for trial in November.
“I’m happy to be going to trial,” Kristensen said. Every prospective juror will have heard about the sudden-acceleration claims and may be less likely to believe Toyota, he said. “Part of it goes to their credibility. I don’t know if they can afford to take a case to trial this year.”
The class actions were spurred by multiple recalls by Toyota. Most were filed after the company’s Jan. 26 decision to stop U.S. and Canadian production and sales of eight models to fix defective accelerator pedals. Almost 8 million Toyota vehicles have been recalled worldwide.
Lawsuits Increasing
The number of lawsuits has been growing daily since. Beyond the U.S. suits, at least eight class actions have been filed by Canadian owners of Toyota and Lexus models
More than half of those suing the company allege a defect in the electronic control system, contending that company fixes -- replacing floor mats and adjusting sticky accelerator pedals with a shim -- don’t correct the defect.
These additional claims, if proven, will increase the cost to consumers and Toyota, Kelly said.
“The Kelley Blue Book has already devalued these vehicles and that was when they thought it was going to be resolved with the carpet and the shim in the pedal.”
To contact the reporter on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net.
Last Updated: February 8, 2010 14:57 EST
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