Toyota Recalls Avalon Sedans - Analyst Blog

Toyota Motor Corporation TM has announced the recall of 119,000 Avalon sedans of model years 2003 and 2004. Apparently, noise from other electrical components in the car sometimes damages the circuits of the air bag control module. This leads to accidental deployment of airbags. The problem also leads to inadvertent tightening of the seat belt pretensioners at times.

Toyota is not aware of any accidents due to the problem, although it has reports of an injury due to it. The automaker has notified the owners of the recalled cars. Toyota dealers will attach an electrical noise filter to the air bag control module to fix the problem.

The company has been facing trouble with defects and recalls. Recently, the company agreed to a $1.2 billion settlement with the U.S. Attorney's Office for the Southern District of New York in relation to the criminal charges for problems in accelerator pedals and floor mats of its cars, which led to sudden acceleration and even crashes. This is the highest penalty imposed on any automaker and is 35 times higher than the maximum penalty the National Highway Traffic Safety Administration (NHTSA) can impose.

Toyota also admitted to misleading customers about the problem. The investigation regarding the matter was started in Feb 2010 although the automaker has been aware of the problem since 2007. Toyota initially failed to recall cars with defective parts and continued to manufacture new cars using them despite being aware of the safety risk associated with them. The company finally issued a recall of 8 models after a crash killed an entire family but left out 3 other models that had the same problem.

The carmaker had earlier paid $1.6 billion to settle a class action lawsuit related to sudden acceleration of cars. The company also incurred $1.1 billion during the recall of the affected vehicle. Moreover, it lost vehicle sales worth $880 million.

Currently, Toyota carries a Zacks Rank #2 (Buy). Some other automobile stocks worth considering are Tata Motors Limited TTM, Daimler AG (DDAIF) and Tesla Motors, Inc. TSLA. Tata Motors and Daimler sport a Zacks Rank #1 (Strong Buy), while Tesla holds a Zacks Rank #2.