Does Toyota's Strength Make It a Buy?


Few companies have brands that are as ubiquitous and respected around the world as Toyota (NYS: TM) . Japan's largest automaker has built an enviable reputation for product quality and manufacturing efficiency -- so enviable that many of its methods have become de facto auto-industry standards.

Emulating Toyota's manufacturing methods has done wonders for companies such as General Motors (NYS: GM) and Ford (NYS: F) . But over the past few years, Toyota has faced a sea of troubles: First, a recall scandal dented its previously formidable reputation for quality. Then, just as it was beginning to recover, a massive tsunami in northern Japan decimated its supplier network and left some of its assembly lines idled for months.

But for all that, Toyota's resiliency has been impressive. The Japanese giant has bounced back in impressive style and is once again challenging GM for global auto-sales supremacy in 2012.

But is Toyota a buy? That's a more complicated question. To help answer it, I created a premium research report to help investors understand the challenges facing Toyota, and the opportunities presented by the company.

Following is an excerpt from the report. We hope you enjoy it.

Toyota's enduring strength
In the face of increased competitive pressures, CEO Akio Toyoda acknowledged that the company needed to up its product game. And it has started to do so: An all-new version of the Camry sedan, a huge seller in the U.S., was released late in 2011. While it initially garnered mixed reviews -- some reviewers thought it too conservative relative to bolder entries from the likes of Hyundai and Nissan -- it has proven to be a very strong seller. Through September 2012, Camry sales in the U.S. were up 37.1% over year-ago totals.

Toyota's efforts to expand the Prius hybrid lineup have also been well-received. The Prius was already Japan's best-selling car, and a strong seller here in the U.S., a position Toyota has strengthened with the addition of two related models. The (smaller) Prius c and (larger) Prius v have both found ready buyers, expanding Toyota's hybrid-car lead even as rivals like Ford make aggressive pushes to expand hybrid offerings.

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 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 Volkswagen , 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.

Looking for more insight?
That was just a sample of The Motley Fool's new premium report on Toyota. If you're weighing whether the company is a buy or sell, this new report is an essential resource for investors seeking to understand the potential ups and downs of an investment in the electric-car manufacturer. Not only that, but the report also comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. Just click here now to get started.

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