Toyota Motors (TM) is preparing to launch new incentives programs to pump up car sales in the wake of the beating it has taken over its recall of about 8.5 million cars. The new programs are predictably aimed at maintaining the company’s market share, at the expense of lowering its profits.
The incentives, scheduled for roll-out this month according to Reuters, include rebates, 0% financing for five years and two years of free maintenance on some models.
The 0% financing will reportedly be offered on Camrys, Corollas, and some other models involved in the company’s current recalls. Cash rebates on some vehicles will range as high as $3,000.
The free maintenance offer will be made to current Toyota owners who purchase a new Toyota, and will include free oil changes and other services.
At virtually the same time, Toyota has initiated a “limited service campaign” to notify owners of some 1 million cars to bring the cars in to repair a faulty oil hose. The company insists that this is not a recall, but it certainly looks like one.
Expectations for car sales in 2010 are only a little better than sales in 2009, the worst year for new car sales in decades. Toyota commanded a market share of over 17% in the US, making it # 2 in the market. That share fell to 16% in January, and auto industry analysis firm Edmunds.com expects Toyota’s share to drop to 12.6% in February. Actual sales data for February will be released later today.
There’s no question that Toyota’s incentives will have a substantial impact on the rest of the auto makers. All will have to follow suit to the extent that they can if they want to maintain the share they currently enjoy.
The pressure these incentives will put on profits could seriously impede the recovery of General Motors and might endanger Ford Motor’s (F) chances of retaining its current position as number 2 in the U.S. market.
Edmunds.com estimates that new Toyota models that are included in all the recalls are now selling for an average of $150 less than they were at the beginning of the year.
One way to offset that drop, and to help pay for the new incentives, is to raise the sticker price. Every auto maker will suffer the same pain as Toyota, as they seek to maintain or buy market share with similar incentives. But none can afford to eat the entire cost, so sticker prices have to go up if for no reason other than accounting.
Going forward, Edmunds.com suggests that auto makers may need to spend considerably more on improving the safety of their cars, and that will further drive up costs. The question then becomes whether or not consumers will pay for those new safety features.
Typically, new safety features like anti-lock brakes become available first in higher-priced cars and as an option on more modestly priced ones. As the R&D costs are amortized, the new features are included as standard equipment on more models and simply added to the sticker price. But this all takes time.
For 2010, it is not unrealistic to think that a lot of buyers will adopt a “wait-and-see” attitude toward new cars. If the car you own is running good and has less than 200,000 miles on the odometer, chances are it will last at least another year. And if enough potential buyers adopt that attitude, 2010 will be an even tougher year than analysts expect.t guide here.
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