What Cost Recalls for Bridgestone, Ford?

Sept. 5 -- The Bridgestone/Firestone tire recall has unquestionably been a big public relations pothole for the tire manufacturer. But compare that to the ditch the company is veering toward, with potentially huge financial fallout from the recall and related litigation.

To begin with, analysts who follow Bridgestone Corp. in Japan, where the company is based, say the firm expects the total cost of recalling 6.5 million Firestone ATX, ATX II and Wilderness AT tires in the U.S. to be around $351 million.

And those costs could escalate past the billion-dollar mark, some analysts say, if the mounting level of litigation against the company is successful or if the tire maker is forced to expand its recall.

Last week, for instance, the National Highway Traffic Safety Administration warned that an additional 1.4 million tires could be dangerous and recommends that drivers consider having them replaced. And in Venezuela, where Ford Venezuela issued a recall for around 150,000 Firestone tires on roughly 30,000 Explorers in May, government officials on Monday announced that all 62,000 Wilderness AT Firestone tires circulating in Venezuela would be recalled.

To top it off, investor jitters have meant that Bridgestone shares traded in the U.S. have fallen more than 37 percent since the recall was announced August 9.

Costs Mounting

A spokeswoman for Bridgestone/Firestone would not confirm cost estimates of the recall, saying only that the company’s focus right now is on the voluntary recall and the safety of its customers.

But for financial analysts, the total cost of the recall could be a cause for concern.

“We see a number of potential negatives for the company going forward,including a possible expansion of the tire recall,” wrote Nikko Salomon Smith Barney analyst Tsunemi Tachibana. “We therefore do not recommend active purchase of Bridgestone (stock).”

In a recent research report, Commerzbank Securities analyst Clive Wiggins estimated that the recall would cost about 80 billion yen, or roughly $755 million dollars — over double the initial estimated cost of the recall. In the report, Wiggins noted that the company would likely incur costs from consumers exchanging tires that were not included in the recall.