Toyota Motor Corp. (TM) has announced that it will recall about 650,000 Prius cars worldwide in order to fix the hybrid system’s cooling pumps. The automaker stated that the vehicles will be recalled to solely ensure customer satisfaction and not under any legal compulsion.
Toyota has received many complaints in and outside Japan, revealing that the cooling pumps are malfunctioning and causing the vehicles to overheat and lose power. However, no cases of injury or accidents related to the problem have been reported so far.
Of the total number of vehicles to be repaired, about 390,000 units are sold in North America, 180,000 units in Japan and 70,000 units in Europe. They were manufactured between 2004 and 2007.
This is the second time of the year that Toyota made a massive recall of Prius hybrid globally. In February this year, the automaker has recalled 397,000 units (including 200,000 units in Japan) of Prius worldwide due to a problem with the anti-lock braking systems.
The past string of recalls has already tarnished Toyota’s reputation, resulting in declining sales, lower vehicle resale value and drop in 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 more than 15 recalls, surpassing all other automakers. 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.
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 ‘Hold’ recommendation 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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