Back to top

Zacks Investment Ideas feature highlights: Fiat, Toyota and General Motors

Read MoreHide Full Article

For Immediate Release

Chicago, IL – May 29, 2018 – Today, Zacks Investment Ideas feature highlights Features: Fiat Chrysler (FCAU - Free Report) , Toyota Motor Company (TM - Free Report) and General Motors (GM - Free Report) .

How Do Large Recalls Affect Auto Companies’ Stock Prices?

On Friday morning, Fiat Chrysler announced a recall of 4.8 million vehicles to repair a defect that can cause cruise control to remain engaged even after the driver has used the brake to disengage it.  The company describes the series of events necessary to cause the problem as “extremely rare” and says that even if the problem were to occur, a driver could still slow the vehicle with the brake pedal and/or by shifting to neutral to avoid a collision.

Only one incident involving the faulty cruise control has been reported and it did not result in a collision or injuries.

Nevertheless, Fiat Chrysler warned owners of the recalled vehicles to avoid using the cruise control feature until they have received a no-cost software update to fix the issue.

Shares of FCU sold off 2% on the news.  

Is a recall like this a harbinger of bad things to come for the automaker and its shareholders?  Probably not.  Let’s take a look at similar recalls from other automakers.

Toyota’s “Unintended Acceleration”

Starting in 2009, Toyota Motor Company was the subject of claims that its vehicles suffered from “unintended acceleration.”  The NHTSA received 6,200 complaints which included 89 deaths and 57 injuries resulting from the issue.  There was even a dramatic news story about a driver who called 911 from his moving vehicle which he claimed he could not stop.  That incident was later proved to be fraudulent, but the news still fanned the fires.

Toyota was slow to respond, initially blaming floormats that had slipped into the accelerator pedal, then fingering a sticky mechanical linkage for the accelerator pedal and finally admitting problems with the anti-lock braking system on a small number of cars.

Worldwide, approximately 9 million cars were recalled for one or more of these issues.


In 2013, the NHTSA found that there was no electronic defect in Toyota vehicles and that driver error or pedal misapplication was found responsible for most of the incidents.  For Toyota, however, the damage was already done. Shares dropped 20% in a month and worldwide sales declined approximately 20%.

Toyotas financial performance and share price have since recovered, though it took several years. It should also be noted however that these incidents took place in the midst of a huge global economic slowdown, to which Toyota's lagging performance could also be largely attributed.

General Motors’ Faulty Ignition Switch

In 2014, General Motors began to recall vehicles to repair a faulty ignition switch that would occasionally turn the car off while driving, rendering the steering, brakes and airbags ineffective.  In all, 124 deaths and 275 injuries were attributed to the issue, which GM had been aware of as early as 2005.

After initially obfuscating the count of deaths and injuries, GM finally came clean, recalling 29 million cars, firing 15 executives who did not act quickly enough on knowledge of the problem and setting aside $675 million to compensate victims in a fund administered by Kenneth Feinberg – the former trustee of the victims compensation fund for the attacks of 9/11.

GM shares did not suffer nearly as much as Toyota in the immediate aftermath of the incident.

What About Fiat Chrysler?

Ultimately, the cost of doing the repairs in a large scale recall and even the cost of compensating victims are generally smaller than the cost in sales due to a tarnished reputation.  Once public awareness of a potential safety issue reaches critical mass, stories of defective and unsafe vehicles can take on a life of their own as customers file claims about accidents (after the fact) with the newfound belief that the car – and not the driver – were responsible.

Some of this happened to Toyota and older readers will recall that Audi was almost bankrupted in the 1980’s by a similar issue - even though they were cleared of wrongdoing.

For now, the issue at Fiat Chrysler seems to be just a little smoke and no fire.  Because there have been no accidents, injuries or fatalities, and because the repair involves a simple and free software fix, selling the stock today in anticipation of a big decline seems unwise.  On a slow Friday before a holiday weekend, the recall made for an interesting news story, but unless we start to see reports of serious incidents because of the problem, it’s unlikely to have any appreciable effect on FCU’s long-term fortunes.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana. Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

Follow us on Twitter:  http://twitter.com/ZacksResearch

Join us on Facebook:  http://www.facebook.com/ZacksInvestmentResearch

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

http://www.zacks.com

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.




In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


General Motors Company (GM) - free report >>

Toyota Motor Corporation (TM) - free report >>

Fiat Chrysler Automobiles N.V. (FCAU) - free report >>


More from Zacks Press Releases

You May Like