Toyota's next problem: Lawsuits

By Chris Isidore, senior writer


NEW YORK (CNNMoney.com) -- Fixing millions of gas pedals and brakes and convincing customers their vehicles are safe could end up being the least of Toyota's challenges. Some experts think the price tag from legal settlements could end up topping the company's estimate of $2 billion in recall costs.

There are already more than 30 U.S. lawsuits filed against Toyota involving the problems with its gas pedals alone, according to Craig Hutson, senior investment grade analyst at Gimme Credit, a bond research service firm. And there are more lawsuits are in the works.

chart_toyota_resale.03.gif

"Lawyers are champing at the bit to get at these guys, and the company has come out and largely admitted mistakes in respect to these issues," said Hutson. "It's hard to put a dollar amount on it, but multi-billion dollar costs are not out of the realm of possibility."

Hutson isn't alone in worrying about how much lawsuits could hurt Toyota. Credit rating agency Moody's cited the litigation risks when it warned Tuesday that it might downgrade Toyota's credit ratings.

The company also faces at least one class action suit involving problems with the brakes on 2010 models of the Prius and other hybrid vehicles. Toyota announced a recall for those hybrids Tuesday.

New reports of problems with the steering of its Corolla could mean more lawsuits against Toyota.

Safety experts estimate official complaints involving Toyota gas pedals show there have been 19 fatalities involving the recalled vehicles.

But Gary Robb, an attorney in Kansas City who is looking at filing cases, says he believes that number will increase significantly as people look more deeply into accidents for which no cause was ever determined.

"We've had so many calls from so many people now that this news has come out," he said. "Accidents that were heretofore attributed to driver error are very likely due to a malfunction of the gas pedal. There's going to be dozens of those incidents arising."

Cases involving death or serious injury will likely be handled in individual lawsuits.

Suing to reclaim lost value. Robb said he's also looking at a class action case to try to recover billions of dollars he claims were lost in the resale value of the recalled vehicles. He said his experts estimate total losses could be in the $6 billion to $8 billion range. "For many people their car is their second largest investment," he said.

Other experts suggest that the loss in resale value is not as high as Robb's figure, but that it is still likely in the billions.

Kelley Blue Book, a leading used-car value service, is lowering its estimated prices for the recalled models this Friday by 2.5% to 3.5%. That's enough to lower the value of each vehicle by between $250 and $800.

The National Highway Transportation Safety Administration estimates that more than 6 million U.S. vehicles are affected by the recall. So based on Kelley Blue Book's estimates, the overall loss in resale value is likely to be at least $2 billion.

Toyota wouldn't comment on its legal exposure from the recalls. As to the reduction in resale value by Kelley Blue Book it said, "Historically Toyota and Lexus vehicles have held their value very well relative to other vehicles. We expect that to be true in the future as well."

It's not clear whether courts will allow plaintiffs to collect that much money. James Henderson, a law professor at Cornell University, said legal precedent is against them.

But Henderson does think the recall opens Toyota for a rash of new personal injury cases. He added that if it is determined that Toyota knew of problems with the gas pedals and did not warn a driver involved in an accident, the company could be hit with punitive damages.

Hutson said beyond the cost of any jury verdicts or settlements, the lawsuits have the potential of causing continued damage to Toyota's reputation, keeping the problems and company's failures in the news. That could cost the company additional sales going forward.

He said if any documents come out which prove Toyota engineers knew something needed to be fixed, it will be difficult for Toyota to ever regain consumers' trust.

"When your image is one that has been largely built on quality and dependability, you can't afford that kind of smoking gun," Hutson said. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,292.29 26.30 0.15%
Nasdaq 4,582.01 -11.42 -0.25%
S&P 500 2,011.62 0.26 0.01%
Treasuries 2.60 -0.03 -1.03%
Data as of 12:07pm ET
Company Price Change % Change
Yahoo! Inc 42.29 0.20 0.49%
Bank of America Corp... 17.00 -0.04 -0.23%
Oracle Corp 39.56 -1.98 -4.78%
Microsoft Corp 46.86 0.18 0.39%
Apple Inc 101.47 -0.32 -0.31%
Data as of 11:52am ET

Sections

The Federal Reserve is probably not going to raise interest rates until the summer of 2015 at the earliest. More

Apple's new iPhone 6 and 6 Plus went on sale Friday, with fans lining up for hours outside Apple Stores around the world. More

Immigrant entrepreneurs leverage connections abroad to boost international exports -- and non-immigrants could stand to learn from their tactics. More

A 10,000 square-foot home doesn't take care of itself, and many of the uber wealthy families who own them don't want to tend to them either. So they hire people like Bryan Peele. Here are journal entries from a day in his life. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.