If there’s one thing that never bodes well for a stock’s share price, it’s the word “fine,” especially when there’s an eight-figure number connected to it. That’s what happened to Toyota Motor (NYSE:TM), as it found itself on the bad end of a $60 million fine. Investors weren’t happy and headed for the hills, taking just over 2.5% of Toyota’s market cap along with them.
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The fine in question was delivered by the Consumer Financial Protection Bureau, which delivered it to Toyota’s financing firm in the U.S., Toyota Motor Credit Corp. Reports note that Toyota Motor Credit Corp. got the fine in question thanks to the difficulty involved in canceling some “add-ons” to their loans, including such things as Guarantee Asset Protection to cover differences between what a buyer owes on the car and what insurance would pay in the event of an accident.
These add-ons represented between $700 and $2,500 extra per loan and were remarkably difficult to cancel. Not only were staff required to actively dissuade the borrower from canceling, but borrowers were subsequently told that “…only written requests would be honored.”
Bad Lending Practices Will Cause More Harm than Boring Cars
Lending practices like these don’t exactly match up well with recent remarks from Toyota CEO Akio Toyoda. Toyoda, who has been with Toyota Motor for the last 14 years, noted that he spent that time “…building the strength to make others happy.” Further, one of his biggest concerns was that the company might revert to being “ordinary” once more after spending so much time and effort trying to make it a racing powerhouse, among other things. With several new models geared toward more exciting cars, like the Supra and the Yaris, it seems like Toyota’s getting away from that. But boring cars may not do as much damage, in the long run, as unsavory lending practices.
Is Toyota Stock a Buy Right Now?
Turning to Wall Street, a look at the last five days of trading for Toyota Motors shows the impact that one piece of bad news can have on a company trying to be more exciting. Toyota had been on an upward track for most of the last five days until the latest news hit. Then, a vertical drop followed. Toyota Motor stock tried gamely to rally but still ended up down about 0.5% during this timeframe.
