Toyota Motor Corp. faces billions of dollars in recall costs, its reputation has been battered and class-action lawsuits are gaining momentum. For all this, Toyota's U.S. depositary receipts trading on the New York Stock Exchange have fallen all of 20 per cent since mid-January, at a time when the broader market has also been sliding. Big deal.
And the reason for this relatively ho-hum response from the market is because investors can see beyond the alarmist headlines and recognize a few facts: Toyota will recover from this crisis, people still want to own the cars and the recent quality setbacks are just the sort of short-term snafus that long-term value investors love to see.
To understand why this current crisis is likely to blow over within months, consider first of all that Toyota vehicles aren't exactly Pintos, the notorious Ford vehicle from the 1970s that had a habit of blowing up on impact. The model has since become emblematic for quality issues at all North America car manufacturers.
As well, the odds of any Toyota vehicle experiencing catastrophic problems related to either brakes (in the case of the Prius model) or gas pedals (in the case of a number of models) are very, very small. And the fix to the problem doesn't require a complete overhaul of the vehicles: According to Jon Williams, commercial director of Toyota PLC, the car manufacturer's British unit, the gas pedal fix takes 30 minutes.
In a GlobeDrive survey, 64 per cent of respondents said Toyota recalls wouldn't affect their next car purchase, compared with 23 per cent who said it would - and that's at the height of the current hysteria. The Wall Street Journal conducted a similar survey, asking readers "If you were in the market to buy a car today, would you consider a Toyota?" Fifty per cent of respondents said yes, which isn't bad given that Toyota's share of the U.S. market is only 16 per cent.
So, consumers seem to be shrugging, and that's good news for Toyota sales - and its stock. What's disheartening for investors who want a real deal here, though, is that Toyota shares haven't been walloped harder, which would have made a buying decision easier to make. Even after the sharp decline since mid-January, the stock is still 28 per cent higher than it was at the depths of the bear market in stocks last March, when it looked as though we would soon be driving mules.
That leaves investors with a tough decision: Should you pounce on Toyota now or wait for a bigger dip? That's a tough one to answer - but waiting too long brings the risk of missing out on a wonderful opportunity.