Toyota Motor Corporation (ADR) (TM)’s Opportunity: An Update – Ford Motor Company (F), General Motors Company (GM)

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Toyota Motor Corporation (ADR) (NYSE:TM) isn’t just one of the world’s most respected auto brands; it’s one of the world’s strongest brands of any kind. Japan’s largest automaker has become the industry’s reference point for automotive product quality and manufacturing efficiency, and many of the methods it pioneered have since become industry standards.

General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) turned around moribund manufacturing operations by emulating, and then building on, Toyota Motor Corporation (ADR) (NYSE:TM)’s vaunted approaches. But for all of its strength, Toyota has faced a sea of troubles in recent years: A massive tsunami in northern Japan decimated its supplier network and left some of its assembly lines idled for months, and global recall scandals have dented its reputation for quality and integrity.

Toyota Motor Corporation (ADR) (NYSE:TM)But for all that, Toyota Motor Corporation (ADR) (NYSE:TM)’s resiliency has been impressive. The Japanese giant shrugged off its crises as if they were mere potholes and regained the global auto sales crown in 2012.

But is Toyota Motor Corporation (ADR) (NYSE:TM) a buy? That’s a more complicated question. To help answer it, last fall I created a premium research report to help investors understand the challenges facing Toyota Motor Corporation (ADR) (NYSE:TM), and the opportunities presented by the company.

That report has just been updated. What follows is an excerpt from the latest edition. We hope you enjoy it.

Toyota is immensely strong, but challenges persist
In the U.S., as in most of the world, Toyota’s value propositions are quality and efficiency. Its cars may not be the most exciting, but they are safe choices — likely to last a long time, with minimal maintenance, while delivering good fuel economy. While the sudden-acceleration recall fiasco of 2010 seemed to dent Toyota’s reputation for a time, those impacts largely seem to have faded — helped by Consumer Reports surveys that once again rate Toyotas at the top of the heap for quality. A recent study by Experian found that Toyota had regained the top spot in Corporate Loyalty for the first time since the third quarter of 2009.

That story, with variations, replays itself over and over around the world. In countries from Indonesia, where Toyota’s Avanza is the runaway best-seller, to South Africa, where three of the top five sellers are Toyotas, Toyota’s simple value proposition continues to find plenty of customers.

One exception to that rule has been Europe, where Toyota’s presence is minimal. In recent years, that has worked to the Japanese giant’s advantage, as market leaders VW, Ford, and GM all confront a recession-ravaged auto market that has led to significant losses. Toyota’s decision to largely steer clear of Europe increasingly looks like a smart one, as GM and Ford have both struggled to contain losses running in the hundreds of millions of dollars every quarter.

It’s a good story. But on the other hand, CEO Akio Toyoda and his team still have major challenges to confront.

The company announced a massive global recall of over 7 million vehicles in October of 2012, including 2.5 million in the U.S., to repair a faulty power-window switch that could be a fire hazard. That recall led at least one high-profile analyst to downgrade Toyota’s shares amid worries that it could bring 2010′s safety scandal back to the fore — Toyota may have known about the defect for several years without taking action.

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