By on March 16, 2010

The biggest storyline right now for America’s bailed-out automakers is how little they’ve been able to capitalize on Toyota’s stumbles. While Ford and Hyundai made hefty sales gains last month, both GM and Chrysler’s performances were distinctly unimproved by Toyota’s woes. And now that Toyota is launching major incentive packages to recover lost sales momentum, Detroit has no remaining incentive to not revert to the bad old practices of incentive dependence. With GM and Ford diving into the zero-percent war, Global Insight’s George Magliano tells Automotive News [sub]:

Incentives are going to be here into the third quarter. We’re not going to wean consumers off incentives any time soon. We’re stuck with it. They’re all jockeying for position… After clunkers everybody backed off incentives. Now they’re going to the whip again

The problem is that Toyota has the cash to spend on rebuilding its sales, whereas Ford and Chrysler don’t so much. GM is sitting on over $40b in cash, but faces enough expensive structural issues around the globe that it can’t afford to give away taxpayer cash with too free a hand. Edmunds.com’s Jeremy Anwyl reckons:
Broad incentives are hard to sustain because they are so expensive. Zero-percent is war, a product-line deal is a skirmish. Automakers are always conflicted about profits and market share, but they are opportunistic, so there will be a lot of skirmishes this year.
Sure enough, Toyota plans on keeping its foot pinned to the incentive accelerator. Automotive News [sub] reports that Toyota’s sales have taken off in the first week or so of March, as massive incentives bring buyers back to showrooms. And the irony-drenched truth is that GM and Chrysler had the highest incentive levels before Toyota started fighting back, which means competing requires not just introducing incentives, but actually extending them. Don Esmond, senior vice president of Toyota Motor Sales crows to AN [sub]:
For us, it’s a pretty big step up, but still if you look at what the competitors spend per vehicle basis, we are still 30 percent below our competitors,
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13 Comments on “Toyota Woes Drag Detroit Back Into Incentive Wars...”


  • avatar

    Wasn’t a big part of Ford and Hyundai’s sales increase fleet customers though? I believe I read that on this very site. Also, rental lots here in AZ are lined with new Hyundais more than anything else. Most of the new Hyundais I see on the roads have little green E stickers on the back too.

  • avatar
    geeber

    One negative side effect of incentives is their effect on resale value. Toyota’s superior resale value (compared to the domestics) has been a selling point. The real danger here is that Toyota may be seriously hurting its resale value to push sales today.

  • avatar
    marshall

    Driving to work this morning, I heard an advertisement for a local car dealer.
    They said they were looking to buy used cars.
    Specifically, they mentioned that they were looking for: Hondas, Toyotas, BMWs and Fords.

    I thought that that is an interesting set of brands.

  • avatar
    DC Bruce

    Another way to look at this is to see it as yet another example of the US government (under the current administration) as King Canute (the guy who commanded the tides to stop). “Incentives” is just a polite term for “price cuts.” If, in the current market, manufacturers can not sell cars at a price that is profitable, then what that means is that there’s an oversupply. The marketplace is sending a message that the least efficient producers (either in terms of cost or in terms of product desireability in the consumer’s eye) need to close down and exit the business. That was the message that resulted in the GM and Chrysler bankruptcies. Unfortunately, the massive infusion of taxpayer money and government intervention distorted the process, yielding an obviously sub-optimum result (mainly that not enough capacity was cut to cure the structural imbalance in the market). It is all fine and good to talk about the jobs lost, but the reality as — as is clearly evident from what’s happening this year — is that those jobs are going to be lost anyway.

    And the truly sad fact is that the presence of zombies like GM and Chrysler in the US market make it more difficult for the non-zombie, Ford Motor, to survive.

    So, when all the dust settles, the result may be more US jobs lost than otherwise would have been the case and a substantial loss of taxpayer money.

    Chrysler and GM are not “too big to fail.” Rather, it appears they were too big to fail without bringing the US taxpayers down with them.

    • 0 avatar
      Disaster

      I’ve said this from the beginning. GM got an much cleaner slate to work with than Ford. Ford’s debt is like an anchor around it’s neck. It can’t compete with the gov’t supported GM…or compete with profit.

      “And the truly sad fact is that the presence of zombies like GM and Chrysler in the US market make it more difficult for the non-zombie, Ford Motor, to survive.”

    • 0 avatar
      ruckover

      Did you mean to compliment the current administration with the Canute reference? Wise king Canute ordered the sea back from the shore to remind his underlings that the power of a king is very finite.
      Thaet waes god cyning!

  • avatar
    SkiD666

    0% financing doesn’t change MSRP.
    So most people buying a Toyota would still think that resale value hasn’t changed (they paid ‘full’ price afterall) even though their transaction price might have drastically changed from what they would have paid 6 months ago.

  • avatar
    runwithscissors

    There will be some massive discounts headed our way very soon.

    CFC delayed the inevitable.

  • avatar
    tparkit

    “GM is sitting on over $40b in cash, but faces enough expensive structural issues around the globe that it can’t afford to give away taxpayer cash with too free a hand.”

    Yes, it can. There is plenty more where that $40 billion came from. And those new-manufacture Saturns and Vue units? Somebody’s tax dollars at work.

  • avatar
    50merc

    As SkiD666 said, zero percent doesn’t change MSRP. Nor has the Toyota’s gulf states distributor stopped padding Monroney stickers with thousand dollar ripoffs. Dealers are still employing their own shady tricks to inflate stickers.

    Zero percent is no big deal right now. My credit union is begging members to buy a car, offering 4.5% for 78 months. Rates on personal savings are in the 2% range; Toyota’s huge cash reserves are also earning very little. Opportunity costs of spending one’s savings are historically low.

    Wake me when Toyota cuts “out the door” prices.

  • avatar
    pudelpointer

    I just got out of my lease a year early on an ’08 Camry SE,and got into a new lease on a ’10 Camry XLE. Money factor of .00001,…..had to pit 5 different dealers against one another to get $4000 off sticker:). In the words of a Japanese Admiral after Pearl Harbour “I think we have awoke a sleeping giant”.

  • avatar
    crash sled

    I don’t foresee Toyota dropping their prices much, as that doesn’t seem to be their model. They’re presumably cutting overhead, by closing NUMMI, and calling for various plant idlings as necessary. And Hyundai and Kia were on the lower end of the incentives scale as I recall. The Detroit 3 is on their own here, as usual. They’re the ones with the overcapacity and inflexible overhead, so a price war hurts them the most. And Government Motors has shot their wad on the Toyota hysteria, so they can’t really play that card again on the other transplants. The market will decide, and I can’t foresee the market supporting any Government Motors IPOs in the near term.

  • avatar
    shaker

    GM’s few vehicles that could take Toyota sales (Equinox/Terrain; Malibu, LaCrosse) are in short supply; they weren’t positioned to take advantage.
    Ford is pushing aging platforms (yes, even the Fusion) that EcoBoost can’t save.
    Chrysler — meh.
    Toyota will win, again. But maybe they just played to the level of competition – with only Hyundai raising the bar.


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