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General Motors is not handling its ignition switch disaster correctly.

Toyota took prompt action with its mechancial failures.

GM is still taking on too much debt.

Toyota has a methodology that may explain its low financial leverage.

There is more to investing in a company than its quantitative performance. How a company conducts business, how it's perceived, and other qualitative factors, all have an important impact on investors' determination as to whether or not to purchase stock in the business. In this respect, I decided to focus on General Motors' (NYSE:GM) qualitative and quantitative characteristics and compare them to those of Toyota (NYSE:TM).

Qualitative Characteristics
Recently, General Motors has been in the news for defective ignition-switches and vehicles which caused the deaths of numerous people. A number of lawsuits and court hearings have been filed against the company. General Motors does not appear to be taking any responsibility. It appears the company is trying to put the blame on "old GM" not the "new GM" for the root cause. It appears General Motors does not want to take responsibility for its actions.

Toyota, on the other hand, had a few disasters of its own it but was able to handle it smoothly (in my opinion). In 2009, the company suffered from a "sticky accelerator" problem which could cause death. It stopped sales and stopped production despite not having an immediate solution to the problem, an uncommon industry practice.

In 2012, a few Toyota cars had a malfunction in the driver side power window which could cause a fire. In response, Toyota immediately recalled about 8 million vehicles and offered to fix the problem at no charge. To me, this shows Toyota's commitment to its customers.

Perhaps these are the reasons why Toyota topped the rankings in Consumer Reports' 2014 Car-Perception survey. Ford came in at second, but the difference between first and second place was huge with Toyota having a 25 point gap over Ford. Out of its primary brands sold in North America, General Motors' Chevrolet and Cadillac placed fourth and ninth respectively.

Quantitative Characteristics
I focused on the financial leverage (debt-to-equity) ratio as too much debt got General Motors into trouble the first time.

I calculated this ratio by dividing long-term liabilities by shareholder's equity. Notice General Motors' debt-to-equity is almost twice Toyota's figure. Thus, an investment in General Motors business is a risky proposition compared to Toyota. Toyota is able to be funded by shareholders in order to grow the company. General Motors is being funded by creditors; if it goes sour again, the creditors will go after its assets.

I believe Toyota's manufacturing processes explain why its debt-to-equity ratio is low.

Toyota, in its recent annual report, mentions the "Toyota Production System". The concept is very easy to understand. The first part of the system is the "Just-in-Time" process. This where Toyota essentially has just enough of the correct amount of inventory to keep costs down and increase operational efficiency. Jidoka is the final part of the process. Toyota stops manufacturing when one error is detected to prevent more malfunctions from happening and keep the quality level high.

Therefore, Toyota does not consistently need to borrow to fund its manufacturing operations because this process helps Toyota reduce costs and improve quality and efficiency.

Final Thoughts
Financial metrics are just one of the pieces of the puzzle. Seeing how the company handles its business affairs is a big factor in my analysis. Combining both quantitative and qualitative approaches will form a complete picture. In this case, it appears that General Motors is struggling a bit on both ends of the spectrum. Its qualitative actions will affect its quantitative results going forward. Perhaps, it can take a page out of Toyota's book on how to run a business properly.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.