Great deals for car buyers are the silver lining to Toyota troubles
DETROIT — Toyota's woes and competitors' efforts to capitalize on them are creating sweet deals for new car buyers.
As Toyota tries to reverse a 12.4 percent sales decline through February, it is offering 0 percent financing, cash rebates and low-priced lease deals on several of its models, as well as free maintenance for existing customers.
"Most people are caught off-guard with how good of a deal you can get right now," said Craig Muran, general manager at McInerney Toyota in Clinton Township, Mich.
Through early March, Toyota's incentives helped boost sales 41 percent from a year earlier. GM, Chrysler and Ford have been offering 0 percent loans on many models to sustain sales momentum and lure disaffected Toyota owners.
Analysts warn that the Detroit Three must be disciplined in their discount offers. Incentives eat at the bottom line, erode brand value and lead customers to expect bigger discounts, all contributing factors to last year's bankruptcies at GM and Chrysler.
"Jumping in with a lot of incentives is going to harm them," said IHS Global Insight analyst Aaron Bragman. "Toyota has to do it. They don't."
Toyota is making up the market share it lost in January and February following the recalls over sudden acceleration, said Jesse Toprak, vice president of industry trends and insights at TrueCar, a vehicle pricing Web site.
During the first two weeks of March, the Toyota division — not including Lexus and Scion brands — boosted its market share to 14.1 percent, up from 11.1 percent last month and 13.3 percent in March 2009, according to TrueCar's data.
The deals worked for Suzette Waatti, 50, of Shelby Township, Mich. She received a $1,500 discount that reduced her monthly payment on a new Prius lease and was allowed to terminate a 2008 Camry lease eight months early penalty-free.
"That was a nice surprise," Waatti said.
Noting that the automaker had stopped selling eight models for about 10 days in late January, Toyota spokesman John McCandless said: "We needed to do something special to tell the market that we are in business."
Analysts say Toyota has the cash to extend the incentives into April and beyond, but the company has not yet decided whether to do that or not.
"They could drive this out a long time," said Jessica Caldwell, senior analyst at Edmunds.com.
Automakers usually ratchet up incentives in March to attract spring car shoppers and to clear inventory of older models that will be replaced or updated this summer or fall.
But Toyota's incentives put the Detroit Three in the difficult position of responding with their own deals just as they were starting to wean themselves off the type of discounts that historically have cut into profits.
High incentives were a contributing factor to the losses that led to bankruptcy restructurings last year at GM and Chrysler.
"They don't want to get back to the bad old days when they were selling vehicles on incentives," said IHS Global Insight analyst Aaron Bragman.
Ford said it is applying incentives strategically. Company sales analyst George Pipas said that last month, Ford offered 0 percent financing for 36 months on all 2010 models.
After Toyota offered 0 percent financing on 10 models, Ford extended its interest-free loans to 60 months on the Ford Focus and Fusion and the Mercury Milan, which compete with Toyota's Camry and Corolla.
"We've got the goods to defend our share and potentially attract Toyota buyers," Pipas said.
In March, Ford also extended 0 percent interest on four pickup and SUV models.
Barclay auto analyst Brian Johnson expects the new incentives to reduce Ford's profit by $200 million.
Toyota's discounts reflect a role reversal with the Detroit automakers for now.
In February, GM, Ford and Chrysler cut their average incentive costs by 3 percent, 7 percent and 31 percent, respectively, from a year earlier. Toyota incentives jumped 13.6 percent for the month, according to Autodata Corp.
"What we're enjoying is the opportunity to deliver products like the Equinox and Camaro where there's not a need for a lot of incentives," said Jerry Seiner, a Chevrolet dealer in Salt Lake City.