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Toyota Makes an Offer It Hopes Customers Can’t Refuse


The prospects for Toyota Motors (TM) may not be quite as bleak as they were at the beginning of March. The company expects sales to grow in March, following a decline of 8.7% in February and 16% in January.

The company’s previously announced incentives appear to be having an impact on its sales. Five-year 0% financing, discounted leases, and other incentives are expected to add about $1.1 billion in Toyota’s costs in 2010, which means the company may sell more cars but enjoy it less.

On top of that, an analyst an JP Morgan Chase & Co. (JPM) has estimated that Toyota’s recall repairs will cost the company nearly $3.5 billion and that litigation settlements could add another $1.1 billion.

Industry analysis firm Edmunds.com has said that the company has seen a 40% jump in customers’ intent to purchase a new Toyota as a result of the incentives. Purchase intent for a new Toyota now stands at 18%.

Of course Chrysler and General Motors announced similar incentives just one day after Toyota made its announcement. But the reaction to those announcements has been much cooler. Chrysler’s purchase intent actually dropped from 3.3% to 2.9% as a result of its zero per cent financing announcement, and GM’s purchase intent rose only slightly, from 12.6% to 12.7%.

In February 2009, the average cost of manufacturer’s incentives reached a $3,010 per car, according to Edmunds. The number has dropped to $2,588 as of February 2010, but does not include the effects of the new incentives.

Ford Motor Company (F) offered incentives costing $3,384 a year ago and $3,301 today. Toyota’s year ago incentives cost was $1,682 compared with $1,833 this year. These figures are a testament to Toyota’s strong brand identification with quality cars. As evidence, the company’s sales in the first eight days of March spiked 50.5% compared with the same period a year ago. Company president Akio Toyoda expects March sales to make a full recovery.

A Gallup survey noted that 74% of Toyota customers say they have not lost confidence in the company and 82% believe the cars are safe. In the face of nearly 9 million recalled vehicles for acceleration and braking problems, that is a stunning verdict on the goodwill that Toyota has amassed over the years.

Ford reported earlier this month that sales had jumped 43% year-over-year in February. Ford’s Fusion and Fusion Hybrid are luring first-time Ford buyers in the mid-size segment that includes Honda Motor Corp.’s (HMC) Accord, the Toyota Camry, and the Nissan Altima. According to Ford, some 60% of Fusion sales are sales to new customers to the company.

Toyota’s troubles, while not behind the company by any stretch, appear to have moderated somewhat. The company seems willing to do what it takes to win back customers, and customers are responding. The efforts by Chrysler and GM to poach customers from Toyota doesn’t appear to be working. Ford, which is competing on quality as much as on price, has been gaining share, but that could be coming at the expense of the other US car makers, and not Toyota.

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Article printed from InvestorPlace Media, http://investorplace.com/2010/03/toyota-tm-recall-incentives-ford-f-honda-hmc/.

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