Toyota Continues With Incentives

 

Toyota Motor  has decided to continue with its big promotions for auto sales until May 3, 2010. The automaker is overwhelmed by the huge response to its incentives, which includes cheap leases, zero-percent financing for 5 years and free maintenance for 2 years for return customers on most of its line-up.

The incentives have pushed Toyota's sales up 41% to 186,863 vehicles in March despite its largest ever safety recall of 8.5 million vehicles in recent months. The automaker saw strong sales of even its recalled models, Corolla, Camry and RAV4. Sales of RAV4 more than doubled, while that of Corolla rose 33% and Camry jumped 41%. The automaker grabbed a market share of 17.5% during the month, up from 15.5% in the year-ago month.

According to Autodata Corp., Toyota's incentive during the month increased 46% to $2,310 per vehicle compared with GM's incentive of $3,174 per vehicle (down 19% year-over-year) and Ford's incentive of $3,035 per vehicle (down 2% year-over-year).

Toyota has revealed that it will continue to offer cheap leases on as many as 8 of its models, including the Camry, Corolla and RAV4. It has also expanded its 2-year free maintenance program to all customers, instead of return customers in March. However, the automaker has reduced the coverage under its zero-percent financing offers to 6 models from 8.

So far, Toyota has recalled 8.5 million vehicles from around the world related to problems such as faulty accelerator gas pedals, slipping floor mats and defective braking systems. The recall included favorites such as the 2010 Prius hybrid and Toyota Camry.

Toyota has been slapped with dozens of lawsuits due to the recall. The value of claims under the lawsuits is estimated to reach about $4 billion, reflecting an average loss of $600 per vehicle.

To make matters worse, the U.S. government has imposed the highest-ever fine of $16.4 million on Toyota, accusing it of a deliberate delay in recalling the vehicles by hiding its defects even though manufacturers are legally obligated to notify the U.S. safety regulators within 5 business days if they come to know of a safety defect.

Toyota may succeed in winning back consumer confidence through these incentives, but there is a pitfall. If extended over a long period, the incentives may pull down the company's profit margin.