LONDON — Analysts from automotive research firm Frost & Sullivan projected Toyota's repair costs for ongoing recalls could reach $1.5 billion compounding yet-to-be determined market share losses.
Vigneshwaran Chandran, Frost & Sullivan's program manager of its business strategy and innovation group, went on to pinpoint what element of the Toyota turmoil could be most costly.
"One of the key concerns for Toyota is the loss in sales of its flagship hybrid Prius to other market substitutes," Chandran wrote in a report Total Recall: Impact Assessment of Toyota's Quality Issues on its North American Business.
"Honda is a brand high on the brand recall list for Americans and the Insight mild hybrid, which is competitively priced, could become an immediate alternative for Toyota customers," Chandran warned.
The situation involving the Prius came in conjunction with Frost & Sullivan believing the recalls could cost Toyota a total approaching 100,000 in lost sales to other vehicle brands in the first half of the year.
Building on the negative momentum was the possibility of a large recall of the Toyota Corolla.
"The loss of consumer confidence and the reigning media frenzy have wiped nearly one-fifth of the company's value off the board of the Tokyo stock exchange," Frost & Sullivan noted.
"Moreover, the suspension of sales of eight Toyota models in the U.S. will not only dampen first quarter sales figures, but also offer a critical leg in to competitors offering trade-in incentives," the firm added.
Getting vehicles already in service back on the road is another element that Frost & Sullivan think will be a huge hurdle for Toyota to clear. The firm expects that repairs to Toyota units for accelerator problems could vary anywhere from $500 million to $1.5 billion.
Furthermore, Frost & Sullivan believes an even greater expense may be legal fees. The firm noted more than 40 class-action suits have been filed against Toyota and 13 lawsuits alleging death or injury due to unwarranted acceleration.
"In the longer term, Toyota faces tremendous publicity damage," Frost & Sullivan explained.
"Owners worry about loss of vehicle re-sale value and confidence in the brand as representing safe and reliable cars has plummeted," the firm went on to note.
"In response, Toyota is trying to shift some of the blame onto suppliers, while repairing all affected models. As part of its damage control campaign, dealerships are open longer, television campaigns re-iterate the strong quality record of the company and the company has used an outright apology combined with a commitment to fix things," the firm continued.
"Despite these efforts, it remains to be seen how the whole issue will affect the long-term performance of the company. This is especially true as other carmakers, including Honda and Ford, increasingly face recalls," Frost & Sullivan added.
No matter the obstacles, firm analysts mentioned that Toyota upped its vehicle forecast for the fiscal year ending in March from 7 million to 7.2 million units. Fueling this prediction was efforts by the automaker to boost incentives by $1,000 in conjunction with existing loyalty cash incentives for returning Toyota owners
Frost & Sullivan also pointed out that Toyota plans to offer free oil changes, regular services and match Hyundai's 10-year powertrain warranty program.
"With an anticipated slowdown in demand due to scrappage incentives coming to an end in most developed markets, we wait to see if the recalls affect overall consumer confidence and purchase behavior, thus slowing down the market recovery further," Chandran concluded.