A few weeks ago, when things looked particularly bad for Toyota, the company made what could have been a brand-saving move. With sales sinking fast and even loyal customers starting to abandon the automaker, Toyota leveraged its decades of experience in the U.S. marketplace to come up with the one strategy sure to get American buyers back to its dealerships: Increase incentives.
The company unleashed a GM-esque program that included 0 percent financing for up to 60 months, low lease rates and premium maintenance programs on some of its (previously) most popular vehicles, including, of course, many that were sucked into the Toyota recallathon.
Unsurprisingly, customers have responded, big time. In an interview with the Reuters news agency, Don Esmond, senior vice president of U.S. sales for Toyota, said the company's sales through March 10 were up a strong 40 percent compared to the same time last year. And just as importantly, it was also recapturing lost market share.
But this is only part of the story. One of the key reasons Toyota essentially had to play the incentives card was to respond to the tactics of automakers like Nissan, General Motors, Hyundai and others, which had started using cash on the hood to specifically target Toyota owners.
With all this money floating around the marketplace, the result has been a huge boost to the industry overall. A recent "Detroit News" article, quoting one analyst, indicated the early-March selling rate was the best it's been in some seven months.
Now, some observers are looking at these kinds of figures and saying the industry is just setting itself up for a fall after the companies begin cutting back on incentives again in the near future. Which is about half right. Yes, sales could take a tumble when the flow of customer cash begins to slow, but don't expect that to actually happen any time soon.
Esmond has said that Toyota will ensure that its dealers are "competitive in the marketplace" even when the company's current sales program ends, and that's being translated as "more incentives are on the way." And you can be sure that if that happens '” and probably even if it doesn't '” the General is going to keep working the incentives game to its fullest.
Remember, a key part of the recent GM management shuffle had to do with CEO Ed Whitacre's sharp focus on increasing sales, and company execs have clearly indicated that continued incentives are going to be a key part of this effort. Further, when you look at the timing of GM's coming future products, a healthy dose of spring and summer incentives would be part of the standard operating procedure for any auto company.
Here's what I mean: A number of high-volume GM products are approaching the end of their life-cycles, with redesigned replacements on their way. But before those hot new vehicles arrive in dealerships, the older models have to be cleared out. And, as any automaker in a similar situation would do, GM certainly will roll out incentives to help.
For General Motors, that means cars like the Chevrolet Aveo and Chevrolet Cobalt, and even the still-impressive Chevrolet Malibu, are primed for high incentives whatever Toyota does. But with Toyota extending its sales programs further, I can't imagine Whitacre won't do whatever it takes to keep his dealers competitive as well.
And then, who can expect Ford to risk its current momentum and years of hard work by allowing two of its chief rivals to have a price advantage in the marketplace? The Blue Oval's Ford Fusion is a prime candidate for further incentivizing here, as it will face very stiff competition from the 2011 Hyundai Sonata, which, notably, will offer a Fusion-fighting hybrid version.
Not that Hyundai isn't an expert at the art of the deal. The company's recent sales increases have come at the expense of a surprisingly high level of incentives, Hyundai has just managed to keep this part of its business off ye olde radar screen.
A perfect illustration is that new Sonata: The automaker put thousands of dollars on the hood of the 2010 model to clear space for the new one. And Hyundai's corporate sibling, Kia, is in the same situation as GM: All-new models of the Kia Optima and Kia Sportage have just debuted on the auto show circuit, which means it will soon be time to start discounting the current models.
Naturally, with "successful" automakers like Toyota, GM, Hyundai, Kia and Ford amping up the incentives, struggling companies such as Chrysler '” already discounting its products extensively '” aren't going to have much choice but to join the party, too.
A 2010 incentive fiesta might not make the automakers too happy, but I'm betting customers will find plenty to celebrate.