Toyota Recalls A Million Cars Again

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The recall fiasco continues to whip Toyota Motor Corp. (TM). Recently, the automaker revealed that it would recall nearly 1.3 million cars globally for two separate defects. The first defect involves 752,000 units of Toyota Corolla and Corolla Matrix small cars from the 2003 and 2004 model years while the second one includes 385,000 Lexus IS luxury sedans and its series from the 2006 through 2012 model years.

Corolla Recall

The Corolla recall is related to defective airbags due to a malfunctioned IC chip in the airbag control unit. The malfunction can cause the control unit to receive electrical interference from other parts in the car, causing the airbags to deploy when it is not required.

The airbag control unit in the vehicles has been manufactured by TRW Automotive Holding Corp. (TRW). However, the IC chips have been supplied to TRW by a third party, according to some TRW official.

According to a Toyota official, the faulty airbag system resulted in 18 injuries in the U.S. and most probably 2 crashes outside Japan. Toyota decided to add an electrical signal filter to the airbag control module in the defective vehicles. Repairs are expected to take more than an hour.

Lexus Recall

The Lexus recall is related to defective windshield wipers that may become inoperative. The wiper arm nut of the front wiper in the defective vehicles may not be sufficiently tight. As a result, the wiper may unable to work properly under certain weather conditions such as snow.

Toyota decided to exchange the nut in repairs that will take about half an hour. According to Toyota, there have been no reports of injuries or accidents related to the vehicles with defective wipers.

Past Recalls

Since November 2009, the automaker has recalled about 20 million vehicles globally, surpassing all other automakers. A few months back, Toyota had 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 did not have grease applied properly during production.

U.S. Government Fine

Last year, the Transportation Department of U.S. slapped a fine of $17.35 million on Toyota due to late response regarding a defect in its vehicles to safety regulators as well as 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. 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.

Sales Crown Regained

Despite these, Toyota recaptured the sales crown from General Motors Company (GM) by selling 9.75 million vehicles globally in 2012, which exceeded GM’s sales of 9.29 million vehicles. Germany’s Volkswagen AG (VLKAY) came third with sales of 9.07 million vehicles for the year. Toyota’s victory can be attributed to its impressive product lineups and marketing initiatives.

The automaker lost its No.1 position to GM in 2011 after gaining the title from GM in 2008. The loss of crown was driven by declining reputation due to a series of safety recalls as well as negative impact from natural disasters in Japan and Thailand in 2011. However, Toyota had vowed to regain the top position by increase its dependence on the non-U.S. markets, especially the high growth emerging markets.

Recent Earnings Result

Toyota posted a 22.2% rise in earnings per share (EPS) to ¥31.55 (39 cents) in the third quarter of fiscal 2013 ended on Dec 31, 2012 from ¥25.81 in the same quarter of prior fiscal year. The EPS was lower than the Zacks Consensus Estimate of $1.23.

Net income rose 23.4% to ¥99.91 billion ($1.23 billion) from ¥80.94 billion a year ago. The increase was attributable to lower provision for income taxes during the quarter.

Revenues increased 9.3% to ¥5.32 trillion ($65.56 billion) on a 7.3% rise in unit sales to 2.11 million vehicles. Among all the geographic markets, unit sales rose at the fastest pace in Asia (53.4%) and declined at the fastest pace in Japan (15.0%).

Operating income dipped 16.7% to ¥124.76 billion ($1.54 billion) from ¥149.68 billion in the third quarter of previous fiscal year. The decline was attributable to a 10.1% rise in costs and expenses during the quarter.

Guidance

For fiscal 2013 ending Mar 31, 2013, Toyota raised its consolidated vehicles sales guidance to 8.85 million units from 8.75 million units. Consequently, the automaker projected higher consolidated revenues of ¥21.80 trillion (reflecting an expected increase of 17.3%) compared with fiscal 2012. The upward revision of sales outlook was based on higher overseas vehicle sales, primarily in North America.

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