Toyota Quality?

Yesterday the Jiji Press (Japanese language source) reported some disturbing figures on Toyota Motor Corp's (TM) recalls. Toyota's growth story may no longer be strong enough to suppress concerns about quality since during the five year period ending in December 2005 the number of recalls it issued increased by 42 times. In fact Jiji reported that last year Toyota issued 36% of the recalls in the Japanese domestic auto market.

On a parent-only basis Toyota controls approximately 35% of the domestic market share. However, given its emphasis on quality it is surprising to see that it has an even higher percentage share of recalls. We'll have to wait and see how '06 turns out but Toyota is definitely on pace to shatter its mark for most recalls ever issued.

It would be nice to have time to see the increase in autos produced and sold over the five year period. Additionally, it would be helpful to analyze the types and severity of recalls and the amount of financial loss incurred. Lastly, a survey of its recalls issued overseas might shed some light on the point of whether this is primarily a domestic concern or affecting it globally.

For Toyota investors the good news is that Toyota seems to be taking the situation very seriously. That being said I think internal investigations and reviews will result in better quality assurance and a decline in recalls in future years even as Toyota further increases production. I think I would look at adding to a position if Toyota shares were to be punished as a direct result of its recall problems. Having the answers to my questions in the prior paragraph might do a lot to assuage any concerns.

Toyota's ordinary shares (Tokyo: 7203) gained 3.20% to close at 5,800 yen ($98.82 ADR equivalent at current exchange rate) on a strong overall day for Japanese stocks following the breakout in the U.S., in which Toyota's ADRs gained 2.93% to close at $98.64.

In separate news, Toyota President Katsuaki Watanabe publicly stated that Toyota has no interest in blocking or joining the proposed tie-up between General Motors (GM) and the Renault-Nissan alliance. (Source: AP)

Toyota Motor Corp (TM) 1-year chart: