Ouch, Consumer Reports Jumps on the Toyota Pig-Pile

Last Updated Apr 13, 2010 1:05 PM EDT

The bad news keeps piling up for Toyota (TM), including an extremely rare "don't buy" recommendation from Consumer Reports for the Lexus GX model, a luxury sport-utility vehicle.

Consumer Reports said that the GX was prone to skidding when lifting your foot off the gas in a relatively high-speed turn, such as you might experience on a highway on-ramp. The magazine said it hasn't issued a "do not buy" rating on any car since 2001.

That means the price just got even higher for Toyota to buy its way out of its self-inflicted troubles. Fortunately, the company is sitting on about $25 billion in cash. It's going to take a substantial chunk of that to set things right.

Toyota's price tag for the sudden acceleration recall disaster includes the cost of the discounts it is offering to keep sales up; a potential $16.4 million fine from the National Highway Traffic Safety Administration; the cost of recalling and repairing millions of cars; and the cost of reorganizing safety and quality procedures.

And those are just the things Toyota knows about. There is almost certain to be expensive settlements with insurance companies and individual customers who are lined up around the block to sue. Then there's the potential for lasting damage to the Toyota brand. There's a price tag to that too, since strong brands can charge a premium. Weak brands, on the other hand, resort to discounts to keep up demand. When they fail, they end up on the ash heap of automotive history (see Oldsmobile, Plymouth or Pontiac).

While I think Toyota will ride out the storm, the Consumer Reports evaluation really hurts. In my experience as a market researcher, people in focus groups cite very, very few sources that they consult for buying advice, other than friends and family. Using "unaided recall," without prompting or picking from a list, people come up with a very short list -- and Consumer Reports is on that list. It is also consistently the only one that's not tainted by being associated with advertising.

Consumer Reports has been one of Toyota's biggest and most important fans for years. Putting a "do not buy" on the Lexus SUV is more news Toyota could do without.

Photo: Toyota