The company that makes London taxi cabs has launched an emergency recall of 400 black cabs after discovering a steering fault. It also suspended its shares and warned its financial poisition would be "unclear" until it had found a way to fix the fault.

Manganese Bronze, which has been making black cabs since 1948, said it had been forced to recall the cabs and suspend all sales of its TX4 model after drivers reported serious problems with the power steering.

The Coventry-based company - which manufactures the cabs in China - warned investors that the suspension of sales would have a "very material and detrimental" impact on its cash flow.

The steering fault is just the latest problem to beset Manganese, which is 20% owned by Chinese car group Geely and has failed to turn a profit since 2007. This summer, just two days after the Spice Girls danced on top of five black cabs at the closing ceremony of the London 2012 Olympics the company revealed a £3.9m black hole in its accounts.

Manganese's UK sales dropped 9% last year to 1,502 taxis. The company's shares, which were suspended at 10p valuing the company at just £3m has, have fallen 70% in the past year. Just five years ago, they were changing hands at more than £8 each.

It is not the first time Manganese has been forced to launch an emergency recall of the TX4 model. Four years ago it called back 5,000 of the early TX4 after some of them caught fire.

John Russell, chief executive of Manganese Bronze, said there had been two incidences of drivers "struggling to steer the vehicles correctly" due to the failure of the hydraulic system that powers the steering.

Russell said that in both incidences a circlip, which holds hydraulic fluid pipes in place, had either fallen off or been damaged. "[This means] you get very erratic performance of the hydraulic fluid in the power steering, which results in odd characteristics [to the steering]," he said.

In both cases the drivers had been able to wrest back control of their vehicles and, Russell said, the fault had not led to any injuries.

He said Manganese engineers had examined the vehicles "and came to the conclusion that we did have a problem".

The company immediately began the recall and some of the affected vehicles are already off the streets. Russell said all owners and drivers of affected cabs were being contacted by phone and by letter.

Russell said he was unable to say what had caused the problem or how long it would take to fix it. "We know that drivers aren't earning a livelihood if they can't drive. That is a real issue, and we aim to get them back on the road and earning money as soon as possible," he said.

"We are not going to have a witch hunt. We want to find a solution the root cause. Then we will discover who is to blame, and questions will get answered."

However, Russell pointed out that the company had recently contracted a new Chinese company to supply its steering box. "We firmly believed that we had a better supplier, and we went through a very thorough test evaluation," he said. "We are very disappointed."

He said Manganese holds a contract with the supplier that "covers warranty and negligence, and that contract will come into play".

The company is also suffering from growing competition. Mercedes-Benz began selling its Vito cab in 2008 and now supplies almost a third of the capital's 22,000-cab fleet.

Nissan is also planning to break into the market next year with the launch of a modified version of minivans currently used by cabbies in New York.

"We are having a real tough time of it," Russell said. "But we are one of the great British icons and so we will continue to power on.

"Despite various attempts to build a better taxi, no one has made a better one than ours."