Toyota Stock Should Recover as Company Deals Swiftly With Safety Issues

Last Updated Feb 4, 2010 5:57 PM EST

Toyota's share price has fallen about 23 percent in the last three weeks, an intense reaction to the company's decision to recall more than 5 million cars and halt production and sales on models identified as having defects related to their gas pedals.

Investors seem to have taken the advice of commentators like James B. Stewart. Writing in the Wall Street Journal, he said: "Do you want to sleep peacefully at night without worrying about a stock? Then avoid - or sell - Toyota Motor shares. Toyota has a full-blown crisis on its hands."

True, but the company is dealing with the crisis in a way that is more open and straightforward than was typical of the auto industry in the past. After some initial obfuscation, Toyota acknowledged the problem and set about making things right.

In product-safety snafus, as in political conspiracies, the cover-up causes more harm than the thing that's being covered up. The knee-jerk response of many companies is to delay admitting fault as long as possible and then undo the damage in dribs and drabs, a death-by-a-thousand-cuts strategy that drags out a crisis out.

By addressing its problem forthrightly, dispensing information openly and ordering a mass-recall, Toyota is working energetically toward a solution and setting the PR agenda as it does so. That approach, plus the over-all quality of its cars and the reputation it has built over the years, should win over the public, enabling sales and the stock price to make a comeback sooner than seems possible now.