Will Toyota Owners Pay for More Recalls?

Toyota PriusIn December, Toyota (NYSE:TM) got slammed with a record $17.5 million civil penalty for failing to report a safety defect to the federal government in a timely manner. Also in December, Toyota proposed to settle hundreds of lawsuits related to unintentional acceleration defects for $1 billion, an unprecedented sum for automobile defects.

Last year was rife with recalls from every major manufacturer — Ford’s (NYSE:F) model-year 2013 Escape was recalled at least four times for various reasons, General Motor (NYSE:GM) recalled nearly 70,000 vehicles because they were at risk of rolling away when parked — but Toyota has definitely claimed the recall crown over the past few years.

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Adding another notch to its recall belt, Toyota recently announced that it would be recalling 1 million Corollas and Lexus sedans made between December 2001 and May 2004. The recall affects 752,000 vehicles in the United States. The Corollas have an issue with the airbag control module that could cause the airbag to deploy when there hasn’t actually been an accident. With the Lexus, there is a loose nut on the windshield wipers that could fail while in use.

While Toyota will always fix problems associated with recalls for free, there are still costs to customers…

The more recalls a model has, the less valuable that car effectively becomes. This type of devaluation was a major part of the $1 billion settlement related to the unintentional acceleration debacle. Who wants to buy a vehicle that has a reputation for driving itself into trees? Used-car shoppers are unlikely to pay as much for a vehicle that has been recalled for any defect, and will pay less for any brand with a reputation for problems, however minor.

Toyota has made a great effort recently to clean up its brand and restore its image as one of the safest and most high-quality car manufacturers on the planet, but every new recall is a blemish. Granted, this latest one affects vehicles that were made before the quality initiative, but consumer sentiment is unlikely to be very discerning when considering what brand to choose, or how much to pay for a used vehicle.

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