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More Toyota Cars Recalled: Time to Buy Shares of TM?

This article was written by in Consumer, Investing. 32 comments.


Another day, another recall. Normally, automobile recalls are not much of a problem. A recall usually involves bringing your car to a dealership, subjecting yourself up to some sales pitches, getting your car fixed, and driving home. Toyota’s recent string of recalls is more complicated because some of the problems do not have solutions yet.

If you own one of the many Toyota cars affected by one of the company’s recalls, you probably have already received a letter.

Here is what has happened so far:

  • November 2, 2009. Toyota/Lexus recalls recent models of the Camry, Avalon, Prius, Tacoma, Tundra, ES350, IS250 and IS350 due to a tendency for the floor mats to obstruct the accelerator pedal. This was a voluntary recall whose solution was simply to remove the driver’s side floor mat. Later that month, Toyota announced a solution to the problem that will require a visit to the dealer.
  • November 24, 2009. Toyota recalls 2000-2003 models of the Tundra due to the possibility of excessive corrosion on the frame rear cross-member caused by road salt.
  • January 21, 2010. Toyota issues a voluntary safety recall for recent models of the RAV4, Corolla, Matrix, Avalon, Camry, Highlander, Tundra, and Sequoia. This recall is to remedy another problem with the accelerator. In these cars, there may be a tendency for the accelerator pedal to stick, and this is not related to the floor mat problem. On Tuesday, January 26, after months of working with federal safety officials, Toyota decided to stop selling these cars until the problem has been fixed.
  • January 27, 2010. Last night, Toyota added to its initial recall pertaining to floor mats obstructing accelerator pedals. Added to the initial list are recent Highlanders, Corollas, Venzas, Matrixes and Pontiac Vibes. The Vibe shares design and construction with the Toyota Matrix.

According to the New York Times, sudden, uncontrolled acceleration in Toyota vehicles has caused 275 crashes and 18 deaths. Researchers have identified 2,274 incidents of sudden acceleration.

Over the past few months, Toyota has recalled 7.6 million cars. General Motors was quick to respond with an incentive for Toyota owners who want to get rid of their cars in favor of one of the American automaker’s vehicles.

Toyota has a strong reputation or being reliable, but these recent events inspire doubt. Here in the United States, shares of Toyota Motor Corp. (TM) have fallen 13% since January 19. If you believe that Toyota will recover, and if you have money you don’t mind losing while gambling in the stock market, it might be a good time to buy Toyota’s stock. I expect Toyota will recover and after some time, their reputation will remain mostly unharmed.

Update: I decided that if I should talk about buying TM, and if I think it’s a good idea for the long term, I should live up to my decision. I bought 10 shares of Toyota Motor Corp.’s ADR today.

Do you see the latest string of crises as an opportunity for investors?

Photo credit: Collin Allen
Dealers Swamped by Worried Toyota Drivers, Associated Press, January 28, 2010

Published or updated January 28, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 12 comments… read them below or add one }

avatar MoneyMateKate

Yes, I totally see this as a buying opportunity. I just don’t see Toyota going under, so let’s go shopping for a bargain on the stock market! Worked for me with AIG last year. I’d love to guess when it’ll hit rock-bottom, but I’m not so good at that part.

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avatar Investor Junkie

Buying OP! But not sure if it’s hit bottom yet. I suspect in the next few weeks might be better.

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avatar KC

This is an opportunity to buy. This isn’t a big deal recall eventhough its getting a lot of press. The incidents are isolated, but Toyota is taking major steps on this recall to prevent future problems. Other car companies would likely sweep this under the rug and not recall their cars so quickly so as to avoid the negative publicity. My family owns two Toyotas under recall – we aren’t that concerned about the problem and are still driving the cars as we normally would. When Ford had problems with their Firestone tires we were much more concerned about the Explorer my father owned (in fact he went out and replaced the Firestone tires with Michelin). My point in this ramble is that Toyota is being proactive and making a bigger deal than it is in the name of safety. The financial health of the company is very strong – this downturn provides a buying opportunity. Watch this stock for a few more days and don’t buy until they have the parts necessary for the “fix” (Toyota says they are waiting on the “fix”).

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avatar jnwcmr

The key phrases I see in the article are “Toyota issues a voluntary safety recall”, “Toyota added to its recall”, rather than “Toyota forced to recall”. I recall the Ford Bronco issue several years ago, when they came out and said that would rather defend against lawsuits than produce safe cars.

I don’t currently own a Toyota, but I have a lot of respect for an automaker that voluntarily STOPS SELLING CARS until they are satisfied that they are safe for their customers.

So, to Flexo’s question: I think this is a buying opportunity for those who still dabble in individual stocks.

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avatar Recall

I would not recommend ANY automakers stock, the industry is as good of a bet over the next few years as the airline industry has been for the last ten years.Honda and the Koreans are probably the best positioned right now.

I agree that their image isn’t damaged beyond repair, but remember that they were the big winner in cash for clunkers and the domestics were the losers in it. For most of THESE new buyers this is their first exposure to the brand, and so far they probably aren’t very impressed. Also they are burning through their cash reserves, the Yen is strong, and they are still losing money on full size trucks and suv’s. The recall isn’t their only problem right now.

You do have to ask yourself though, how many people who have a recalled vehicle will get into an at fault crash and blame the pedals? Theres really no way to prove against it for Ty, and they could have to spend big $$$ repairing vehicles in accidents they may not in fact be responsible for.

http://www.wisn.com/automotive/22366110/detail.html

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avatar bb

How does this impact this year’s earnings? What’s its P/E? Let me tell you, its forward P/E (2011) is still at 23.7 (still higher than F’s 21 current P/E). It’s not a bargain, at least at this point.

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avatar jc

go to la times.com and read the story about TOYOTA FOUND TO KEEP TIGHT LID ON POTENTIAL SAFETY PROBLEMS. VOLUNTARILY RECALL WELL THAT BS

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avatar Ace of Wealth

I agree with bb’s analysis here. I think that Toyota is moving towards a bargain, but the time to buy doesn’t seem like it’s just yet. I think it’ll be interesting to see how this affects their current quarter, and also how it affects their outlook on the next quarter.

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avatar Financial Samurai

Might be a short term blip, but if you were in the market to buy a car, would you even bother to buy a toyota with the risk your accelerator pedal could stick?

I wouldn’t. I’d just buy a Honda. Too bad Toyota is in The Samurai Fund! grrrrr

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avatar Luke Landes ♦127,550 (Platinum)

Right now? No, I wouldn’t buy a Toyota until I was relatively sure these problems had been fixed. But unless Toyota really screws up, I think people will generally forget about these problems some years from now and Toyota will continue to have a great reputation. I’m coming up on 120,000 miles on my Civic with a some good years still left — but I think my next car might be a little more “fun” depending on my financial situation at that time.

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avatar Maren Kate

I think this recall will probably make a dent in Toyota’s bottomline but then I applaud them for thinking of “Safety First before Profit”.

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avatar Anonymous

My family owns two Toyotas under recall – we aren’t that concerned about the problem and are still driving the cars as we normally would. The financial health of the company is very strong – this downturn provides a buying opportunity.
________________________________
@Jackson

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