Image: Toyota CEO Akio Toyoda
Alex Wong  /  Getty Images
Toyota President and CEO Akio Toyoda, center, testifies before a House panel on Capitol Hill last month.
Image: Paul A. Eisenstein, msnbc.com contributor
By
msnbc.com contributor
updated 3/24/2010 5:42:07 PM ET 2010-03-24T21:42:07

Timing is everything, the famous samurai Miyamoto Musashi wrote in his treatise on strategy "The Book of Five Rings."

Maybe Toyota's CEO Akio Toyoda should have read the book before he promised U.S. legislators that customers wouldn't be blamed for any "unintended acceleration" incidents.

His timing was terrible. Attorneys around the nation are preparing for what could be an avalanche of lawsuits targeting the automaker, which is at the center of an ongoing storm involving both claimed and acknowledged safety problems.

More than 150 attorneys gathered Wednesday to sharpen their legal tools on the eve of a major federal court hearing on whether dozens of cases will be consolidated before a single judge.

The main topic at the conference, organized by legal publisher HarrisMartin, was Thursday's scheduled hearing before a panel of federal judges in San Diego who will choose whether to combine more than 100 Toyota lawsuits and where to send them.

By some estimates, the cost of settling or litigating the lawsuits from those who say they or loved ones have been injured by a Toyota product could amount to $3 billion or more. That's in addition the money Toyota is expected to lose because of rising incentives to keep current owners and attract new ones.

In the first months of its safety-related problems — which began with reports of the crash and fiery death of a California police officer and his family last August — Toyota operated largely on the defensive. But in recent weeks, following two days of congressional hearings, the automaker has been taking what many observers see as a more aggressive tone, challenging critics and even one owner, whom the company all but accused of perpetrating a high-visibility hoax.

That has earned the embattled Toyota a few more sympathetic headlines in recent days. But some observers warn it could backfire because of one key comment made by Toyoda to congressional investigators: Toyota “will not blame its customers” for its problems.

“Lawyers will use that,” suggested George Peterson, chief analyst with the research firm AutoPacific Inc. An overly aggressive defense that blames the driver, he believes, could flip sentiment in favor of a plaintiff who has been injured or lost a family member, especially if the automaker appears to be “hiding” the truth.

Toyota seemed to be charting a cautiously defined line last week when it announced the preliminary results of an investigation of a Prius owned by James Sikes. The California businessman claimed his hybrid ran out of control, reaching speeds of up to 94 mph before a highway patrol officer helped him stop the vehicle. Though Toyota avoided using the word “hoax,” it insisted it could find no way to support 61-year-old Sikes’ claims — leading some media and consumers to apply the word.

However Toyota winds up squaring off with the army of lawyers who are, in some cases, using TV ads to solicit Toyota owners to file suit, the general consensus is that the legal battle will be costly.

Plaintiff's lawyers already appear to be trying to find creative ways to approach the case. Some of them, according to Reuters, may add racketeering claims on behalf of consumers who blame the company for lost resale value on their vehicles. Under the Racketeer Influenced and Corrupt Organization Act (RICO), if juries find for the plaintiffs, it could triple the damages Toyota would have to pay.

Last month Toyota said that the two recalls related to sudden acceleration — one announced last October, the other in January of this year — would cost it about $2 billion, a figure covering lost sales, repairs and related matters. The recalls cover about 6 million vehicles in the United States alone. About 52 deaths have been linked to crashes allegedly caused by accelerator problems.

But Kohei Takahashi, an analyst with JP Morgan, says the cost estimate could be significantly understated. He predicts the all-in cost to Toyota, once litigation is considered, will top $5.5 billion.

That also includes the hefty cost of incentives that Toyota recently rolled out to try to bring back skeptical U.S. customers. Providing givebacks of up to $3,000 on a new Avalon sedan, and zero-interest loans on many models, they’re among the largest incentives Toyota has ever put on the hood, though still significantly less than what some of the maker’s U.S. rivals, like General Motors, consider normal.

So far, the incentives seem to be working. Toyota sales jumped by about 40 percent compared to year-earlier levels during the first part of March, according to Toyota Senior Vice President Don Esmond. The executive, one of Toyota’s top American officials, said that while those givebacks are only slated to run through the end of the month, he has promised the company’s nervous dealers that Toyota “will remain competitive.” That means the costly giveaway could stretch on indefinitely.

According to Esmond, loyal Toyota owners are standing behind the brand — and showing their support in the March sales numbers. But, the executive acknowledged, “We’ll have a harder time” grabbing sales from other brands than once was the case with the fast-growing marque.

But there may be reason to worry even about Toyota loyalists, warned Peterson of AutoPacific. His latest survey of U.S. motorists finds several troubling statistics that say the steady drumbeat is turning owners off from a brand once heralded for its safety and reliability.

One group is still confident about Toyota products and ready to both buy another product and recommend the brand to others. A second group is more skeptical and unlikely to recommend a Toyota. Those in a third group, said Peterson, “feel angry and dissatisfied,” questioning if Toyota has been telling the truth.

As anyone who has watched the legal system in action knows, the truth can be difficult to find. And that is likely to be complicated in the Toyota situation. The automaker insists it has found no electronic problems behind sudden acceleration but admits that possibility cannot be ruled out entirely.

That means there will likely be a significant gray area for juries to wade through. Corporate finger-pointing, especially in light of Akio Toyoda's promise, could have some unpredictable but potentially costly implications.

That’s reflected in more general research by AutoPacific, which shows that 60 percent of respondents feel Toyota’s image is worse than it was a year ago and that the percentage of U.S. motorists, overall, who would consider the brand “has fallen from 54 to 37 percent.”

By contrast, Ford’s consideration has surged from 38 percent to 67 percent during the same period, and is now the highest in the industry, ahead of Chevrolet, Honda, Nissan and Toyota, in that order, according to new AutoPacific data.

Some studies are more positive. New findings by Corporate Research International suggest that only 6.5 percent of current Toyota owners will not repurchase one of the company’s products. But even that figure poses problems in a market that has traditionally been Toyota’s strongest outside Japan.

And the damage may be spreading. New figures from the 27-country European region show Toyota had a 20 percent sales decline for February, even as the soft EU automotive market showed some signs of life, picking up 3 percent overall.

As a result of Toyota’s problems, JP Morgan analyst Takahashi lowered his forecast for the company’s earnings for the fiscal year beginning April 1 from 760 billion yen to 540 billion ($5.9 billion). For his part, analyst Kurt Sanger, of Deutsche Bank, said the upside is that Toyota can count on growing demand in emerging markets, such as China, to help offset problems in more established locales, like Europe and the U.S.

But maybe not. There are signs that in China, where Toyota has also announced safety recalls recently, things are slipping too. Dealers who only recently added a premium for the much-in-demand brand are now offering incentives instead.

The Associated Press contributed to this report.

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