It’s been an interesting year-long ride for Toyota Motor Corp. (TM), to say the very least. The renowned auto manufacturer — a stalwart within Japan, Inc. — was forced to widen the scope of its vehicle recall late last year, an issue precipitated by defective front airbags produced by Takata Corp. (TKTDY).
Although the Takata airbags affected many other auto companies — including BMW and General Motors (GM) — it will be difficult for Toyota stock to dissociate from the reputational damage that its compatriot company has caused.
Then came stunning news that Julie Hamp — TM’s chief communications officer — was arrested a few weeks ago on June 18 for “allegedly importing prescription painkillers that require prior permission before they can be brought into Japan.”
The embarrassing fallout forced Hamp to resign, lasting a mere three months on the job.
The scandal dealt a significant blow to TM’s president Akio Toyoda’s initiative to promote diversity within Toyota’s executive ranks.
Toyota Stock Charts
Fortunately, it hasn’t been all bad news for Toyota stock. Americans have been buying new cars and trucks — particularly SUVs and luxury-branded models — at the highest rate since 2001.
The National Automobile Dealers Association upped its new-car sales projection for 2015 to 17.2 million — the sixth straight year of such increases. For its part, TM’s brand sales jumped 4% year-over-year in June, led by light truck sales — pickups, SUVs, crossovers and vans — rising nearly 17%.
But even the positive sentiment supporting the auto industry may soon be facing difficult challenges.
The hawkish stance of the U.S. Federal Reserve, which is expected to increase interest rates this September, may stymie consumers’ appetite for new vehicle purchases, who are currently benefiting from interest rates near historical lows. In addition, the high rate of auto leasing in recent years portends an oversupply hitting the second-hand markets.
Will Toyota stock be able to overcome these critical barriers?
TM’s trend in the markets isn’t exactly encouraging. While Toyota stock is up 5% year-to-date, the second quarter has been far less impressive, with TM currently down 9% from its 2015 high.
Furthermore, the last 60 days of trading have pushed Toyota stock down to the lower end of its trend channel. If the technical support line is breached, we could see TM shares being pushed down to a price range between $110 to $120 over the remainder of the year.
Because Toyota is truly a global empire, it’s highly doubtful that the aforementioned challenges will collapse TM’s value in the markets substantially. However, at its current value, there’s going to be more downside risk for TM shares before it becomes an attractive investment opportunity.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
