A $10 Billion Price Tag For Toyota (TM) Recalls

The price tag for Toyota’s (TM) massive recall of eight of its popular models plus the Prius hybrid and its Tundra truck is estimated as high as $5 billion according to experts surveyed by The Wall Street Journal. These costs include repairs, litigation, and the incentives that the car company will have to give to bring customers back to its dealerships. The AP reported that the cost of the 89 class action suits against Toyota could rise as high as $3 billion.

But, those figures are likely to be no more than the tip of the iceberg.

The number of vehicles that Toyota has recalled increases by the week. A Prius accelerated to 94 mile per hour on a California road recently and a state trooper had to help the drive stop his car. Toyota has recalled tens of thousands of those Prius models after the incident, claiming that floor mats cause the pedals to stick. But, a number of engineers still believe they can prove the acceleration problem is due to electronic failures in the car, a charge that Toyota denies. If Toyota is wrong, a number of its cars will have to be recalled twice to fix a problem that was already supposed to be resolved.

Class action suits against huge, rich corporations lead to more class action suits. The number of legal actions against Merck (MRK) over accusations that its anti-inflammatory drug Vioxx rose caused heart problems rose to 6,000. The price of settlements for the claims moved over $4.8 billion and that only covered a part of the litigation.

If Toyota’s problem is in the $5 billion range now, that number could certainly double before the end of the year. People who claim injury due to defects in Toyota cars will rise, whether those claims are legitimate or not. Other plaintiffs will say that the cost of putting their cars in for repairs lost them precious time at work or at home. The reasons for suits against Toyota over recall incidents are in the dozens, and the Japanese car company will have to face them in state courts around in country as well as federal courts where class action suits are likely to be consolidated.

The cost of Toyota’s recalls has only just begun to build.

Douglas A. McIntyre