$2bn hit from safety recall leaves Toyota investors jittery

TOYOTA yesterday unveiled a huge surge in profit in the closing months of 2009 but admitted its massive safety recall programme would cost the group $2 billion (£1.26bn).

The costs and lost sales stemming from the recall of millions of vehicles worldwide will keep the Japanese giant in the red for the full year to March.

Shares in Toyota slumped to a ten-month closing low in Tokyo as investors expressed concern at the blow to the company's previously untarnished reputation.

The recall of millions of vehicles due to problems with accelerator pedals has wiped out some 19bn in share value and overshadowed what, until only two weeks ago, had been expected to be an upbeat story of improving earnings.

Lee Sung-Jae, an analyst at Kiwoom Securities in Seoul, said: "Toyota's recall this time is unlike any other in auto industry history. The scale is huge to begin with, and this deals a fatal blow to the very core value Toyota represented – the quality of its cars."

The $2bn hit from the recall represents about $1.1bn for repairs and between $770m and $880m in lost sales.

Results for the last three months of 2009 show Toyota made a pre-tax profit equivalent to 1.56bn, against losses of almost 2bn a year earlier, marking its strongest profit in six quarters.

The firm also said it expected to sell 7.18 million vehicles worldwide during the year to 31 March – a slight increase on a previous estimate made in November.

Toyota has been one of the biggest beneficiaries of various car scrappage schemes introduced by governments on both sides of the Atlantic.

But the world's biggest car maker is now under investigation in the United States for its handling of the recall of a host of its most popular models, including the Camry, Corolla and Rav4.

It has not yet worked out the costs relating to a separate software problem in the braking system on its new Prius hybrid.

With less than two months left in its current financial year, Toyota has lowered its forecasts for full-year operating losses, thanks to the end-of-2009 rebound, but still expects to remain in the red at the operating level.

Senior managing director Takahiko Ijichi said the company was unsure about the impact beyond the end of this financial year, but investors expressed concerns.

HSBC fund manager Benedicte Mougeot said: "The company's forecast earnings and profitability will surely decrease because of the recall. Taking into account the increased risk and reduced profitability, we will review our investment."

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