By on February 14, 2010

Here’s something positive you may get out of the Toyota recall debacle: Cash on the hood and a Hyundai-like warranty. Reuters says that Toyota is discussing a range of options with its U.S. dealers to support sales.

Toyota already gives a $1,000 “loyalty bonus” to match monies offered by GM, Ford, Chrysler and Hyundai to Toyota customers who want to abandon their brand. Toyota is now thinking to pay a total of $2000 to returning Toyota customers, an anonymous source told Reuters. If this turns into a bidding war …

Other options Toyota under debate are a free maintenance programs and/or a new warranty program that at least matches Hyundai’s 10-year, 100,000-mile powertrain warranty.

Toyota spokeswoman Celeste Migliore said the company reviews many options to remain competitive for each month, but declined to comment. However, Don Esmond, senior vice president of Toyota Motor Sales, told Reuters that Toyota will consider “competitive incentives.”

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44 Comments on “Toyota Wants You To Come Back: Mulling Incentives, 10 Year Warranty...”


  • avatar
    Cammy Corrigan

    When Detroit were going through their decline, a lot of the B&B said that if Detroit believed in their products, then why don’t they issue a market leading warranty? Toyota gets into a spot of trouble (OK, A LOT of trouble) and what’s one of the possibilities they’re entertaining to win customers back? A better warranty. For a company who’s been accused of turning into GM, this is very un-GM behaviour.

    A Toyota with a 10 year warranty (I’m guessing bumper to bumper)? That sounds like a really good deal. Sign me up!

    P.S. Herr Schmitt, I hate you! I wanted to write this article up! You’ll make me broke! ;O)

    • 0 avatar
      Steven02

      Umm, didn’t GM try this better warranty thing with their 5 year 100k warranty? I mean, this is kind of like GM behavior.

    • 0 avatar
      Cammy Corrigan

      Exactly, GM tried a warranty which didn’t match what was out on the market. So, yeah, this is Un-GM like behaviour.

    • 0 avatar
      Steven02

      You could argue that the Hyundai warranty is and isn’t better than the one that GM currently offers. 10 years 100k mile power train is what is being offered from Hyundai. GM offers 5 year 100k mile power train. The difference, GM’s is transferable. For used cars, Hyundai’s warranty is 6 years 50k mile. Kind of like Chrysler’s lifetime power train warranty, which didn’t include SRT models, was nontransferable. In my opinion, they were different, but neither was leading.

      If Toyota make their warranty identical to to Hyundai’s, it won’t be leading. If they make it transferable, then it would be. But there is no way Toyota is going to do 10 years bumper to bumper for a long period of time. I could see it as a short term gimic, but I would call that GM thinking.

      In short, we have no idea what the details are, so saying it is a leading warranty won’t mean much without the actual data. But large incentives + better warranty is what GM did and is continuing to do today.

  • avatar
    FromBrazil

    Guess it doesn’t even have to be 10 years. I’m thinking something like 8 year may be enough. If they do, great move on their part. Heck, they’ll probably offset their problems by quite a number of years.

  • avatar
    YotaCarFan

    Money talks. Just like in real estate where there’s no house who’s flaws cannot be overcome by sufficient discounts, no matter the amount of negative news about Toyota’s cars, a sufficient amount of cash on the hood will move the cars off the lot. When unpopular brand new Daewoo cars were auctioned off practically at half price after GM bought the brand, people snapped them up.

  • avatar
    educatordan

    If they do then bless them for believing in their products. I wish GM would do something similar to show they get the whole “perception gap” thing.

  • avatar
    baldheadeddork

    Two grand to existing customers is just going to be the opening bid from Toyota to keep its market share. Toyota is going to have to at least match Ford and GM in average incentives for all buyers if they’re going to have a prayer of even keeping a 15% market share.

    A longer warranty on new sales is a given, but what’s that going to do to the resale value on the recall-era cars? Owners of these cars (Disclosure – I have two of ’em) have already seen the value of their cars fall by up to 4% in a single week, according to KBB. If post-2010 models suddenly have a three times the warranty coverage, the resale values of recall era cars are going to drop like a brick.

    Toyota either has to extend the warranty on these cars to match the new plan, put a lot more than $1000 in loyalty cash on the hood every time one of these customers walks through the door – or give every buyer of a 2004-2009 Toyota thousands of reasons to never buy their cars again.

    All of this is going to cost a boatload of money long after the direct costs of the recall are paid and all the civil suits are settled. How long are they going to have to double or triple their pre-recall incentives? It will probably take at least three years for people to stop associating Toyota with this fiasco and by then customers will expect to get thousands in incentives every time they step into a Toyota dealer. Toyota can ask GM and Ford how easy it is to get customers out of that habit. Matching Hyundai’s warranty coverage is going to increase Toyota’s costs by many, many millions of dollars seven, eight and nine years from now, and every year that follows.

    A lot has been made over the years about the Big 2.5 having two grand in higher labor costs because of their pension costs, but Toyota and Honda have had an even bigger advantage because their reputation allowed them to sell cars with a third of the cash incentives and shorter warranties.

    Toyota isn’t going to be destroyed by this fiasco. But the business model that made them so profitable has been severely wounded, and that is going to be enough to change the car market for years to come.

    • 0 avatar
      Quentin

      A retroactive warranty bump on all 2007+ vehicles to a 5 year, 60k bumper to bumper & a 6 year 100k powertrain would be the way to do it, IMO. Cash on the hood just trashes your resale values. Taking care of your current customers is the most important thing. I’d bet that an extended warranty would improve resale value as well.

      I have a 2010 4Runner on order. I’d be pretty pleased if it were to get a better warranty.

      offtopic – Ajax of Amsterdam fan? My wife and I are going in the fall and I’m hoping to catch a match.

    • 0 avatar
      L'avventura

      Quentin, Toyota should only retroactively bump any car that was recalled, and maybe give an extra year on the people who have purchased the extended warranty.

      Either way, Toyota matching domestic incentives, Toyota increasing warranty coverage isn’t good for their competitors either. The likelihood is that if Toyota ups their warranty to 5/10 year then Honda and the rest of the Japanese brands will as well.

      This means that the automotive market as a whole is going to get even more competitive, and additional incentives will need to be added for brands that are already piling them on. For many rival auto-companies that may have enjoyed this Toyota recall, a much more cut-throat Toyota could be a more dangerous competitor.

      Whatever they do, if Toyota is smart they will avoid tactics that will hurt the resale value of their cars.

  • avatar
    GS650G

    Money on the hood didn’t save Gm, nor DCX, but a longer warranty built Hyundai and Kia up. That’s the real answer but let’s see the bean counters actually agree to it. Especially retroactively, since you can’t offset warranty costs on cars already sold by raising prices. It takes digging into the piggy bank instead.

    Toyota made a lot of money the past 10 years, they should pay rearward.

    • 0 avatar
      baldheadeddork

      I don’t think the Hyundai and Kia examples work. They had the good fortune to screw up when they were still very small in the US market, and they pushed the warranty to a new level. Toyota used to be the gold standard for quality and now they’re just matching Hyundai? It doesn’t have a good ring.

      BTW – The old Suzuki shafties were some of the best bikes ever.

  • avatar
    lahru

    10 year warranty admits failure and that’s not happening. Cash on hood will be for their customers only. Cash on hood won’t last long.

  • avatar
    Scaramanga

    A Hyundai-like warranty would go a long way for Toyota, especially if they mate it with a strong advertising campaign.

    Modern powertrains are pretty reliable anyway, the bigger impact (and cost) is if they add a 5-year bumper-to-bumper warranty as well. Right now, I think Toyota charges $700-1000 for their “platinum warranty” which is about the same thing.

    Even without this recall scandal, it would have been in Toyota’s best interest to improve their warranty sooner rather then later. Hyundai has been breathing down their necks even before their recall issue.

    It might serve them to even one-up their competitors, a 12-year/100,000 warranty for instance. The likelihood is that most people would have driven their cars over the 100K in 10 years anyway, plus all these warranties are non-transferable. It gives them extra marketing muscle.

  • avatar
    Geo. Levecque

    In the United Kingdom, Kia is promoting a seven year warranty, what about North America eh?

  • avatar
    Mungooz

    When will TTAC begin its Toyota Deathwatch series?

  • avatar
    CarPerson

    Eight year/100k mile Bumper-to-Bumper warranty with free scheduled maintenance.

    $800 in twentys incentive cash when signing, no other discounts applied.

    The elbows will fly just trying to get in the door.

  • avatar
    CarPerson

    Long warranties that force the auto maker to pay for vehicle defects over an extended period of time is the only proven method of keeping the car makers aggressively reducing vehicle design-related problems.

    When you move the problem from a profit center for the dealer and manufacturer to an expense for one or both, the problem is far more likely to be resolved and not repeated in the next generation of cars.

    Chrysler laughed all the way to the bank with their years and years of automatic transmission problems.

  • avatar
    Gardiner Westbound

    The most successful businesses compete on quality, not price. The latter creates a vicious cycle where competitors match the lower price point forcing further price reductions, driving prices and profits even lower.

    Toyota is best advised to demonstrate confidence in its products with increased standard warranty protection, at least to Hyundai levels.

    Nissan recently doubled its CVT warranty retroactive to MY2003 to boost resale values and avoid alienating earlier purchasers.

  • avatar
    NulloModo

    No one offers a 10/100 bumper to bumper, and there is no way Toyota would be the first to do that. Hyundai and Kia both do the 5/60 bumper to bumper with the 10/100 powertrain, and probably make out like bandits from it because very few people keep their Hyundais or Kias longer than the loan term, which is usually 5 or 6 years.

    People haven’t bought Toyotas because of warranty, they have bought them because of their perception that on a Toyota you would never ever have to use the warranty. I’m not sure if extending the warranty would help or hurt the brands perceived quality in the long term. Currently the brands that have offered very long factory powertrain warranties have been those with the most suspect reliability – Hyundai, Kia, Mitsubishi, Suzuki, Chrysler, and GM, while brands with a much stronger quality reputation, Ford, Toyota, Nissan, and Honda have done well with the standard 3/36 + 5/60.

    • 0 avatar
      Littlecarrot

      I agree. Hyundai and Kia engines and transmissions become suspect after five years or so.

      Until they can prove otherwise, I’ll stick with Toyota, warranty or not.

    • 0 avatar
      Jack99

      “Very few people keep their Hyundais or Kias longer than the loan term, which is usually 5 or 6 years.

      Would you like to show links to info proving this?

      “Currently the brands that have offered very long factory powertrain warranties have been those with the most suspect reliability – Hyundai, Kia, Mitsubishi, Suzuki, Chrysler, and GM, while brands with a much stronger quality reputation, Ford, Toyota, Nissan, and Honda have done well with the standard 3/36 + 5/60.”

      You’re drawing a broad generalization purely off of a strong correlation. The reason those car manufacturers you list provide strong warranties is their reputation in the past 10 years or so for long-term reliability is spotty. Now this doesn’t mean that the transmission systems in their current cars are much more likely to blow out than Toyota’s and Hondas. A lot of changes have taken place recently, so a lot may have changed. All we can conclude is it just means their recent record is poor. It doesn’t provide definitive proof that the cars of 2010 and beyond will be as poor. Warranties are given to provide peace of mind through the assurance that the product is covered during the period.

      More and more recently in the past 5 years as I’ve driven down the 91, 5, and the 57, I’ve been noticing Hyundais from the 2000 years and beyond. I’m hard pressed to find a Hyundai Excel but at least once a week, I pass by one. The design is unmistakable and I’m not surprised they’re not common. Aside from their tiny market share, they indeed were shoddy. Now judging from the way Hyundai/Kia provide a 10yr/10k miles powertrain and a 5yr/60k warranty, are we to conclude that Hyundai/Kia cars are of shoddy quality? We don’t know! Hard to say! The 3-year records I see from Consumer Reports show that Hyundai cars ranked around the industry average. No data for afterward as CR doesn’t seem to hold 5-10 years of data. A real shame it is!

      TL;DR?

      Warranties aren’t necessarily indicative of a car company’s transmission quality across its entire line. Transmissions differ from car line to car line. All we can draw is that their reputation for reliability in making cars in the past 10 years or so is poor. At this point, companies like Hyundai and GM are in the stages of proving themselves. No sane car manufacturer CEO will provide a long-term warranty on a product that he knows will fail in the short-term; it would simply be prohibitively expensive to service every single broken transmission system.

    • 0 avatar
      NulloModo

      Jack – It’s a bit hard to find firm data on it, but from just googling around combined with my own experience in what people trade in the average ownership time for any new (to the owner) car is a little less than 5 years, so it makes sense that Hyundais, being a subset of all cars, would have an average ownership time off less than five years as well.

      As it happens purely from my observations, most of the Hyundai trades we get in are well under the five year old mark, with many of them being less than three years old. We get late models of other brands as well, but I see far, far, fewer ten year old Hyundais on the road or being traded in than I do Toyotas, Nissans, Hondas, or Fords. Also, those people who do own older Hyundai and Kia models, again, from my own experience, tend to be the second or third owner of those vehicles, who purchased them on the cheap used due to credit issues or just wishing to be frugal in their car shopping.

      As far as the warranty and vehicle quality correlation, I’m not saying that just because an automaker slaps a long warranty on a vehicle that the vehicle is sub par, and late model Chryslers may indeed be far more reliable than those before they offered the lifetime powertrain warranty. What I am saying is that whenever an automaker has major quality doubts the first thing they often do is slap a longer warranty on it. For Toyota to suddenly slap a long warranty on the cars in the face of all the recalls might look like an act of desperation and actually drive people away as opposed to into the showrooms.

    • 0 avatar
      crash sled

      How can you conclude that Ford transmissions have a much stronger quality reputation? Throughout the 90’s and beyond, they were a continual and ignored problem. Even some of the ATNPC guys in Livonia had to look elsewhere… one of my buddies finally bought a BMW, it got so bad. And God help you if you worked one of those 4R100’s… it’d scorch like fajitas on mesquite. Ford may not have gone extended powertrain warranty, but it wasn’t because their stuff was quality.

      Those who want a 10-year/100,000 mile warranty can buy one right now, far as I know, across many lines. No sense in a blanket policy, and it’s foolish for an OEM to provide one. Let the buyers who want one buy it.

  • avatar
    HerrKaLeun

    they have to make the warranty better than Hyundai… transferable over the entire time. That will help resale value. the hyundai model (5 years transferable, but year 6-10 only for original owner) is useless since most people don’t keep the car for 10 years for various reasons (more children, children growing up, or just wanting a new car etc.)

    the cash on the hood just will destroy resale.

    • 0 avatar
      YotaCarFan

      Would cash on the hood destroy resale value if it is put on the hood of the trade-in rather than of the new car being bought, assuming it only applied to trades that are recalled models? That would be an effective loyalty incentive for people burned by cars with safety defects, especially if they didn’t limit the time window during which customers must take advantage of the discount so customers wouldn’t feel it’s a money grab by Toyota to get them to trade their cars in sooner.

      To spur additional sales in the wake of all the bad press, they could have a time-limited discount across the board on models of cars that had problems, and a lesser discount on the other models. Provided the campaign didn’t last into the next model year, wouldn’t the undiscounted prices on MY-11 cars keep the resale values of the MY-10 cars up?

  • avatar
    psarhjinian

    10 year warranty admits failure and that’s not happening.

    No, it doesn’t. A ten-year warranty says that you believe in your product enough to back it to the eyeballs. It’s a strategy that’s been proven again and again. It’d also cost Toyota comparatively little because their cars are actually some of the least-expensive to own in the long term.

    The funny thing is that a ten-year warranty means exactly nothing in terms of recalls. Recalls can and do happen out of warranty; warranties cover things that are often not recalled.

    What’s funny, or horrible, is watching the media miss this distinction over and over again. Some of the most horrifically bad cars ever to roll off the assembly line were rarely, if ever recalled.

    • 0 avatar
      NulloModo

      Had Toyota done something when they first learned about the unintended acceleration issue, which is apparently either months or years before the recall, depending on the source, the public might have a very different reaction. If Toyota had proactively found the source of the problem, quickly designed a fix, distributed the parts to dealers, and then gone public on their own accord letting people know and telling them to come on in, everything was ready to make it right, while it still might have left a bad taste in some people’s mouths, it wouldn’t be nearly as bad as the current situation.

      Instead, the public perception (right or wrong, I happen to believe it is right) is that Toyota knew there was an issue, did their best to ignore it for as long as possible hoping it would go away, got caught with its pants down, tried the cheap ‘floormat’ fix, and then when that didn’t work finally admitted the pedals were broken and did a proper recall. Now that there is the added Prius brake recall, the Tacoma driveshaft recall, and lots of talk that the unintended acceleration might be a software issue and that the current fix might not actually be fixing anything, well, the public has plenty of reasons to be wary. Every day it seems that more skeletons are found in the Toyota closet, and witch-hunt or not, people react far more poorly to a perceived betrayal than they do to hearing some disappointing or bad news up front in an honest manner.

    • 0 avatar
      rudiger

      Missed a couple. If I’m not mistaken, the list is:

      1. Engine Sludge
      2. Unintended Acceleration (Floor Mats -> Pedal -> Software)
      3. Brakes (Prius)
      4. Front Driveshaft (4WD Tacoma)
      5. Power Steering (Corolla)

  • avatar
    Steven Lang

    I was going to write a Hammer Time column on how Toyota may succeed in their current situation. But since two-thirds of TTAC coverage is on Toyota, I’m going to stay away from it for a while.

    However… I will leave you guys with a small hint.

    Toyota needs to go the ‘other way’ with their cost improvement measures. They need to start figuring out what content they can put back in their vehicles to make them more competitive.

    Ford has their SYNC system, Ecoboost, and a stunning array of new technologies and new products (Mustang, Flex, Fiesta, Taurus, F150). Hyundai has interior material quality that is indisputably better than Toyota in most market segments. Toyota will now have to go beyond the ‘quality’ and ‘hybrid’ reputations and show that they have a product that is truly better than their competition.

    They have a long road ahead… and trust me… a warranty alone will not get them there. Consumers have to ‘want’ their product from a passionate level since the ‘need’ part as it pertains to quality is mostly tarnished.

    • 0 avatar
      YotaCarFan

      I think it would be smart for Toyota to add high tech toys and safety features to their cars to differentiate themselves from competitors. They are already the hybrid king, and that gives them high-tech credibility. Putting some features like lane keep assist (external camera detects car moving out of lanes and internal camera detects drowsy or distracted eyes of driver), radar pre-collision avoidance, parking aid cameras, safety-connect (like on-star) etc., on high end Toyota models will make them stand out. These have just started to make their way to most of the Lexus line-up. The only problem with doing this is it reduces differences between Toyota and Lexus models, but they can embellish the latter with more creative goodies.

    • 0 avatar

      +1 on Mr. Langs idea of adding more interior content, especially on the low end. At the local auto show a few weeks ago it was like night & day looking at the interior of the base Forte versus the comparable Yaris.

    • 0 avatar
      DweezilSFV

      With all due respect, Mr Lang: how is adding more electronic complexity and crap to Toyota’s cars going to improve their reputation ? I would be more nervous about buying one of their
      re-contented cars, not less if the content means more eletronic gimmicks.

      What Toyota needs to do is make certain what they assemble works reliably and without threat of safety and quality problems causing potential death and destruction [overstating the case, I know].

  • avatar
    Robert.Walter

    They need communicate with their customers in an intimate and frequent way, the WSJ gives some examples:

    http://online.wsj.com/article/SB10001424052748704533204575047292207874962.html?mod=WSJ_Autos_LS_Autos_4

  • avatar
    lutonmoore

    Toyota will have no trouble recovering from this. Most of their stuff is excellent. Think about all the crap that the big three has foisted on the public in the last 50+ years.

  • avatar
    geozinger

    I love how in these blog posts you have two flavors of responses. The Pro Toyota guys are all like: “Oh yeah, they’ll be back to normal, this will just blow over”. The Anti Toyota people are like: “This is worse than the Black Plague and that we should eradicate any trace of Toyota from the face of the earth”.

    We’re still in the midst of this situation, no one knows how this will play out 6 or 12 or 48 months. If more negligence is found in the way they’ve handled issues, then they will be deserving of any scorn by consumers. If they find a way to fix the problems permanently and redeem themselves, then they deserve to ascend to the heights that will surely follow.

    However, it is way too early to tell what will happen. And what other revelations (about all car makers) may happen too.

    I’m waiting to see what happens. I hope this all works out OK.

  • avatar
    sportsuburbangt

    Player is great.

  • avatar
    namstrap

    Thanks for the song. It was an important thing to me a long time ago. I’d totally forgotten about it. Didn’t even know the name of the band!

  • avatar
    50merc

    A great “incentive” would be to stop their distributors and dealers from padding the MSRP with crazily overpriced mandatory add-on.

    Oh, and some paint colors other than silver, dark gray, real dark gray and black.

  • avatar
    crash sled

    Once Government Motors cuts out excess production capacity, and stops rolling out iron indiscriminately, with accompanying sales incentives, you’ll likely see their residual values stabilize, and begin to approach Toyota’s. Incentives can then be used when appropriate, and not continuously.

    Forget all the goofiness the marketeers blather on about, as the customer is sophisticated enough to see through that smoke, and the most important factor in customer choice is 5-year cost of ownership. While I’d agree that “quality” factors into this cost, sales price and resale value will always weigh heaviest, and this has hurt the Detroit 3 these couple decades.

    Close some plants… sell Hertz or equal… decouple from your finance arm… these have been moves in the right direction.

  • avatar
    Maverick

    Extending the warranty to a 5/100,000 doesn’t really alter the landscape. It’s carpet bombing a solution where Toyota really needs to target any incentives selectively to current Toyota owners. Let’s say owners who purchased 2005+ MY vehicles. Customers that are likely to make a purchase in the next 6 – 24 months.

    What you want to do is get customers back in the dealership and forming (or re-forming) a relationship with the dealership.

    This might include a offering select in-channel benefits such as free oil changes, next major service (i.e. 15/30/45 mile service), car washes, etc that would make it hard for GM, Ford, Honda and Nissan to duplicate. Plus when the car is in for service: car wash and gas fill.

    If Toyota were to just extend warranties, the competition can match it in a second. Loyalty cash from Toyota could become conquest cash from GM, Ford, Honda, Nissan and Hyundai. So Toyota needs to come up with some creative ideas, rather than the same-old, same-old.

    Toyota needs to tell current owners that we screwed up, current owners are important to us, and we are going to make it right.

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