Toyota Penalized for Recall Again

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The Transportation Department of U.S. again slapped a fine of $17.35 million on Toyota Motor Corp. (TM) due to its late response regarding a defect in its vehicles to safety regulators as well as a late recall of those vehicles. According to the department, it was the maximum allowable fine under the law for not initiating a recall in a timely manner.

In May this year, National Highway Traffic Safety Administration (:NHTSA) notified Toyota about “floor mat pedal entrapments” in some of its Lexus hybrid models. Manufacturers are legally obligated to notify the U.S. safety regulators within five business days once they come to know of a safety defect.

However, the automaker responded a month later stating that it is aware of 63 incidents related to the defect in the vehicles. Consequently, it announced a recall of 154,036 units of Lexus RX 350 and RX 450h luxury hybrid sports utility vehicles in June in order to fix the problem of loose floor mat that could force down the accelerator pedal.

The latest fine adds to $48.4 million imposed by the U.S. government on the company in 2010 due to late recall of millions of defective vehicles. The past string of recalls has already tarnished Toyota’s reputation, resulting in declining sales and lower vehicle resale value.

Since November 2009, the automaker has recalled about 20 million vehicles globally, surpassing all other automakers. The company also lost its No.1 position to General Motors Company (GM) and Ford Motor Co. (F) in terms of sales volumes in the U.S. due to the loss of reputation as well as negative impact from natural disasters in Japan and Thailand in 2011.

A couple of months back, Toyota announced a major worldwide recall of 7.43 million vehicles that included more than a dozen models manufactured between 2005 and 2010. The recall was related to faulty power window switches in the vehicles that can cause fire because they didn’t have grease applied properly during production.

Toyota, a Zacks #4 Rank (Sell) stock, saw more than threefold increase in profits to ¥257.92 billion ($3.28 billion) or ¥81.44 ($1.04) per share in the second quarter of fiscal year ended September 30, 2012 from ¥80.42 billion or ¥25.65 in the same quarter of prior fiscal year.

The increase in profits can be attributable to strong demand for Toyota vehicles as well as positive impact from the company’s cost control measures. However, profits were lower than the Zacks Consensus Estimate of $1.62 per share.

Revenues in the quarter grew 18.2% to ¥5.41 trillion ($68.75 billion) on a 14.9% rise in sales volume to 2.16 million units. Vehicle sales increased in all the regions, except Europe. Operating income more then quadrupled to ¥340.61 billion ($4.33 billion) from ¥75.39 billion in the second quarter of previous fiscal year.

However, Toyota projected lower consolidated vehicles sales of 8.75 million units for fiscal 2013 ending March 31, 2013, down 50 thousand units from the prior guidance. The automaker also lowered its consolidated revenues outlook to ¥21.30 trillion (up 14.6% from fiscal 2012) from the prior guidance of ¥22.00 trillion. The downward revision of sales outlook was based on difficulties in Chinese and European markets.

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