Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Toyota recall costs: $2 billion

By Chris Isidore, senior writer


NEW YORK (CNNMoney.com) -- Toyota Motor says the massive recalls of vehicles due to gas pedal problems could end up costing it $2 billion.

Those costs were not enough to stop it from reporting significant improvement in earnings in the quarter ending Dec. 31, and a much better forecast for the fiscal year ending in March. But it is clear the safety and recall problems will remain a major headache for the company.

On an investor call Thursday, Toyota (TM) officials estimated that a bit more than half of the $2 billion impact would result from the expense of fixing 8.1 million affected vehicles worldwide. The remaining hit to profits would be due to lower sales and the reduced value of leased vehicles held by Toyota's financial arm.

The company assumes it will lose 100,000 new vehicle sales due to the gas pedal recalls, with about 80,000 in North America and the rest in Europe. ON Tuesday, the company estimated that it lost 20,000 U.S. sales due to the recall in January, which halted the sales of its most popular U.S. models for the last five days of the month.

The recall cost estimates do not include any expenses or lost sales associated with an expected recall of the Prius, the hybrid vehicle which is the best-selling model in Japan and Toyota's No. 4 best-selling vehicle in the United States.

Toyota said Thursday that a software problem is causing problems with the brakes, although it has yet to announce a recall while it studies the problem further.

Despite the company's admission that it is looking at the Prius' software, Toyota Motor managing officer Takuo Sasaki repeated the company's previous statements that it is confident the problem with the gas pedals is only a mechanical defect that will be solved by the fix announced earlier this week.

Some critics have charged that the accelerator problem is also an electrical problem, and the U.S. National Highway Safety Administration is now looking at whether the company's electrical systems played a role in the problems with uncontrolled acceleration.

Strong results, outlook. The company earned ¥153 billion, or $1.7 billion, in its fiscal third quarter, a big improvement from the $1.7 billion, it lost in the same period a year earlier. It was helped by a 10.2% rise in third-quarter net revenue, and improved operating income in all regions of the world.

Even with the problems with gas pedals hurting results going forward, the company upgraded its forecast for this fiscal year, which ends in March. Toyota said it expects to end the year with an $880 million profit, due to the strong third quarter and an improved global sales outlook. The company previously forecast a $2.2 billion loss this year.

Toyota, the world's largest automaker, sold 2.07 million vehicles during the October - December period. That was an increase of 227,000 from a year ago, despite the struggling global economy.

Toyota's stock has dropped more than 12% so far this year and dropped nearly 3% Thursday morning in trading in New York after the company announced its results.

Toyota posted its first annual loss in its history in fiscal 2008, finishing that year with a $4.4 billion loss. The appreciation of the yen against major currencies, the rise in raw material costs and the collapse of the auto market in Europe and North America led to the company's loss last year.

-- CNN's Kyung Lah contributed to this report. To top of page

Index Last Change % Change
Dow 16,374.76 23.38 0.14%
Nasdaq 4,733.50 -16.48 -0.35%
S&P 500 1,951.13 2.27 0.12%
Treasuries 2.17 -0.02 -1.14%
Data as of 12:54am ET
Company Price Change % Change
Bank of America Corp... 15.94 0.09 0.57%
Apple Inc 110.37 -1.97 -1.75%
Freeport-McMoRan Inc... 10.13 0.23 2.32%
Intel Corp 29.08 0.48 1.68%
Frontier Communicati... 5.52 0.31 5.95%
Data as of Sep 3
Sponsors

Sections

Americans are transforming how they eat -- paying more attention to the origins of their food and how it's made. And Kimbal Musk is at the forefront of a movement that is accelerating the rate of change. More

The Labor Department releases its August jobs report on Friday, and it will have big implications for the Federal Reserve. More

The BauBax travel jacket, with 15 built-in features, needed $20,000 on Kickstarter, but got $9 million. More

Pimco's famous fund once managed by star manager Bill Gross has less than $100 billion in management for the first time since 2007. More