Toyota Motor Corporation’s (TM - Analyst Report) trouble with product recalls does not seem to end. The Japanese automaker has now announced its second largest recall of 6.36 million vehicles globally.
27 Toyota models have been recalled for 5 different issues and some of the cars have been recalled for multiple issues. If we double-count such vehicles, the total number of recall increases to 6.76 million.
The largest of the five recalls is being made to replace a spiral cable, which can be damaged due to turning of the steering wheel, resulting in deactivation of air bags. Toyota recalled about 3.5 million vehicles to fix this problem, of which 2.34 million were sold in North America and 810,000 in Europe.
Another 2.32 million cars are being recalled due to a faulty seat rail spring. 760,000 are recalled owing to problems in the steering column, while another 160,000 are being recalled to fix a problem in the windshield wiper motors. The fifth recall is for 20,000 vehicles whose metal fragments might amass in the engine starter's circuitry, leading to a fire.
These recalls will lead to significant expenses for Toyota. As no accidents were reported due to these problems, the recalls display the automaker’s cautious approach toward product defects after suffering multiple times for late recalls.
In 2012, the U.S. Department of Transportation slapped the maximum allowable fine of $17.35 million on Toyota due to delayed response regarding a defect in its vehicles as well as late recall of those vehicles. This fine was in addition to the $48.4 million fine imposed on the automaker by the U.S. government in 2010 due to late recall of millions of defective vehicles.
Toyota also made one of the largest settlements in the history of automotive industry by paying $1.6 billion in a class-action lawsuit related to complaints of unintended acceleration in its vehicles. Moreover, in Mar 2014, Toyota agreed to a $1.2 billion settlement for criminal charges related to problems in accelerator pedals and floor mats of its cars, which led to sudden acceleration and even crashes. This was the highest penalty imposed on any automaker and is 35 times higher than the maximum penalty the National Highway Traffic Safety Administration (NHTSA) can impose.
Toyota’s rival General Motors (GM - Analyst Report) is also facing a string of investigations and lawsuits over late recall of cars with defective ignition switches. A congressional committee probe on the matter is currently going on and the automaker is being fined $7,000 per day for failure to fully answer the questions posed by the NHTSA.
Currently, Toyota carries a Zacks Rank #2 (Buy). Some other automobile stocks worth considering are Tata Motors Ltd (TTM - Snapshot Report) and Daimler AG (DDAIF - Snapshot Report), both of which sport a Zacks Rank #1 (Strong Buy).
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