Storm clouds on the horizon? A potential safety problem with the 2010 Toyota Prius could devastate the automaker's once-shining image.

What a difference a year makes, especially for Toyota.

As 2008 drew to a close, the headlines highlighted the fact that the Japanese giant had finally toppled its American arch-rival, General Motors, to become the globe’s largest auto manufacturer.  It seemed, for at least a brief while, that almost nothing could go wrong.

Now, it’s fair to say that 2009 wasn’t a good year for just about anyone in the auto business.  With the American market plunging to its lowest level in 30 years, only three niche players will end up posting sales gains from already weak ’08.  But few have suffered the humiliating body blows that have hammered away at Toyota, plunging the maker’s balance sheet deep into the red and which are, perhaps worse long-term, threatening to shatter Toyota’s image as the maker of the industry’s safest and most reliable products.

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There’s no question that Toyota has had a few key successes over the past 12 months, including the launch of the compact Venza crossover.  And after the collapse of the hybrid market once U.S. fuel prices plunged in early ’09, the debut of the third-generation Prius promised to not only kick-start the segment but lock down Toyota’s standing as the world’s top-selling hybrid brand.

So, it’s ironic that the Prius could scrape the chrome off Toyota’s shining image.  As TheDetroitBureau.com is reporting, a sizable number of Prius owners are reporting potentially serious problems with the hybrid’s brakes.

“It was a sensation of losing control,” reports 39-year-old Robert Becker, when he recalls what happened when he tried to slow down at an intersection near his home on the west side of Manhattan.  All was going smoothly until he hit a pothole and suddenly, “the brakes seemed to release.”  The human resources executive adds that, “it scared the hell out of me.  I wasn’t sure I could stop in time.”

He did – barely – but since then, Becker has had the problem repeat itself regularly.  And so have a number of other owners of the Gen-3 2010 Prius, according to complaints filed with the National Highway Traffic Safety Administration, as well as comments posted on owner chat sites like PriusChat.com.

Government officials won’t comment, and a Toyota spokesman, Mike Michels, cautioned that the company is just ramping up its own investigation.  What might be the problem? “Everyone is looking at antilock brakes,” said Michels, “but there are other systems that could be responsible for the behavior people are reporting…such as Traction Control and Stability Control.  We just don’t know.”

Many owners express frustration about Toyota’s handling of the Prius matter, but if the company had hoped it would go away, it’s now clear that won’t happen.  So, how Toyota responds in the weeks to come could determine the fate not only of its halo car but of the broader image of the Toyota brand.

It certainly hasn’t been built by a series of other setbacks.  Consider that Toyota will ultimately recall about 4 million vehicles in 2009, including 3.8 million vehicles that could experience so-called “Unintended Acceleration.”  The official explanation is that floor mats can get caught under the gas pedal, causing it to stuck open.

Toyota is also calling back 110,000 Tundra pickups prone, according to the NHTSA, to ‘excessive corrosion,” a problem serious enough to cause brakes to fail and spare tires to fall off the vehicle.

Another federal investigation now underway could lead to the recall of 300,000 or more 2006 Corolla and Matrix models due to sudden stalling.

Perhaps even more troubling is a whistle-blower case involving a former Toyota lawyer who claims the maker hid damning evidence in a series of cases involving vehicle rollovers.

Credibility is critical in the car business, but that case could seriously damage Toyota’s.  Already, there’s at least one class action lawsuit against the maker arguing that there are other reasons besides floor mats causing Toyota products to accelerate out of control.

Recalls are costly, as are lawsuits, even if a company wins.  They will only exacerbate the unexpected financial problems for a company that former Ford Vice Chairman Alan Gilmour once joked “had more money than god.”

Toyota posted a record loss this past year – indeed its only loss since the War.  Its fortunes appear to be improving but it projects another loss when the current fiscal year wraps up, on March 31, 2010.

Intriguingly, the automaker’s blunt and outspoken new CEO – and family heir – Akio Toyoda has frankly given a poor assessment to the company’s recent performance, warning that if it does not overcome its current problems they could prove fatal.  Surprisingly, a number of senior American executives have tried to spin Toyoda’s words more positively.  One can only hope that’s for public consumption.  If they don’t take things seriously, the CEO could be proven right – in the wrong way.

The list of problems goes on.  There’s declining quality, lackluster productivity gains from the company that redefined manufacturing efficiency.  And, some might argue the worst problem of all is that Toyota products no longer inspire.  Toyota, Scion and Lexus products didn’t capture a single segment victory in a recent study by California-based Strategic Visions meant to measure how owners feel not only about quality but design, value and other hard-to-define surprise-and-delight factors.  SV analysts called that “a revolution.”

It could turn out that the latest alleged problem, with Prius, turns out to be that proverbial tempest in a teapot.  But how Toyota handles the situation will not only impact owners of the third-generation hybrid but affect the way the rest of the country views the maker.  Everyone makes mistakes, says analyst Joe Phillippi, of AutoTrends Consulting.  It’s how they handle those mistakes that build or kill a reputation.