Typically, industry analysts have warned that a dollar in new-vehicle incentives can knock a dollar off used-vehicle values for the same model.
"I've been one that has spent a lot of time telling people about the impact new-vehicle incentives have on used-vehicle transaction prices, and for it not to happen is a bit of an enigma," says Tom Kontos, executive vice president for ADESA Auctions.
Toyota is the best example of a brand that largely is getting away with an increase in new-vehicle incentives without a correspondingly large impact on its used-vehicle values or residuals, says Matt Traylen, chief economist for Automotive Lease Guide.
Across the industry, incentives are moderating.
According to Edmunds.com, the average incentive in March for the whole industry was $2,742. That was down 13 percent from a record $3,165 in March 2009. The March level was an average increase of $100 from February, but General Motors Co., Ford Motor Co. and Chrysler Group incentives were all below year-ago levels.
"Incentives are not skyrocketing, even if they're up here and there. Incentives are not all-pervasive," says Kontos.
The other big reason that used-vehicle values haven't been hurt by new-vehicle incentives as much as in the past is that inventories of new and used vehicles are smaller, analysts say.
Stopping the domino effect"The level of inventory is generally low," says Tom Webb, chief economist for Manheim Consulting in Atlanta.
"Structurally, we have found that inventory levels are more significant in the long run than incentives with regard to used-vehicle values, although, of course, they're still related to incentive activity," he says.
According to Edmunds.com, Toyota incentives hit an average of $2,256 per vehicle in March, a record for the brand. That's up from $1,881 in February and an increase of 44 percent from $1,565 in March 2009.
ALG says Toyota brand's used-vehicle values are down by only a few percentage points. Some of that is the result of the Toyota recall situation, and some can be blamed on higher incentives, ALG says. A spokesman for Toyota Financial Services said separately that some of Toyota's used-vehicle values dipped in March but came back in April.
Kontos of ADESA says it's next to impossible to sort out which factor is having which effect on Toyota values. He says prices are also behaving differently for different Toyota models. He says ADESA doesn't publish used-vehicle values by brand.
It helps that Toyota and others have mostly avoided cash-back incentives, which have the most corrosive effect on used-vehicle values, in favor of cut-rate loans and leases, analysts said.
Temporary fixToyota argues that it is using 0 percent financing as a temporary tactic, not a long-term strategy. However, the Toyota brand extended incentives through this month that were supposed to expire in early April.
Traylen of ALG says Toyota brand's incentives are expected to go back to pre-recall levels by the end of this year.
He says ALG and other analysts are giving Toyota the benefit of the doubt that incentives won't become a long-term strategy for the brand. "If it gets to be longer than four, five, six months using cash or other methods, we will be looking at residual values," Traylen says.
For now, says Mannheim's Webb, the auto industry "sort of broke the transmission mechanism that transferred the effect of incentives on used-car values."