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Has Toyota Weathered the Worst of the Recall Scandal?

Wednesday, 4 Aug 2010 | 11:42 AM ET
2010 Toyota Prius
Getty Images
2010 Toyota Prius

Between the data that came out on July auto saleson Tuesday and the Toyota quarterly earnings report early this morning, there is a growing perception Toyota has weathered the worst when it comes to recalling millions of vehicles worldwide.

That question is already being asked on Wall Street.

And some analysts are suggesting Toyota has felt its biggest impact from lost sales and will slowly re-build sales for the rest of this year. In Japan, the company has swung to its biggest quarterly profit in two years.

So is Toyota out of the woods? Not entirely.

There's no doubt Toyota will see more damaging headlines as scores of cases work their way through the courts. Heck, earlier this week the Los Angeles Times reportedthat court documents turned over by Toyota indicate the company knew of unintended acceleration cases as early as 2003. This further fuels the belief among many lawyers and consumers Toyota has known about unintended acceleration problems for years and dragged its feet fixing the problem. Toyota maintains it will show in court that it has done nothing illegal in handling concerns about cars suddenly speeding up. This is a hornets nest for Toyota that will continue to produce stings for months to come.

That said, Toyota sales in the U.S. appear to have bottomed out. In fact, last month Toyota outsold Ford (without Volvo) for the first time since March. Sure, the company has been forced to spend more on incentives and that's cutting into profit margins, but if it's helping sales and market share, Toyota will make that trade off.

"The brand loyalty built up over the last 30 years has paid off with many people standing by Toyota." -Behind The Wheel, CNBC, Phil LeBeau

Critics of Toyota are e-mailing me on a regular basis saying these recalls will mark the end of Toyota's growth in the U.S. I wouldn't go that far. I do think the recalls have hurt Toyota's chances of winning over new buyers, especially from Ford and GM. That's the initial "cost" of the recalls in terms of impacting sales. But Toyota has, for the most part, been able to maintain many of its current and repeat owners. The brand loyalty built up over the last 30 years has paid off with many people standing by Toyota.

Given the massive size of these recalls, I won't be surprised to see more troubling headlines for Toyota in the months to come. But just as Ford weathered the Firestone/Explorer recall scandal ten years agoand found a level where sales settled out, I suspect we are now seeing the same thing with Toyota.

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___________________________ Questions? Comments? BehindTheWheel@cnbc.com

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  • Phil LeBeau is a CNBC auto and airline industry reporter based in the Chicago bureau and editor of the Behind the Wheel section on CNBC.com.

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