Post by gearcruncher on Feb 3, 2010 12:50:26 GMT -5
Want to sleep peacefully at night without worrying about a stock? Then avoid—or sell—Toyota Motor shares.
Toyota has a full-blown crisis on its hands. As has been widely reported, sticking gas pedals and potentially dangerous floor mats caused Toyota to recall 5.3 million vehicles since last fall, including some of its most popular models. The floor-mat problem led the company to call back models from its high-end Lexus brand, hitherto renowned for quality and reliability. These incidents alone would warrant investor caution. But the problem has been compounded by a long-delayed and less-than-reassuring response from Toyota.
Consider the problems themselves. In August, a Lexus ES 350 was weaving wildly and at high speed through traffic on a highway near San Diego until it struck another car, veered off the road entirely, crashed through a fence, hit a dirt embankment and soared more than 100 feet before crashing. The passengers, off-duty police officer Mark Saylor, 45, his wife, his 13-year-old daughter and his brother-in-law, were killed. Just before the crash, a passenger had dialed 911 and reported that the gas pedal was stuck and the car was out of control, according to news reports.
There have been hundreds of reports about sticking Toyota accelerators, few of which came close to August's tragic circumstances. But the problem for Toyota isn't just the frequency of such problems, but also the potentially catastrophic consequences. It's one thing to experience an electrical glitch or a problem opening the trunk, which might sink a vehicle in the J.D. Powers survey ratings. But as the San Diego incident so vividly demonstrated, a runaway vehicle and a defect jamming the accelerator are terrifying and potentially fatal.
Toyota attributed the problem in the Lexus to a floor mat. In November, the company said in a letter to customers that "no defect exists in vehicles in which the driver's floor mat is compatible with the vehicle and properly secured." The National Highway Traffic Safety Administration immediately denounced Toyota's explanation as "inaccurate and misleading," saying the problem was "related to accelerator and floor-pan design."
On Tuesday, John Hanson, a Toyota spokesman, told me that since the San Diego crash remains under investigation by the sheriff's office, he can't comment on its causes. However, he said that Toyota still believes that "floor-mat entrapment" was the issue.
A spokesman, Mike Goss, last week told The Wall Street Journal that the company had solved the mechanical problem, but then declined to say what the fix was. On Monday, Toyota issued a statement purporting to identify the mechanical problem and promising that dealerships would stay open late to accommodate customers and make needed repairs.
But is this the end of the story? It will take months before we know. Meanwhile, Congress is going to have hearings, as well it should given that NHTSA has been getting complaints about uncontrolled acceleration in Toyotas since 2004. Why has it taken the company six years to address the problem?
Mr. Hanson, the Toyota spokesperson, said that all car makers experience unintended acceleration problems, usually because the driver hits the gas pedal instead of the brake. Toyota only identified the gas-pedal problem in October. He stressed that the floor-mat problem is separate and unrelated. Nonetheless, "We're very disappointed with what's happening now and we're sorry to our owners and the public," he said. "Now our job is to do everything we can to get our owners back into their cars and assure them they are driving safe vehicles."
This strikes me as more than a mechanical issue, albeit one potentially affecting millions of vehicles. Toyota's credibility is also on the line. The damage to Toyota's reputation is incalculable. The damage to its brands isn't: That's apparent in the weak January sales figures Toyota released Tuesday.
Toyota shares were over $90 as recently as Jan. 19. They closed Tuesday at $78.18, which strikes me as a modest decline under the circumstances. If I owned shares, I'd seize the chance to get out. Toyota has a vast infrastructure and a long history of quality and innovation. But its floor-mat and gas-pedal nightmares are likely just beginning.
Toyota has a full-blown crisis on its hands. As has been widely reported, sticking gas pedals and potentially dangerous floor mats caused Toyota to recall 5.3 million vehicles since last fall, including some of its most popular models. The floor-mat problem led the company to call back models from its high-end Lexus brand, hitherto renowned for quality and reliability. These incidents alone would warrant investor caution. But the problem has been compounded by a long-delayed and less-than-reassuring response from Toyota.
Consider the problems themselves. In August, a Lexus ES 350 was weaving wildly and at high speed through traffic on a highway near San Diego until it struck another car, veered off the road entirely, crashed through a fence, hit a dirt embankment and soared more than 100 feet before crashing. The passengers, off-duty police officer Mark Saylor, 45, his wife, his 13-year-old daughter and his brother-in-law, were killed. Just before the crash, a passenger had dialed 911 and reported that the gas pedal was stuck and the car was out of control, according to news reports.
There have been hundreds of reports about sticking Toyota accelerators, few of which came close to August's tragic circumstances. But the problem for Toyota isn't just the frequency of such problems, but also the potentially catastrophic consequences. It's one thing to experience an electrical glitch or a problem opening the trunk, which might sink a vehicle in the J.D. Powers survey ratings. But as the San Diego incident so vividly demonstrated, a runaway vehicle and a defect jamming the accelerator are terrifying and potentially fatal.
Toyota attributed the problem in the Lexus to a floor mat. In November, the company said in a letter to customers that "no defect exists in vehicles in which the driver's floor mat is compatible with the vehicle and properly secured." The National Highway Traffic Safety Administration immediately denounced Toyota's explanation as "inaccurate and misleading," saying the problem was "related to accelerator and floor-pan design."
On Tuesday, John Hanson, a Toyota spokesman, told me that since the San Diego crash remains under investigation by the sheriff's office, he can't comment on its causes. However, he said that Toyota still believes that "floor-mat entrapment" was the issue.
A spokesman, Mike Goss, last week told The Wall Street Journal that the company had solved the mechanical problem, but then declined to say what the fix was. On Monday, Toyota issued a statement purporting to identify the mechanical problem and promising that dealerships would stay open late to accommodate customers and make needed repairs.
But is this the end of the story? It will take months before we know. Meanwhile, Congress is going to have hearings, as well it should given that NHTSA has been getting complaints about uncontrolled acceleration in Toyotas since 2004. Why has it taken the company six years to address the problem?
Mr. Hanson, the Toyota spokesperson, said that all car makers experience unintended acceleration problems, usually because the driver hits the gas pedal instead of the brake. Toyota only identified the gas-pedal problem in October. He stressed that the floor-mat problem is separate and unrelated. Nonetheless, "We're very disappointed with what's happening now and we're sorry to our owners and the public," he said. "Now our job is to do everything we can to get our owners back into their cars and assure them they are driving safe vehicles."
This strikes me as more than a mechanical issue, albeit one potentially affecting millions of vehicles. Toyota's credibility is also on the line. The damage to Toyota's reputation is incalculable. The damage to its brands isn't: That's apparent in the weak January sales figures Toyota released Tuesday.
Toyota shares were over $90 as recently as Jan. 19. They closed Tuesday at $78.18, which strikes me as a modest decline under the circumstances. If I owned shares, I'd seize the chance to get out. Toyota has a vast infrastructure and a long history of quality and innovation. But its floor-mat and gas-pedal nightmares are likely just beginning.