Toyota Sales Incentives May Cost Firm Record Rebates

Research firm Trucar expects Toyota (TM) to spend $395 million on incentives this month. The company’s incentive per car will be 37% higher than in February and 47% higher than they was in March 2009.  Auto research firm Edmunds predicts that Toyota’s sales will be up 82% from February and that the Japanese car company’s market share will reach 16.3% up from 12.1% last month. That would put the world’s No.1 car company well on its way back to its peak domestic market share of 18%.

Edmunds expected domestic car sales as a whole to rise 31% from March 2009, hitting 1.1 million vehicles. Even with that surge Toyota’s improvement is extraordinary give the firm’s 8.8 million recalls worldwide, the litigation that has begun against the company and the damage its reputation has suffered.

Zero rate financing and extraordinary discounts are certainly magnets to buyers and Toyota means to show how  powerful incentives can be. But the car company’s efforts will come at an extraordinary cost. CNN Money reports that Toyota could spend $1 billion more in incentives than it did last year. James Bell, executive market analyst at Kelley Blue Book, told the news service that “Toyota is a very wealthy company. They can play this game longer than most. We are on the verge of a very, very competitive and deep buyer’s market.”

2010 was supposed to be the year in which the domestic car market recovered from two awful years of sales. The average annual number of vehicles sold in the US in 2008 and 2009 was about 10 million cars a year. That is down from over 16 million in 2006. Industry experts expect total units sold to rebound to more than 12 million in the current year.

Car companies have prepared to profit from the rebound. The “Big Three” US car companies have restructured and lowered their costs substantially as GM and Chrysler went thought Chapter 11 last year. New, low-cost bases should have driven strong profits in the recovering market.

Sales incentives could wreck Detroit’s recovery plans. GM and Chrysler may have to spend $2 billion each to bring in new customers or keep old ones. That means making a profit has gone from being a goal to just a wish.

Douglas A. McIntyre