The automaker last week announced a worldwide recall of 7.43 million vehicles because of a faulty window power switch, even as its China sales were plunging due to a territorial dispute between Japan and China.
Citing the two events, S&P Capital IQ analyst Efraim Levy reduced his rating to hold from buy.
"We lower our opinion to reflect headline risk we see from increased headwinds in certain parts of its operations," Levy wrote in a note to investors last Wednesday. Toyota's American depositary receipts are traded on the New York Stock Exchange, with each ADR representing two shares of common stock.On Friday, Toyota shares closed at $74.67, up 10% year to date. Nissan (NSANY) closed at $17 and Honda (HMC - Get Report), closed at $29.90; both are down 4% year to date. Meanwhile, GM (GM - Get Report) is up 17% and Ford (F - Get Report) is down 8%. Levy wrote that the Toyota recall "takes some of the sheen off its recovering brand image and should have a financial impact," while the impact of the dispute between China and Japan is "another concern." The concerns are mitigated by Toyota's solid recovery in the U.S., where sales are up 32% so far in 2012. "They were having immense success in the U.S., the Asian crisis was behind them -- the brand was back," he said, in an interview. "But then you start having these other factors add up." The downgrade comes just two months after Levy had upgraded Toyota to buy due to the strong U.S. recovery. Levy said he has not quantified the financial impact of the recall. A faulty window power switch does not appear to be a particularly serious problem, although its impact is magnified because Toyota, like other automakers, has become increasingly reliant on global platforms. "Recalls are part of the business," Levy said. "But as you put more volume on a global basis, recalls will be bigger in the future." At this point, it seems clear that Toyota has had more than its share of bad luck. It had a tough year in 2011 as a result of inventory shortages resulting from the March earthquake and tsunami in Japan. It had a tough year in 2010 because, in late 2009 and 2010, it recalled 7.5 million vehicles, damaging its image for extreme reliability. It had a tough year in 2009 because U.S. auto sales fell to their lowest level in 27 years. At least the 2009 problems weren't unique; they were shared with the rest of the industry. Follow @tedreednc -- Written by Ted Reed in Charlotte, N.C. >To contact the writer of this article, click here: Ted Reed