In the volumes about “Toyota terror” cascading forth from the media, the FT’s Philip Stephens’ keenly counter-intuitive take stands out as a beacon of provocative — and we think persuasive — reasoning.
There has “never been a better time to get down to the Toyota showroom”, Stephens declared on the FT’s DotComment blog on Friday. Despite the cash registers “already ringing as US lawyers anticipate years of lucrative litigation” and a 24-hour media fanning the” flames of panic”, he argued:
The company makes great cars. And after the tidal wave of bad publicity of the past couple of weeks, its dealers are going to be desperate to sell them. Prices are about to fall.
But what about the risk?
Well, even if you climb into the driving seat of a model that hasn’t yet had the pedal fixed, the chance of it sticking dangerously the next time you pop out to the supermarket is one in 1.2874bn, he ventured.
The likelihood that you will suffer death or serious injury as a consequence of such an incident is one in 1.78bn.
Well, not quite…
The precision of those computations, Stephens admitted, “relies on 30-year-old memory of statistical probabilities and my more recent efforts to master my 16-year-old son’s rather complicated scientific calculator. Alright, I made them up. But you get the picture.”
But, he reasoned:
Prices are set to fall. There will be bargains galore at your local dealer. Don’t wait too long, though. When people have stopped panicking they will remember why the company is the world’s biggest carmaker.
And one final thought:
Put the money you save into Toyota shares: the price has fallen by a quarter since the company went public with its recall plans on January 22. And Toyota does make great cars.
Stephens’ last point brings us to the question of one of Japan’s (formerly) best-performing stocks (not to mention one of its most highly-rated corporate bond issuers, until precisely a year ago).
In fact, even in one of the carmaker’s darkest hours, others are also upbeat on Toyota’s prospects, as seen in the enthusiastic response from Tokyo’s stock market to Toyota’s forecast-beating third quarter and distinctly optimistic annual outlook issued Thursday.
As one witty trader remarked on Friday:
The apex of the Toyota Shock’s chaos and pain appears in the rear view mirror to have come ironically AHEAD of last night’s earning’s beat, and already the calming effect on sentiment is both visceral and measurable: Sure the Nikkei sold off 3% but so what, 3 of 5 TSE most-actives closed up (big Japan Inc’s–Sony, Hitachi and you guessed it Toyota itself) and index vols were for sale in size all day. There’s just no panic as every market drop is seen as a 1) buy entry point for long only’s and more
important from a real-time supply/demand perspective 2) another chance to print retail structured products…
In fact, the “Toyota shock” might just be what the Japan market needed. As one trader noted, before the crisis unfolded, observers might have sensed a wee bit of complacency creeping back into markets at the macro level.
With the trading environment “thus salted with the landmines of sharply higher risk appetite and compressed spreads,” he continued, the Toyota shock was an ideal catalyst.
Whatever woes lie ahead for the battered number one carmaker, the perception that Toyota was not apologetic enough as the recall crisis unfolded is possibly the most unexpected criticism one could make of a big Japanese company.
Now, however, Toyota is beginning to “get it”- taking the step of posting a five-minute long apology on YouTube. Whether that will help the company in its hour of need remains to be seen. As Dan Bogler, on John Gapper’s business blog, remarked:
That senior Toyota executives have… started to say sorry publicly, at press conferences and via YouTube, is a good sign. And they have a very strong brand to fall back on. But a 16 per cent fall in January’s US sales when those at GM and Ford increased shows how quickly the damage can be done. Keep on apologising.
Related links:
Toyota’s crisis – in-depth report – FT
Toyota recall – Lex
Warning to Toyota: Speed can kill – FT