Product recalls are not uncommon in the auto industry, but that doesn’t mean investors don’t like them.
Investors in car companies are always afraid of news of product recalls. That’s because the subsequent damage to the manufacturer’s reputation could drive down the stock price. That’s what happened Friday with Japanese automaker Toyota Motor Corporation (TM -3.45%), whose market plunged following its latest recall announcement.
By market close today, the company’s stock had lost 3.5% of its value. Investors would have been better off simply tracking the S&P 500 index, which fell just 0.1%.
42,000 recalls
This morning, the National Highway Traffic Safety Administration (NHTSA) issued a press release regarding the recent news that Toyota is recalling more than 42,000 2023 and 2024 Corolla Cross Hybrids sold in the highly influential U.S. market. Announced. Of concern is the loss of power brake assist. In some cases, the distance required to come to a complete stop may be longer.
NHTSA announced that it detected a software error in a device that prevents vehicles from skidding. This error can cause brake assist defects when cornering.
Toyota has promised to update and fix the software through its network of dealers. The fix will be done free of charge.
No one likes car manufacturing defects
Toyota added that owners of all affected vehicles will be formally notified of the recall by late November. Recalls are commonplace in the auto industry, and while somewhat expected, they always raise concerns about automakers’ production and quality control.
Toyota will definitely get through this, and investors can only hope that things get tougher as the road progresses.
Eric Volkman has no position in any stocks mentioned. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.
