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This time, it's the Prius - Toyota probing brake design on hybrid - Posts US$1.7-billion profit in 4Q

Published:Friday | February 5, 2010 | 12:00 AM

TOYOTA MOTOR Corp returned to profit in the October-December quarter and raised its annual earnings forecast, but analysts warned of a grim outlook as a spreading safety crisis batters the automaker's reputation.

The world's No. 1 automaker acknowledged design problems with the brakes in its prized Prius, adding to the catalogue of woes for the Japanese company as it reels from massive gas-pedal recalls in the United States.

Toyota said Thursday it found design problems with the anti-lock brake system and corrected them for Prius models sold since late January, including those being shipped overseas.

But the company said it wasstill investigating how to inform customers who had bought them earlier. Nothing was decided on that front for Prius gas-electric hybrids sold outside Japan, according to Toyota.

The automaker on Thursday also reported a quarterly net profit of 153.2 billion yen (US$1.7 billion) and cited stronger sales of the Prius and other 'green' models, as well as a recovery in the US and Japan. It reported a 164.7-billion yen loss in the same quarter a year earlier.

The results don't reflect the damage from the massive recalls linked to faulty gas pedals, announced January 21.

The suspension of US sales of eight of its most popular models, repair costs for the recall and a consumer backlash are expected to undermine earnings in the current quarter and possibly into next fiscal year.

Toyota for the first time gave an estimate of the costs of the global recall of 4.5 million vehicles at up to 180 billion yen (US$2 billion): with 100 billion yen (US$1.1 billion) for repairs; and 70 billion yen to 80 billion yen (US$770 million to US$880 million) in lost sales.

Huge dent in global demand

It said the recalls could dent global demand for Toyota models by 100,000 vehicles.

Complaints about braking problems in the Prius - the world's top-selling hybrid - have been reported in the US and Japan, combining to some 180.

"We are investigating whether there are defects in the Prius," Toyota executive Hiroyuki Yokoyama told reporters at the automaker's Tokyo headquarters.

Paul Nolasco, a company spokesman, said the time lag for brakes kicking in felt by drivers stems from the two systems in a gas-electric hybrid - the gas engine and the electric motor.

When the car moves on a bumpy or slippery surface, a driver can feel a pause in the braking when the vehicle switches between the traditional hydraulic brakes and the elec-tronically operated braking system, he said.

The brakes start to work if the driver keeps pushing the pedal, but the driver may momentarily feel they aren't working, he said.

Fixing that included a software programming change, he said.

Whether a recall was in the works for the Prius is still undecided, according to Toyota, but the transport minister urged the company to consider it and is ordering an investigation.

The latest-model Prius hit showrooms last May and is only made in Japan.

"Just as the company was recovering, it's been hit with this recall problem," said Mamoru Kato, an analyst at Tokai-Tokyo Securities.

"It's very unclear what the future will bring. I had calculated some forecasts before all this, but I can't use them any more," he said. "The situation right now is that there's nothing positive."

Image hurt

The gas pedal and last year's floor mat recalls together total seven million vehicles worldwide, including US, Europe, and China, although some models are affected by both problems.

The brake complaints spread the problem to Toyota's home market, Japan.

"Toyota's image as a leader in hybrids has been hurt, so the outlook is severe for the near and long term," said Kato.

Toyota Senior Managing Director Takahiko Ijichi defended the automaker's quality standards.

"We have not sacrificed the quality for the sake of saving costs," he said. "Quality is our lifeline. We want our customers to feel safe and regain their trust as soon as possible."

Crediting cost-cutting and a revival in global sales after the economic slump, Toyota raised its annual earnings forecast and expects to be back in the black after losing money last year.

Murky outlook

It now expects a profit of 80 billion yen (US$880 million)for the year through March from an earlier projection of a 200-billion yen (US$2.2 billion) loss.

Analysts said the outlook for the fiscal year starting in April remained murky, and company executives declined to offer any projections. They said the Prius problems weren't factored into the new forecast for an annual profit.

For the quarter, sales revenue rose 10 per cent to 5.3 trillion yen.

Quarterly operating income improved in all geographic regions, climbing out of the red in Japan and North America. But analysts said those gains could suddenly evaporate because of the spate of safety problems.

Toyota's US sales have already fallen 16 per cent in January amid the recall fallout and Kato said US sales could fall by as much as half in February.

Toyota shares continued to tumble on the Tokyo Stock Exchange, falling 3.5 per cent to 3,280 yen after plunging 5.7 per cent the previous day.

Since January 21, the day the gas pedal recall was announced, the stock has dropped about 22 per cent.

- AP

'Just as the company was recovering, it's been hit with this recall problem. ... It's very unclear what the future will bring.'

Mamoru Kato, Analyst,

Tokai-Tokyo Securities

January recalls

Year Brand

2009 10 RAV4 crossovers

2009 10 Corollas

2009 10 Matrix hatchbacks

2005 10 Avalons

2007 10 Camrys

2010 Highlander


2007 10 Tundra pickups

2008 10 Sequoia SUVs