Product recalls aren’t unusual in the auto industry, but that doesn’t mean investors have to like them.
Investors in auto companies always fear news of product recalls, since the subsequent hit to a manufacturer’s reputation can ding the price of its stock. That’s what happened on Friday with Japanese automaker Toyota Motor (TM -3.45%), as a market sell-off followed the announcement of its latest recall.
By market close today, the company’s shares had lost 3.5% of their value; investors would have been better off simply tracking the S&P 500 index, which slipped by only 0.1%.
A 42,000-strong recall
This morning, the National Highway Traffic Safety Administration (NHTSA) published a press release on recent news that Toyota is recalling more than 42,000 2023 and 2024 Corolla Cross hybrids it sold in the ever-influential U.S. market. The concern is about a loss in power brake assist; in certain instances, this can lengthen the distance needed to come to a complete stop.
The NHTSA said it detected a software error in the unit that prevents the vehicle from skidding. That error could trigger the brake assist flaw when negotiating a corner.
Toyota has pledged to update and correct the software’s programming through its network of dealerships. That modification will be made free of charge.
No one enjoys flaws in auto manufacturing
Toyota added that the owners of all affected vehicles will be formally notified of the recall by late November. While recalls are a fact of life in the auto industry, to the point where they are expected to a degree, they always raise concern about an automaker’s production and quality control.
Toyota will surely motor past this one, and hopefully for its investors it’ll be tighter as it travels down the road.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.