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Fabrice Taylor, Chartered Financial Analyst, is a principal in Capital Ideas Research and writes the blog fabricetaylor.com

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Buying the shares of companies battered by a massive recall is usually a good idea. Investors tend to overreact to bad news, and Toyota is down 16 per cent since the first wave of adverse publicity hit. But this case might be different and investors should be cautious.

In 1982, Johnson & Johnson had to recall 31 million bottles of its top-selling Tylenol painkiller. Somehow a handful of bottles had been laced with poison and seven people died.

At the time, Tylenol owned more than a third of the $1.2-billion (U.S.) analgesic market. Shortly after the decision to recall every bottle, Tylenol's market share was 7 per cent and its profitability followed suit.

The recall and relaunch of the drug cost J&J $100-million back then (a lot more in today's dollars). Lost sales would be a big multiple of that. But in the end it was all worthwhile. Rather than destroying the Tylenol brand, management's forthright moves polished the J&J image.

Then-chairman James Burke became the company spokesman, giving a candid account of what had happened and what the company was doing.

He was in charge and consumers knew it. The upshot: They trusted the brand again when it was relaunched in tamper-proof bottles.

A year after the recall, Tylenol's market share was back to 30 per cent.

As for investors? Since Tylenol accounted for 17 per cent of J&J's profits, the stock was hammered. If you bought it, though, you did well. The stock was at a 52-week high when the recall happened. It was back there within two months.

In fact, had you bought before the recall you'd have done all right as well; a $1,000 investment would be worth a little more than $40,000 today, and you would have earned a stream of dividends along the way.

It's not that recalls or massive legal judgments don't hurt the bottom line. Toyota says this recall might cost $2-billion. It's that they hurt less than investors predict in the earliest moments.

Toyota's problems aren't as bad as J&J's were 27 years ago. But there's a twist: The company is being hounded by a government with an incentive to damage Toyota's brand.

Washington has invested $80-billion in GM and Chrysler. It owns almost two-thirds of the former. The administration would like nothing better than to see GM's and Chrysler's (and Ford's for that matter) market share and sales rise. First, it would create well-paying jobs. Second, the administration could brag about what a shrewd move the investments were financially. Toyota's problems are a gift from above for the politicians and the Detroit Three, and it's in their interests to milk it, which they have done and will continue to do.

Transportation Secretary Ray Lahood, for example, told Congress that Toyota owners should stop driving their cars until they're fixed, which set off a wave of "mass hysteria," according to one Toyota dealer inundated with anxious phone calls. Mr. Lahood later said he misspoke, but the damage was done. Toyota has said Mr. Lahood pressured it on the recalls.

The politicians are also putting pressure on the National Highway Transportation Safety Administration, the safety regulator. In an open letter, Detroit-friendly Representative John Dingell says the agency's "actions related to the Toyota recalls trouble me, especially as reports of sudden acceleration in Toyota vehicles predate the recalls by at least two years." There were less than 600 complaints related to vehicle speed and accelerator pedal controls in 2009. You can imagine that the agency will apply a lot more scrutiny to Toyota now. There'll be more complaints than there would otherwise be as a result of the media attention.

Here's an example of why: Michigan Rep. Bart Stupak boldly predicts that the Toyota controversy could surpass the Ford/Firestone uproar of a decade ago because, he says, Toyota hasn't been very forthcoming about six years' worth of problems with accelerators.

Well, according to The New York Times, U.S. safety regulators investigated consumer complaints six times over several years. No defects were found other than unsecured floor mats, which could easily be a driver's fault.

The comparison to the Firestone catastrophe is interesting, too. More than 100 people were killed in their Ford SUVs when the faulty tires blew up. The Toyota furor is about 20 days old and there have been 80 stories about it in The Wall Street Journal. Twenty days into the far-deadlier Firestone recall, there were only 45 stories.

Toyota is facing stiff civil penalties as a result of this recall. The maximum for failing to conduct a proper recall is $16-million - nothing to a big car maker but the point is relative. The biggest fine on record was $1-million. It was paid by GM five years ago. Most consumers don't remember what it was for because it didn't get this kind of attention. The odds are that the fines against Toyota will shatter that record and the headlines will duly follow.

Toyota is still the top auto manufacturer in the world. But, while the stock looks attractive based on historical precedents and on what appeared to be rebounding earnings, I would tread carefully.

This is the era of Buy American, and politicians have big bully pulpits. This tempest will fade away as the Tylenol recall did, but not as quickly.