“Oh, yeah, I bought Toyota shares in February 2010. Made a killing.”
Right now, it’s a little hard to imagine when someone might be able to say that. Toyota’s (TM) stock has fallen nearly 19% since Jan. 21, when the company announced a recall of vehicles with a gas pedal assembly that could lead to uncontrolled acceleration. The company is now under fire over two potentially dangerous problems with its gas pedals and floor mats that have led to two recalls of more than 5.3 million vehicles. Granted, it swung to the black in the fiscal third quarter ending Dec. 31, posting a net profit of 153.22 billion yen ($1.68 billion), and improving over the 164.64 billion yen net loss it reported for the same quarter a year earlier. But that seems to be a sole bright spot in a period where the bad news just seems to keep coming, including a steep January sales decline and reports of braking problems in new Prius models.
With a contrarian view ever in our sights, SmartMoney.com wondered: What’s the bullish case for Toyota? So went looking for some factors that could someday prove to be the company’s roadmap back toward the top of the industry.
We started, of course, with some crisis management experts who had ideas for how Toyota could begin addressing the damage to its reputation and sales. But we also talked with people who follow the auto industry and heard about some surprising aspects of Toyota’s outlook that have been all but overshadowed by the current controversy.
To be sure, those who have gone skeptical on the auto maker have good reason. The problems with the gas pedal and floor mats have not only pushed some customers away but have also drawn the attention of U.S. regulators. On Wednesday, Transportation Department chief Ray LaHood told owners of recalled models to stop driving the cars before clarifying that he meant worried customers should take their cars to dealerships. A day earlier, Toyota had released January sales figures that reflect a company rapidly losing customers. And crisis experts warn it isn’t easy to dig out of that hole.
Others, however, are more hopeful. David Silver, an analyst at Wall Street Strategies who covers the company, says that depending on how the crisis is handled and how quickly it is resolved, the stock could see a recovery in as little as a year.
Here, then, are factors that could set the stage for a Toyota comeback – and eventually turn the hypothetical statement at the beginning of this story into a reality.
Analysts say the first thing on Toyota's agenda should be to win back customers and lift its share price is fix the acceleration problem and assure customers that the company’s vehicles are safe to drive, and the company appears to be responding.
Toyota says customer safety and satisfaction are now its top priorities. "Number one is make sure the customer is taken care of,” says John Hanson, a Toyota spokesman. "That's the only thing we're focused on."
Of course, consumers will also need to see the company taking steps to find out how its culture could have allowed these problems to develop, says Dan Keeney, the president of DPK Public Relations, who has worked in crisis management. “I can’t help but think that this is bigger than just a product malfunction,” he says. “There’s something culturally that allowed this to be swept under the rug for a period of years.”
To demonstrate a commitment to improve, Toyota should create or allow for an independent investigation into its corporate culture to address the root of the current crisis, Keeney says.
In a way, the sales decline could actually help Toyota refocus on vehicle quality, says Robert Cole, professor emeritus of organizational management at the Haas School of Business at the University of California, Berkeley. As sales take a near-term hit, “the reduced volume will allow them to focus more on quality,” he says.
Toyota is fortunate that it went into this crisis with such a strong balance sheet. “These guys are much better set up to handle a crisis compared to how the Detroit guys were set up in mid 2008,” says David Whiston, an auto equity analyst for Morningstar. “It’s incredible to me how much cash they have.”
Now, the company must draw on some of its vast financial resources to make sure the customer is not only safe, but happy. Toyota has an example from its own past to draw from here, Cole says. Early in the history of the Lexus, the company responded to a recall by offering customers a loaner car while the problem was fixed, Cole says. Logistically, with millions of cars affected, Toyota can’t replicate that solution now, but could attempt another concrete move to appease angry customers, he says.
Beyond the near-term fixes, Toyota will likely need to introduce new incentives in the next six months to draw consumers back into its showrooms, Silver says. It’s a move that could cost the company upfront but pay dividends down the road, in terms of brand loyalty.
Once Toyota has dealt with its immediate problems, some say the company must find a way to market more exciting designs. “Going forward they can’t rely on the quality marketing message that they used to,” Whiston says. “ You want to say the quality’s fixed, of course, but they need to have more to their marketing message than just quality going forward.”
Toyota acknowledges that after the storm has passed, it will have to take more steps. "Safety and quality and reliability and durability are the foundations of this industry, but there's more to it than that -- of course, there is,” says Hanson, the spokesman.
As emerging markets continue to raise global demand for automobiles, Toyota should continue to embrace new potential customer populations, even as it licks its wounds in the United States. Analysts say retreating from those markets now could leave the company in a weaker position down the road.
Toyota says it does not plan to change its growth strategy to take advantage of different quality standards around the world. "I don't think that's a reason to expand into a new market," Hanson, the spokesman says. "I don't believe there are different perceptions of quality."
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RT @SmartMoney: Buy a Toyota (share) now? Sarah Morgan on the contrarian case for its stock @SmartMoney. http://bit.ly/dnvGRx
Buy a Toyota (share) now? Sarah Morgan on the contrarian case... @SmartMoney. http://bit.ly/dnvGRx /via @SmartMoney yes, buy Toyota.
The Bullish Case for Toyota (On the Street) http://www.smartmoney.com/investing/stocks/the-bullish-case-for-toyota/?cid=1122
RT @SmartMoney: Buy a Toyota (share) now? Sarah Morgan on the contrarian case for its stock @SmartMoney. http://bit.ly/dnvGRx
Buy a Toyota (share) now? Sarah Morgan on the contrarian case for its stock @SmartMoney. http://bit.ly/dnvGRx
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