Toyota Motors (TM)-Another day, another problem or two

On a daily basis there is another problem for Toyota and possible recall issues. Toyota with a pending Senate investigation about to start next week is looking into some power steering complaints in the Corolla. They say that there are less than 100 complaints.

Typically companies of Toyota's size would never look into a small amount of complaints in such a large production vehicle but with the way they handled the accelerator issue they are taking no chances.

They are under pressure from Senate hearings looming and you can be sure it will plastered on every TV and newspaper across the world. Aiko Toyoda has said they he will attend the hearings if asked however the U.S. executives are scheduled to appear. Even with his limited command of English his absence from these hearings is a big mistake. It will be perceived as he is not being fourth coming with what he knew and when. As Harry Truman said "The buck stops here".

The law firm of Waite, Schneider, Bayless & Chesley Co., L.P.A. filed a class action lawsuit in Kentucky under RICO. This is an unusual step and usage of the racketeering statue. The basis is that Toyota knew about the issue for years and did nothing to inform the public or the dealers. Instead they kept selling the vehicles and ignored safety issues

Here is the law firm for all Toyota owners


Stanley Chesley who is the attorney handling the case believes that Toyota knew about the issue and is hiding information. Toyota has refused to give the government the event data recorder (EDR) which would show the causes of crashes. Think of it as the black box in airplanes for cars. If Toyota has nothing to hide surely they would give the investigators the EDR's. I can only guess that Mr. Chesley has some insider knowledge on the issue.

The other unusual factor about this RICO case is that Mr. Chesley is asking that Toyota be forced to make payments on the vehicles being recalled until they have been fixed and approved by the Government. The basis is that people cannot safely drive their cars and should not be responsible for their payments since Toyota knew about the issues ignored and tried to hide them for some time.

I don't currently own a Toyota but if I got a letter in the mail saying that if I sign up to be a part of the lawsuit and have the opportunity to have Toyota make my payments for me I certainly would do so.

If Mr. Chesley's assertions are correct this could wind up costing TM and it's shareholders a lot more than the estimated $2 billion dollars already quoted. This is something that could take years to turn around since the public would be outraged that Toyota knowingly sold them an unsafe vehicle and tried to hide it.

The repercussions of this lawsuit could be substantial even if Toyota is not found guilty. If he can actually show or it's perceived by the public that Toyota knew about the issue and sold those cars and caused even death you would see consumers walk away from the brand in droves. That would affect resale values and a well as sales. Perceptions become realities even when they are not the case at times. We already know there is a recall. The when and who knew is the bigger unanswered question.

I think the shareholder and the market as severely underestimating the cost associated with these issues. This is no longer just an accelerator or floor mat issue. The companies reputation is on the line.

We saw what this did to Audi who is a small manufacturer. They were actually found not guilty. Look what it did to them for years.

Ford (F) back in the 70's had the Pinto memo scandal. In that memo it showed that Ford knew about the issue of the gas tank exploding on impact and ignored it for an $11 part. Ford also was found not guilty but the damage was done.

I am long on TM puts and will continue buying more. I'm convinced that this will have two plays. One is on a very overvalued TM pps and the other to be long on F. As I said before this is only beginning. You are going to see substantial sales increases from all the competitors. Ford is the only domestic play so money will flow into the stock at some point. The when is hard to say but you want to own in my opinion.









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