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Toyota Faces Federal Probe Over Prius Brakes

The bad news continues for Toyota, as brake problems surface in the company's popular Prius model this week. The Transportation Department is considering an investigation, after receiving 124 complaints about the possible brake-power issues.

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    And we turn to the expanding problems for Toyota, which, for the record, is a "NewsHour" underwriter.

    The latest bad news for the world's largest automotive company involves its popular gas/electric hybrid Prius. Brake problems on the redesigned 2010 model are now the subject of a federal investigation in the U.S. The Transportation Department announced today that it's received 124 complaints about the cars losing brake power on bumpy or uneven roads and four reports of crashes.

    In Tokyo today, Toyota said it had fixed the brakes in Priuses sold since January of this year by reprogramming software. But it had not previously gone public with the problem, and the 2010 model has been on the market since May of last year. The company said it's still sorting out a further response.

    SHINICHI SASAKI, executive vice president, Toyota (through translator): We are looking into each individual case and deciding how to resolve the problem with the customers.


    One Japanese newspaper reported there are plans to recall 270,000 Priuses in the U.S. and Japan, but the company refused comment on that report. Japan's transport minister, however, said the option is very much alive.

    SEIJI MAEHARA, minister of transportation, Japan (through translator): We are doing our own investigation. Toyota is also looking into the matter. And, based on those inquiries, we will decide whether or not to do a recall.


    This latest turn came after Toyota has already recalled more than eight million vehicles worldwide in recent weeks over sticking gas pedals and halted U.S. sales of eight models.

    Today, "The Washington Post" reported that federal regulators had complaints of uncontrolled acceleration in Toyotas as early as 2007, but they had concluded only a small number of vehicles were affected.


    Take the appropriate reinforcement bar.


    Toyota has said it's identified the source of the problem, but the National Highway Traffic Safety Administration is now investigating whether another cause, electronic throttles, may be involved.

    In the meantime, Toyota said today recalls and lost sales will cost it $2 billion by the end of March, and company stock continued falling. It's down 20 percent in New York trading since the recalls were first announced in late January.

    So, where do things stand now?

    We're joined by Rebecca Lindland, who follows the auto industry for the IHS Global Insight, an economic and financial analysis firm, and Paul Eisenstein, publisher of, an online automotive news service.

    Paul Eisenstein, starting with you, how much more does this latest news on the Prius complicate things for Toyota? Why is this significant?


    This is very significant. If you look at the sales, it shouldn't be as important as it is, but it's more than that.

    Think about last quarter, when Toyota spent a record $1 billion to promote itself to try to overcome the impact of the earlier recall. The Prius was the heart of that campaign. It is the halo car that people pay attention to. And now, having the sense that this car not only has a problem, but that it may have been hidden, that it may have been covered up, is going to hurt the company tremendously.


    And, Rebecca Lindland, how much is that sense, that lack of clarity or understanding about what exactly happened, what the company knew, how much is that hurting them at this point?

    REBECCA LINDLAND, director of automotive research for North and South America, IHS Global Insight: Well, it depends, Jeff, on whether you're a Toyota loyalist or not.

    Those people that have been standing with this company for decades are really kind of continuing to provide it with the benefit of the doubt. However, that group is getting smaller and smaller every day.

    So, these — you know, day after day, there's some kind of almost scandal about the company. It's really hurting their — their image right now.


    How do you — Rebecca, staying with you, how do you see the company responding so far? How are they doing?


    Well, I think that they're a little bit behind the curve. This is the company that is not used to having to handle this kind of P.R. disaster. And that's really what it's turned into.

    So, I think that there's — they're still sort of playing catch-up. And, of course, they're waking up to, every day, some new confusion, some new scandal breaking. And, so, I think that they're — they're really — you know, they're up all night trying to work through these problems.


    And, Paul Eisenstein, it sounds like you have a harsher view of — of how they have respond so far.


    I think they have responded generally poorly.

    The move to close plants, five plants, and to halt sales of eight models was a good move. But that's about the only thing I have seen from Toyota that has worked. Every time they have announced a problem or a fix, as they did with the recall, for example, in October, they have said, that's it; everything's done.

    Then they announced another recall in January. And they said, nope, that's it; everything's done. And now it's starting to look like there are electronic problems after all. You have to remember there are other recalls or at least problems that are being studied. For example, there's about 300,000 Corollas and Matrix models which may be recalled because they have clearly got something going on with their electronic control systems that could cause these vehicles to stall even at highway speeds.

    There are problems that Toyota is still going to be dealing with for quite some time. And then, when you add the political repercussions, and the fact as, as — we just heard, we're seeing the loyalists drop away, this is going to be a serious problem that will take them quite some time to recover. But they will probably recover.


    Well, Rebecca Lindland, broaden this out a little bit for us. How — because this goes well beyond Toyota, I would imagine, dealers, suppliers. Who's affected by this?


    Well, everyone that's involved with the Toyota company is impacted by this, their dealers, certainly, their advertising, their marketing. You know, it does have a ripple affect.

    But it also actually has a broader impact on the image of hybrids in general. Ford just released something, at just about 6:00, saying that they are actually redoing the software on their Ford Fusion hybrid and Mercury Milan hybrid to — so that consumers feel a little bit more comfortable with the braking systems.

    So, we're seeing it impacting the entire hybrid market already. And so it's a very significant development.


    You know, I just saw that myself, Paul Eisenstein. And I was wondering, does it also raise this question? You know, we all have this — we all know how complicated cars are now. They're far more complicated, computerized, than in the past.

    Does this sort of raise questions about — about that, about whether they're so complicated, that we — we might face more problems?


    Very definitely. I was talking with some people in the electronics industry the other day. And their estimate is that, by the middle of this coming decade, we will see about 40 percent to 60 percent of the value of a car — in other words, if the average vehicle will be up to about, say, $30,000 by then, anywhere from $12,000 to as much as $18,000 of that will go into its electronic content, everything from the engine controllers and transmission controllers to the safety systems, too, of course, the infotainment systems, which, right now, there's so much controversy about right there. What should you be doing and not doing behind the wheel?


    And, Paul, staying with you, of course the other question here that's been coming out in the last few days is — is the regulators and the safety regulation system. I assume people must — people must feel like there's some safety mechanism out there. Is the — is the system working?


    That's a big question. As we heard that — just before this — this commentary, we don't know exactly how much the federal government knew as far back as, say, 2007.

    I have actually heard that some of these reports of — of problems with unintended acceleration on Toyota models may have been reported back in 2005. So, what is the government doing? How do they keep track of it?

    One of the problems with some of this — some of these problems is that it's very difficult to track and even harder to reproduce. Toyota mentioned this, for example, with the accelerator problem. They say it's caused by condensation, which can take various parts that normally slip and slide very easily and suddenly stick, like water stuck between two glasses.

    But, as soon as it dries off, it's back to normal. Electronics become even harder to track down. And, for regulators, they can get a report, but they can't necessarily reproduce it.


    What would you add to that, Rebecca Lindland, I mean, about the — about the regulation here?


    Well, I think that, you know, we have — we have been hearing similar stories, that, in fact, date back even a little bit further than that.

    One of my colleagues has a Toyota Corolla that he bought in 2003. So, there's — there definitely is underlying issues here. And that's kind of the worst-case scenario in this situation. You don't want to hear that a company has known about these problems or didn't respond to these problems.

    You know, maybe they didn't notice the pattern soon enough in the complaints. Certainly, as Paul said, a lot of these situations are very difficult to recreate. And, so, you have got to have the exact humidity and that level of condensation. And, otherwise, you don't notice it or you can't recreate it.

    So, it's a very complicated problem. And, again, Toyota's just not that experienced in dealing with these types of situations.


    And, Paul, just in our last minute, to come back to Toyota itself, I think you referred earlier to the — the idea that it — that it can survive.

    I mean, is — is the company's survival at stake here? How serious is it? What does it have to do to — to ensure its viability?


    It would take a lot to kill the company.

    Recall, a decade ago, we had the Firestone/Bridgestone — the Firestone Ford Explorer problem. A decade later, Firestone is now reporting record sales. And Ford, of course, is now seen as the healthiest of the Detroit makers.

    But here's the interesting question. Will other manufacturers like Detroit's Big Three, particularly GM and Ford and some other makers, Honda and Hyundai, be able to pick up, really gain, now that they're posting the same sort of quality, reliability, and entering the green space, taking Toyota on directly? They could be the real winners.


    All right, Paul Eisenstein and Rebecca Lindland, thank you both very much.


    Thanks, Jeff.


    Thank you.