Recalls hang over Toyota as it reports earnings

TOKYO -Toyota Motor Corp., the world's top automaker, reports earnings for the fiscal third quarter on Thursday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Toyota is scrambling to reassure consumers and dealers after a U.S. recall for 2.3 million vehicles that need a part for gas pedals fixed. The recall has also spread to Europe and China. Toyota has stopped selling the eight affected models, and is suspending production in the U.S. The blow to its reputation for quality control came just as the Japanese automaker was recovering from its worst ever loss in the financial year ended March 2009, when it was battered by the slump in the North American market. Like other Japanese exporters, Toyota's results will also be hurt by a strong yen. The dollar has recently hovered around 90 yen.

BY THE NUMBERS: The third quarter numbers won't reflect the damage from the recalls because they came after that period, but the sales losses, which some analysts estimate at 20,000 vehicles a week, as well as the actual costs of the recall, will weigh in the months ahead. Before the recalls surfaced, Toyota was expecting a 200 billion yen ($2.2 billion) loss for the fiscal year through March 2010, its second straight year of red ink. But some analysts had said Toyota was being cautious with that forecast and could hope to do better. Analysts surveyed by Thomson Reuters expect Toyota to be in the black for the fiscal year ending March 31, posting a 34 billion yen ($377 million) profit. Much depends on how quickly Toyota can resume North American sales of the eight models, including the best-selling Camry, and on how well it can maintain its reputation for quality.

ANALYST TAKE: Ryoichi Saito, auto analyst with Mizuho Investors Securities, thinks it is inevitable that Toyota sales in the U.S. will suffer because of the production suspension and the fallout from the recalls, although he wasn't sure by how much. "Toyota's U.S. market share is sure to be hurt this month and in March," he said. It would be impossible for Toyota to make up for such sales losses in its biggest market with sales in other regions, he said.

WHAT'S AHEAD: Toyota will likely need to sit tight for some months before it can be confident the recalls are behind it. The recall for faulty gas pedals, affecting 4.2 million vehicles in North American, Europe and China, comes on top of a November recall for floor mats that are being replaced because they can get entangled in the gas pedal. When they are combined, and accounting for some models being recalled more than once, they amount to 7 million vehicles worldwide. The U.S. House Oversight and Government Reform Committee is launching an investigation, and has scheduled a Feb. 10 hearing titled "Toyota Gas Pedals: Is the Public at Risk?" Separately, a House investigative panel is planning a Feb. 25 hearing.

STOCK PERFORMANCE: Toyota shares fell 1.1 percent to 3,450 yen Monday. The issue has plunged 13 percent for seven straight trading days over uncertainties about the U.S. recalls.