Toyota quality issues force incentives that could last months

Toyota quality issues force incentives that could last months

 

LOS ANGELES (Bloomberg) -- Toyota Motor Corp. may maintain elevated U.S. discounts for months to draw buyers as the automaker battles to recover its reputation for quality, according to industry analysts who track pricing and incentives.

The company began offering no-interest loans and discount leases on most Toyota-brand models in early March, extending them this month. The incentives were worth $2,568 per vehicle last month, up $1,003 from a year earlier, according to Edmunds.com. Toyota hasn't said if the program will continue through May.

“With what we can gather today, they're going to have to continue this level of spending until 2011 models start to come in a meaningful way,” said Jesse Toprak, vice president of industry trends at forecaster TrueCar.com. “That could mean until about August.”

The discounts fueled a 41 percent U.S. sales gain for Toyota last month, after recalls of about 8 million autos globally for unintended acceleration problems triggered declines earlier in the year. U.S. regulators said April 5 that Toyota “knowingly hid a dangerous defect” related to sticky gas pedals, and Consumer Reports on Tuesday called the Lexus GX 460 SUV a “safety risk” because of its handling.

‘Lexus mess'

Earlier this month, Toyota looked to be putting “bad news from January and February behind it,” said James Bell, executive market analyst for Kelley Blue Book, a vehicle pricing and data company. “My sense is this Lexus mess is going to keep the incentives around for at least another month, if not longer, and you might also see them on Lexus.”

Toyota can pare production quickly, so it isn't likely to experience the long-term incentive problems of Ford Motor Co. and General Motors earlier in the decade, he said.

“Toyota is better tuned to the market, and doesn't have the same labor issues that kept GM and Ford locked into incentives to maintain volume,” Bell said.

Incentives are “the quickest way for us to restore customer confidence and trust,” Takahiko Ijichi, a Toyota senior managing director, told investors in an April 7 conference call.

There's no decision yet on whether current offers will be extended beyond May 3, said Celeste Migliore, a spokeswoman for Toyota Motor Sales U.S.A. Inc. While the focus on low-cost financing rather than cash rebates will continue, Toyota may shift to setting incentives by region instead of one national program, she said.

Extended use of discounts would erode the residual value of Toyota vehicles and hurt used-car sales, so the company will try to “climb down” from current levels as quickly as possible, said Jessica Caldwell, director of industry analysis at Edmunds.com.

“They could carry this out until things look better from a PR perspective,” she said. Toyota may retain incentives at about the current level at least through May, Caldwell said.