Toyota, #3 on the list of the world’s most admired brands (for 2009, at least) and the world’s largest automaker (again, for now at least), has recently come under fire in the US for massive safety recalls of its leading models for various mechanical issues, including faulty braking systems.  Even the car giant’s iconic Prius Hybrid line is being affected, with 437,000 such vehicles worldwide requiring a fix.  In total, Toyota has committed to fix more than 8 million vehicles worldwide – a number which exceeds its entire global sales in 2009 (7.8 million vehicles).

The direct cost of the recall is expected to be $2B, which Toyota believes will fix the actual issues it faces with respect to the safety of its vehicles.  Of more concern, however, is the hit Toyota will take to its brand and how such hit will impact future sales.  By one account, Toyota sales demand plunged by 28% in the period immediately after the company’s announcement that it would suspend sales of affected models until safety issues were resolved.  A 28% plunge in global sales for Toyota would translate into roughly $18.5 billion in lost revenue per quarter ($74B on an annual basis).  Interestingly, this plunge only occurred after Toyota was subjected to continued negative press coverage; in other words, what really hurt Toyota’s brand wasn’t necessarily the fact that they were forced to conduct a massive recall, but rather the fact that the story kept mushrooming day after day after day and simply would not die.

Toyota’s pain was significantly exacerbated when US authorities stepped in, which is where Electronically Stored Information (ESI) enters the picture.  First came Tuesday’s announcement that the US National Highway Traffic Safety Administration (NHTSA), led by DoT Secretary Ray LaHood (who presided over the Clinton Impeachment hearings, by the way), was demanding documents from Toyota "to determine if the automaker conducted three of its recent recalls in a timely manner” (note to Toyota North America General Counsel: wording like this from a US regulator – any US regulator, but especially one who loves a good public fight – is an enormous red flag).  Next up is an “invitation” from the House Oversight and Government Reform Committee to Toyota Chairman Akio Toyoda to testify about what the company knew, when, and the efficacy and thoroughness of their response to safety issues.  Because the aforementioned House Committee has subpoena power and can use any documentation produced by Toyota to the NHTSA – as well as any documents the Committee itself may subpoena – the situation has morphed from a PR issue to a major, “bet the business” investigation that will highlight any perceived or real inconsistency between what Toyota has said publicly (e.g. about when they realized a recall was necessary) and what conclusions the ESI they will  be producing may support.  We are, after all, talking about the safety of US drivers in the context of a recall which has already claimed the lives of 34 Americans.

In America, bad PR can and typically is a fleeting thing that does not need to be fatal, and Toyota’s predicament is no different.  The company is far too big, respected and successful for its existence to be seriously threatened – even by a situation as bad as the current one.  But what Toyota’s obligation to produce ESI to the US government and testify in front of government officials guarantees is that this story is not going away anytime soon, which, if brand experts are to be believed, will have a tremendous impact on the company’s top and bottom lines.  In other words, the question isn’t whether Toyota will suffer losses from this situation, but rather just how many billions they will lose.