The Transportation Department of U.S.has revealed that Toyota Motor Corp. (TM) will pay $32.4 million in fines related to two separate investigations leading to late recall of millions of defective vehicles.
The automaker will pay the fines in addition to the highest-ever fine of $16.4 million paid earlier this year due to deliberate delay in recalling the vehicles by hiding its flaws. The manufacturers are however legally obligated to notify the U.S. safety regulators within five business days once they are aware of any safety issues. Thus, total fines paid by the company stood at $48.8 million, reflecting a loss of $30 per vehicle sold this year in the U.S.
The newly levied fines include $16.375 million for the recall of vehicles related to slipping floor-mats in late 2009 and $16.05 million for recalls related to defective steering relay rods in the vehicles in 2005. Both of these recalls resulted from reports of numerous crashes that resulted in injuries and deaths.
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 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.
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 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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