Toyota Motor Corp. (TM) has announced that it will voluntarily recall about 740,000 vehicles in the U.S. in order to address a problem with the leakage of brake fluid from the brake cylinder. The affected vehicle models are Avalon (2005-2006), non-hybrid Highlander (2004-2006), Lexus RX330, and Lexus GS300, IS250 and IS350, all manufactured in 2006. The automaker also plans to recall more than 600,000 units of its Crown sedan, and Lexus IS and GS models for separate defects in its home country.
At the beginning of this month, Toyota has revealed that it has repaired 5 million vehicles related to its three biggest recalls announced in late 2009 and early 2010. Of the total number of repaired vehicles, 1.8 million units had problems with sticky accelerator pedals, 3.1 million units with mats that could trap the pedal and about 128,000 units to upgrade and fix the antilock-brake systems in some 2010 Prius and Lexus models.
Through the on-site SMART evaluation program since April, Toyota has also noticed a sharp 80% drop in customer complaints related to the sudden acceleration problem. Nowadays, Toyota is receiving about 150 complaints of sudden acceleration each week, compared with about 800 complaints each week 6 months ago.
The past string of recalls has already tarnished Toyota’s reputation, resulting in declining sales, lower vehicle resale value and fallen stock price. In the first 9 months of 2010, the automaker’s sales in the U.S. increased by a tad 1.1% on a year-over-year basis, the lowest among the major automakers. The company’s market share also fell to 15.2% from 16.6% in the same period a year ago. So far this year, share price of the company fell 16%.
Since September last year, Toyota has recalled about 11 million vehicles globally in greater than 15 recalls, more than any other automaker. The recalls were related to problems such as faulty accelerator gas pedals, slipping floor mats and defective braking systems.
The automaker faces numerous personal injury and wrongful death lawsuits in federal courts due to their defective vehicles. The value of claims under the lawsuits has been estimated to reach about $4 billion, reflecting an average loss of $600 per vehicle.
The U.S. government has also imposed the highest-ever fine of $16.4 million on Toyota, accusing it of a deliberate delay in recalling the vehicles by hiding its flaws even though manufacturers are legally obligated to notify the U.S. safety regulators within five business days once they come to know of a safety defect.
Due to the above factors, Toyota’s ratings fell to Zacks #5 Rank, which translated to a recommendation of Strong Sell for the short term (1–3 months).
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