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Toyota's next problem: Lawsuits
By Chris Isidore
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.
"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 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. 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.
Toyota's troubles: How it got here
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
Sheldon J. Schlesinger, P.A. represents clients throughout
the state of Florida including the cities of Boca Raton, Boynton
Beach, Carol City, Cooper City, Coral Gables, Coral Springs, Davie,
Deerfield Beach, Delray Beach, Fort Lauderdale, Hialeah, Hollywood,
Jupiter, Lake Worth, Miramar, Miami, Oakland Park, Palm Beach, Palm
Beach Gardens, Palm Springs, Pompano Beach, and Rivera Beach
Broward County • Miami-Dade County • Palm Beach
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