Toyota (TM) filled the headlines of business news for several weeks as it struggled with seemingly unending revelations about its poor product quality. After about a month, sellers finally exhausted themselves, and TM began an impressive bounce. This bounce only lasted the same amount of time as the overall sell-off. TM peaked in late March, over a month ahead of the S&P 500’s last top, and this week TM finally printed a new 52-week and fresh 14-month lows.
Traders and investors usually greet such a dour milestone by a surge in trading volume. Yet, volume barely perked up in response to the fresh 52-week lows. This behavior is particularly odd given the surge of selling volume on the major indices over the past month. While in previous posts I pointed out how TM had likely bottomed, this “quiet” break of support likely signals a continuation of this meandering path to new lows – until some fresh news breaks the monotony.
The chart below summarizes the current situation (click for a larger view):
*Chart created using TeleChart:
Admittedly, I have also lost track of Toyota’s progress on fixing its product quality problems, so I did a quick scan of recent news. It just so happens that TM suffered yet another recall just today. This time, it is the premium Lexus brand suffering the latest indignities. The USA Today reported that Toyota only sold 4000 Lexus cars through April (presumably in North America), so the cost and impact is small. But had this happened just two months ago, the news would have filled up front page business news. Instead, it seems that car recall news has returned to the footnotes where it often resides….especially while we worry about even larger headlines.
The lessons of Toyota’s debacle have taken strong hold amongst its competitors. The LA Times reported that Chrysler responded decisively and swiftly in response to a recall of 25,000 Dodge Caliber and Jeep Compass vehicles whose faulty accelerator pedal systems were built by the same company, CTS Corporation (CTS), that built Toyota’s systems. Interestingly enough, CTS’s stock remains just 10% below its 21-month highs, and is at its pre-Toyota crisis price.
Be careful out there!
Full disclosure: no positions
I found this story on http://www.toyotaconversations.com which is a website run by Toyota covering all the news, both positive and negative about their brand. I have traded TM stock a few times recently on the back of news and this is quickest and easiest place to find out what sentiment is towards Toyota at any point in time because breaking news seems to appear here almost immediately it has been mentioned on Twitter..
Thanks, Jim, for the heads up!