2/16/2010
By David Silver, Research Analyst

Over the past few months, there has been a plethora of auto recalls, ranging from Toyota's floor mats, gas pedal, and (most recently) brakes for its Prius and Camry models to airbag problems at Honda and rear wheel problems at Volkswagen.  Volkswagen quietly became the second largest automaker (in terms of annual sales) in the world during 2009 (second only to Toyota).  Long thought to be the leader in quality, Toyota has entered its own minefield which is expected to culminate next week when Toyota's president Akio Toyoda is expected to testify before Congress. According to new customer data compiled by the U.S. government, since 2000 more than 30 deaths have been attributed to the gas pedal sticking and causing sudden acceleration.  Mr. Toyoda is expected to announce a global task force that will more extensively test its products.  Toyota's management team was surprisingly absent at the onset of the current problem, and it took until the 400,000 vehicle recall for the Prius in America and in Japan for Mr. Toyoda to make a public appearance.  Since that time, he has tried to fix the problem and has been quick to recall vehicles when any other problems emerged.  It is not a shock that after other automakers take a fine-toothed comb to their products, they too find some problems. 

Ford Motor Company (F) last year had one of the biggest recalls of all time, for defective cruise control switches, the big difference though is that there wasn't a death toll.  Remember back to the early 2000's when the Ford Explorer had a massive tire recall.  It is thought to be the deadliest recall ever, with more than 250 deaths and more than 3,000 people seriously injured.  Ford has rebounded from that debacle just like Toyota will.

This is happening at a great time for the American automakers. Ford and General Motors are poised to take a portion of Toyota's market share.  Chrysler will benefit to a lesser extent, but it will be Ford and GM that take the biggest pieces.  Ford has increased its market share in 14 of the past 15 months, and we expect this month to be no different.  January was a difficult month for automakers primarily as a result of all the incentives offered during December.

Looking through the next few months, the contrarian in me says that this could be a good time to purchase a new Toyota.  Not only will the quality be at exceptional levels, but the dealers will also be offering many incentives to try to move the vehicles. Other automakers will be following suit too.

Later this afternoon, Mr. Toyoda is expected to give an update on the brake fix for the Prius and Camry.  Before the Prius recall, the problems had been outside of its home market, however, now with the Sai and Lexus HS250h affected as well, it truly is global and Toyoda and the rest of his management team is working quickly the fix the problem.

David Silver
Wall Street Strategies