Toyota Recalling 1.5 Million Cars. How Will This Affect its Stocks?

Market Leader informed

Toyota made a decision to recall an average of 1.53 million of its vehicles worldwide for additional maintenance inspection and repair. Reasons included faulty brake cylinders and fuel pumps. Free services of the service company will be available primarily to models in the American market where experts discovered most faults.

Recalls mainly affect Japan and the United States of America. In general, these will include 600,000 faulty Toyota vehicles in Japan (mainly Lexus GS, Crown, and Lexus IS) and 740,000 vehicles in the US (mainly Highlander, Avalon, IS250, IS350 and Lexus GS300). Most recalls will involve cars produced between 2003-2006.

In their official report to the Japanese government, Toyota’s management points out that the vehicles to be recalled generally have faults either with their fuel pump or the engine and, in isolated cases – with both. The US-based unit of the car manufacturer reported its own diagnosis:
a leak is possible from the braking liquid cylinder. This fault may lead to a gradual decrease in braking force which is dangerous for life and health of not only the car driver and passengers, but also the environment – consequences can be irrevocable and very distressing.

Of course, a signal lamp inside Toyota should light up to warn about brake issues way before a significant breakdown. Then drivers will have an average of up to 200 miles of driving distance before the brakes eventually fail to perform their function.

Paul Nolasco, the company’s spokesperson, hastily stated to assure drivers that nobody had suffered from the newly discovered defects so far nor had there been any accidents for this reason. At any rate, Toyota’s spokesperson added that the center received no official information about any incidents. When speaking about the amount to be spent on putting cars in good order and expected consequences of this recall for the company’s profits in general, Paul Nolasco found calculations a bit difficult and never gave exact details.

According to him, Toyota is bound to make an additional decision on whether its cars should be recalled from other countries of the world. He admits that cars that will soon be subject to repairs were also sold in continental Europe (33,000), Oceania (primarily Australia – 30,000), South America, Africa. It should be additionally noted that recalls are most likely to affect Great Britain as well – about 17,000 Toyota cars.

As far as Russia is concerned Tatiana Rusakova (Toyota’s spokesperson in the Russian Federation) reports that several service companies will recall about 1,707 Lexus GS 300 to replace the wiring of the fuel pump module and 8,043 Lexus RX 300, IS 250, GS 300 to replace cylinder cuffs.

It is acceptable for Toyota that the stock markets didn’t respond negatively to technical problems the company is facing. Last Thursday Toyota’s stocks went up by an average of 0.4% and stopped around 2,900 yens at session close. Toyota has cheapened by 25% in absolute terms this year.

Given the lengthy row of recall statements the last one became more than a broad hint to the company that the Japanese brand of Toyota is having problems.

Japanese cars used to be included among the most reliable ones in the world in terms of the middle class. However, in 2009 Toyota recalled over 10 million cars it produced in different periods of time for an overhaul. As a rule, they are wary of the accelerator problems. It was initially believed that in isolated cases it caused unexpected, in other words spontaneous, acceleration of the car, unfortunately, other than on the driver’s initiative. However, late this summer the US National Highway Traffic Safety Administration reported it couldn’t find any evidence of electronic failures in the acceleration system of Toyota’s cars.



Igor Vasev, Head of the Futures Trade and Stock Exchange Faculty, points out that Toyota’s stocks are traded in Tokyo Stock Exchange and ADRs in NYSE. The company’s stocks have almost halved in price since 2007 and aren’t especially popular among investors. So, this event had practically no effect on stock prices which have remained almost on the same level despite a general growth in the stock market over the past months.


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