Toyota Motor Corp. (TM) has announced that it will recall about 1.7 million cars worldwide in order to fix their defective fuel pipes and high-pressure fuel pumps, which are causing fuel leaks. The automaker has received 75 complaints in North America and more than 140 in Japan related to the problem.

The recall includes 1.2 million units of the RAV4, Noah, Voxy and other models sold in Japan; and 140,000 units of the Avensis model in Europe, which are manufactured between 2000 and 2008.

It also includes 280,000 units of some models under the Lexus brand, including Lexus GS300/350 (models year 2006-2009), Lexus IS250 (model year 2006 through early 2008) and Lexus IS350 sold in the U.S. The remaining 75,000 units include lineups such as the Crown, Mark X and Lexus, which are sold in Japan.

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.

Since September 2009, Toyota has recalled about 11 million vehicles globally in greater than 15 recalls, more than any other automaker. Apart from defective braking systems, the recalls were related to problems such as faulty accelerator gas pedals and slipping floor mats.

Recently, The Transportation Department of U.S. informed that Toyota will pay $32.4 million in fines related to two separate investigations leading to late recall of millions of defective vehicles on top of the highest-ever fine of $16.4 million paid earlier this year related to the same issue.

Despite the backlash from safety recalls, Toyota showed a fivefold increase in profit to ¥115.5 billion ($1.34 billion) or ¥31.47 per share (37 cents) in the second quarter of its fiscal 2011 from ¥22.19 billion ($258.26 million) or ¥6.96 per share (8 cents) in the same quarter of previous fiscal year. The profit was boosted by the marketing strategy as well as cost reduction measures incorporated by the company during the quarter.

As a result, Toyota retains a Zacks #3 Rank on its stock, which translates to a recommendation of Hold for the short term (1–3 months). In line with this, we also reiterate our Neutral recommendation on the stock for the long term (more than 6 months).

 
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