Product recalls are precautionary steps taken to avoid accidents due to any glitch in a vehicle. However, recalls dent the brand image of a company. Toyota Motor Corp. has made several recalls of late and this has resulted in a 2.3% fall in share price from Feb 11 to Feb 19. The drop in share price underlines shareholders’ concern regarding these recalls.
On Feb 12, the automaker announced the global recall of 1.9 million third-generation Prius cars to repair a software problem in their hybrid system. About half of the total recalled vehicles are from Japan and around 713,000 are in North America.
The company revealed that a problem in the software used in the hybrid system of the car could lead to higher thermal stress in transistors in the booster converter, resulting in damage in the transistors. This might make the vehicle enter a failsafe mode and may even shut down the hybrid system, resulting in vehicles stoppage. Prius is one of Toyota's best-selling models.
Soon after this, on Feb 14, Toyota announced the recall of 295,000 vehicles of the Lexus and Toyota brands globally due to problem in safety systems like stability control and anti-lock brakes. Toyota recalled 261,114 of the total recalled vehicles of model years 2012 and 2013 in the U.S.
The recalled vehicles include 57,000 Lexus RX350 crossover vehicles and 109,000 Toyota Tacoma pickup trucks of model years 2012 and 2013, along with 129,000 Toyota RAV4 SUVs of model year 2012. In the U.S., the recalled vehicles include 54,010 RX350 crossovers, 100,052 Tacoma trucks and 107,052 RAV4 SUVs.
Toyota stated that the electrical component in the vehicles’ brake actuator, which adjusts fluid pressure in wheel cylinders, may experience increased resistance. This will adversely affect vehicle control and increase the risk of a crash due to malfunctioning safety systems.
Moreover, on Feb 17, Toyota announced its intent to recall 13,000 FJ Cruiser sport-utility vehicles in the Middle East, Australia, Africa and Panama. The recall is being made to rectify the fuel tubes prone to overheating, which may cause them to melt, leading to gas leaks. This defect has led to five fire reports, although there is no report of casualty. The recalled FJ Cruisers were manufactured in the Oct 2012–Jan 2014 period.
Lately, Toyota has been dealing with intense pressure owing to a series of recalls and suspension of production in four plants in Japan due to heavy snowfall. The affected plants include the Tsutsumi plant, where Prius and Camry are manufactured, Tahara plant which produces Lexus LS, and the Takaoka plant which manufactures Corollas.
Currently, Toyota carries a Zacks Rank #3 (Hold). Some better-ranked automobile stocks worth considering are Tesla Motors, Inc. , Tata Motors Limited and Daimler AG . All these stocks sport a Zacks Rank #1 (Strong Buy).