The U.S. Department of Justice is expected to announce a settlement today (Wednesday) with Toyota Motor Corp. (NYSE: TM) that would end a criminal investigation into the automaker's failure to disclose information regarding safety issues.
The settlement is expected to top $1 billion, making it one of the largest fines ever paid by an automaker.
The investigation lasted four years and dealt with an unwanted acceleration issue experienced in Toyota-made vehicles.
In 2010, the National Highway Traffic Safety Administration (NHTSA) attributed five deaths to the acceleration issue, and according to the Justice Department, Toyota made misleading statements regarding vehicle safety problems.
The problem first gained national attention in 2009 when an off-duty California Highway Patrolman and his family were killed in an accident after the man could not stop his Lexus. According to reports the vehicle had been traveling near 120 miles per hour at the time of the accident.
Toyota blamed misplaced floor mats for trapping accelerators. The automaker supported those claims with an NHTSA probe that found no issues with the control software of Toyota vehicles.
Today's billion-dollar settlement however, supports the idea that Toyota did in fact release misleading safety information.
According to The Wall Street Journal, the settlement has not technically been finalized. Regardless, Toyota officials are ready to move on from the ordeal.
"Toyota has cooperated with the U.S. attorney's office in this matter for more than four years," Toyota Spokeswoman Julie Hamp said in a statement. "During that time, we have made fundamental changes to become a more responsive and customer-focused organization, and we are committed to continued improvements."
As Toyota moves forward from the safety investigation and the massive fine, here's what's next for TM stock...
Today's settlement isn't the only dismal news Toyota shareholders have received in 2014.
In February, the automaker issued a recall on every third-generation Prius the company has sold. That totaled 1.9 million vehicles worldwide and 713,000 in North America. The recall was for a programming glitch that shut down the vehicle's hybrid engine, sometimes while the car was in motion.
Shares dropped 2% that day, but bullish indicators remained at the time.
First, Toyota is the world's top-selling automaker, having sold more than 9.98 million vehicles worldwide in 2013. That was a 2.4% gain from 2012. TM also outsold second-place General Motors Co. (NYSE: GM) by 270,000 vehicles in 2013.
Second, growing demand in China was expected to push Toyota sales higher. In January 2014, 2.2 million vehicles were sold in China, up 6% from January 2013. The full year 2013 saw a 14% increase in auto sales from 2012. If anyone stands to profit from that growth, it's the world's leading auto-seller, Toyota.
Today's news takes some of the luster off of those figures, however.
While TM was the top-selling automaker in 2013, its lead over rival GM shrank by a wide margin. In 2012, TM beat GM by 460,000 vehicles. That margin was almost slashed in half in 2013. (GM has its own recall issues to worry about, however).
Investors have to be concerned about this year's news having an impact on sales. For consumers, particularly those with families, today's settlement news and January's recall is disconcerting.
The effect these issues have on sales figures will go a long way in determining TM's share price. Toyota's recent run has been uninspiring, even amid strong sales figures. Down sales figures won't help.
Toyota stock was down 1% in morning trading today, and has lost more than 5% in the last month. In the past six months, TM stock has slid more than 16%.
If TM stock continues to fall, there may be a good buy-in point for optimistic investors. With a 52-week range of $99.70 to $134.94, now is not the time to buy.
Has the recent news out of Toyota affected your opinion of the automaker? Let us know on Twitter @moneymorning using #Toyota.
After reading this, you'll be laughing at investors who are worried about the next market sell-off. Start profiting today...
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