Buying the Stock Based on the Product--not its Price: Toyota

I know someone who bought Toyota (TM) a couple of weeks ago.

I remember telling this person that I was looking to possibly buy TM--IF they dropped to the low 60's, if not fully drop into the 50's. During the past 1-1/2 years or so, they've been struggling with higher recall levels than usual. However, their PR has been taking HUGE hits since this whole accelerator sticking (made by supplier CTX), causing a lot of accidents.

Traditionally, Toyota has been known to be a well-managed company. When I've talked with anyone who has worked at both Toyota and General Motors (GM), they've always touted Toyota's full team involvement when solving problems. This contrasted starkly with GM's methods (and their management style, I believe, was a big reason they had their downfall).

At the time, this made me think that Toyota's good management would make the stock a good long-term stock. It might still be a good long term one, but I've seen several reasons to be concerned since.

They haven't seemed to take full responsibility. I haven't heard anything addressing whether the major failures are caused by

1. Product Quality: If it is the product quality, does anyone know what happened? Did CTX (the accelerator supplier) have print specifications and fail to meet them? If so, do they know which ones failed? Do they know how these products were made incorrectly in the first place? Are they sure they know what adjustments they need to make to avoid repeating the same mistake? What inspection checkpoints are in place? Have there been any new ones implemented?

2. Product Design: If it is the product design, does anyone know what part of the design needs to be changed? Are we sure? How long does it take to test this change? (Usually, the auto industry requires ridiculous levels of testing, taking a long time, even when the part does NOT have any safety characteristics.) Has there been enough time to test any changes to the design? Are there any other cars that have accelerators based upon this design?

You see, they've simply said that they will recall these accelerators and replace them. That, to me, sounds like management speak. I haven't heard or read any assurances they even know what to change, other than people's recent perceptions of them.

Does that sound like management that will take responsibility for its actions?

Assuming this mismanagement is an aberration--not a peek of more things to come--this problem probably is not solved. There will be more bad news.

Therefore, the stock price has more room to move upward than downward.

Instead, I recommended Ford (F). I've been a big fan of its CEO Alan Mulally for a while. He puts out himself as a good leader. In fact, I don't hear this anywhere else, but it seems like he does a lot of the things that the Japanese car companies did to reach the top.

He's cutting where he needs. Besides heads (which is always unfortunate, but...) he is truly commonizing carlines across the world. Not only should this improve product consistency, it also should also improve the designs, as the entire world is (or should be) working together. It reduce costs, as parts can be bought at higher volume levels (Although, things do not always work this way since suppliers often tend to be located near their customer's receiving plants.).

Plus, with the American public rallying behind Ford, there is more room to move upward than downward. (Mind you, they have serious debt issues to address, but with Mulally at the helm, I'm betting that they find a way to solve these, too.)

I took a long time to address the main point.

I believe that my friend bought Toyota (TM) instead of Ford (F), because this person likes Toyota cars better than Ford cars.

Point: Just because the company is good and the products are, too, it does not mean that the stock is a good buy at the current market price.

Since then, Toyota has stayed about the same. In fact, I think it might have risen a little. (My friend bought shares around $73. Today, it is about $77.)

Ford was around $11.50. Today, it is over $13.

That's too short a time period to be sure of anything, but I think it's worth noting.

Apples are good for you--nobody can deny this--but this does not make them a good buy at $50/apple.

Know your products. Know your company. Know your prices.