By Surojit Chatterjee: Subscribe to Surojit's RSS feed
July 5, 2010 5:30 PM EDT
Shares of Toyota Motor Corp. (TYO.7203) closed flat, Monday, as investors reacted calmly to the world's no.1 automaker announcement of one of the biggest automotive recalls in history. The company announced, Monday, it has recalled almost 92,000 luxury cars in Japan and will be eventually recalling 270,000 vehicles worldwide over concerns that a faulty valve in the engine could cause vehicles to stall suddenly.
The Japanese automaker, which once prided itself on its status as a world leader in terms of the quality and reliability of its vehicles, has recalled 91,903 units of its popular high-end Lexus and Crown models in Japan. The total recall will includes 138,000 vehicles in the US, 15,000 in Europe (including an estimated 3,200 in the UK), 10,000 in the Middle East, 6,000 in China, 4,000 in Canada, and 8,000 in other regions. The company said it will inform customers individually about the recall by direct mail or telephone.
The company said last week it has found a problem with the valve spring of 4.6 liter V8 engines and 3.5 liter V6 engines installed in the top-end Lexus LS460, Lexus LS600h, Lexus LS600hL, Lexus GS350, Lexus GS450h, Lexus GS460, Lexus IS350 and the Toyota Crown.
Both the Lexus and Crown are popular top-end luxury models sold by Toyota. While Lexus models are sold worldwide, the Crown model is sold only in Asia. Of the 270,000 vehicles being recalled, 90,000 were sold in Japan, the company said.
According to a Toyota spokeswoman, the defect with the valve could produce unusual sound, make idling unstable or, in worst case scenario, make the engine stall. Though the company has received around 200 complaints relating to the issue, no accidents have been reported yet.
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Toyota has apologized for the "inconvenience" caused to customers and said it hopes to "fix the problem soon."
The automaker's shares closed flat at 3035 yen on the Tokyo Stock Exchange on Monday.
Market analysts said the investors did not look too deeply into the recall announcement.
Yoshihiko Tabei, an analyst at Kazaka Securities in Tokyo, said as long as the issue is dealt with swiftly investors would shrug off the news.
"It's not as if there has been an accident caused by the possible defect. Investors are not worried as long as carmakers act quickly to address quality problems," Tabei said.
Agrees Ryoichi Saito, an auto analyst from Mizuho Investors Securities Co. Ltd. "It is clear that Toyota has learned a lesson from the (earlier) recall disaster(s). The company has acted very swiftly to deal with problems," Saito said.
However, unless Toyota ramps up its quality control division soon, the investors could dump Toyota shares in the future, analysts warned.
"Investors thought Toyota had implemented a thorough quality control system, and the market's reaction is, 'is this happening again?'" said SMBC Friend Securities analyst Fumiyuki Nakanishi.
Agrees Shotaro Noguchi, auto analyst with Nomura Securities Co. "It is not doing a good job in communicating a message about what exactly it is doing to beef up quality checks," Noguchi said. "So it is hard for people to believe Toyota is taking the customer's view as it is promising to do."
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