The spectacle of Toyota Motor's grim-faced chief executive, Akio Toyoda, being grilled Wednesday by a congressional committee about runaway cars did little to repair the battered image of the Japanese automaker.
But what will the financial damage be? It depends on how long the mess drags on, and whether any further recalls are announced. But no one who tracks the auto industry thinks the company's estimate of $2 billion is even close to the final tally.
Craig Hutson, a debt analyst who follows Toyota ( TM - news - people ) for GimmeCredit.com, provides a litany of reasons why it's likely to cost Toyota much more. Toyota's sales, which fell 16% in January after it halted production and sales for a week, will weaken further, Hutson believes, forcing the company to offer much higher incentives to move its vehicles.
That, in turn, will hurt the resale value of Toyotas, degrading the profitability of its financing arm, which counts on high resale values when it offers attractive leases to consumers. Toyota Motor Credit has about $18 billion worth of leased cars on its books. Automotive Lease Guide, which tracks resale values, warns that the residual value of Toyotas could fall up to 5 percentage points if the crisis drags on. If that were to happen, Toyota might be looking at a $900 million write-down for all those 3-year-old leased cars that are worth less than expected.
Source : http://www.forbes.com/2010/02/24/toyota-toyoda-recall-business-autos-toyota.html
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