DEERFIELD BEACH, Fla. -- Don't expect Toyota's uncharacteristically high level of incentive spending to disappear soon, executives at the automaker's largest independent distributor said last week.
Declining public perception of the brand in the wake of a series of recalls will continue to force Toyota to use incentives to generate sales, the distributor and automaker said.
Meanwhile, most of Toyota's major rivals have been slashing incentives -- and gaining share -- in a U.S. market that grew 19 percent last month over last year.
"Incentives are going to have to remain until Toyota regains the perception that it deserves a second look," said Colin Brown, CEO of JM Family Enterprises Inc., parent of Southeast Toyota Distributors. Southeast Toyota distributes Toyota brand vehicles to 173 dealerships in the Southeast.
Toyota-Scion-Lexus sales rose 7 percent in May, but it was the only major automaker without a double-digit gain. The group's market share fell to 14.8 percent, down 1.7 points from May 2009.
Except for General Motors Co., which also lost market share in May, all of Toyota's major rivals captured market share while reducing incentives. Together, Ford Motor Co., American Honda, Chrysler Group, Nissan North America and Hyundai-Kia Automotive grabbed 2.2 points of market share in May.
Toyota boosted May incentives an average of $458 per vehicle from a year earlier, to $2,169, according to Edmunds.com. That's still below the industry average of $2,603.
"If you've never been exposed to the Toyota brand and you were looking for a vehicle, all you're reading about are safety issues," Brown said. "We're getting conquests, but we're paying for it."
The number of consumers who consider buying a Toyota continues to fall this year, said Dennis Bulgarelli, director of the automotive practice at Compete Inc., a research firm.
Last August, during the federal government's cash-for-clunkers program, 23 percent of U.S. consumers in the market for a vehicle considered a Toyota. That fell to 18 percent in February, when publicity about Toyota's safety recalls peaked, and slipped further to 16 percent in April, Bulgarelli said.
"Toyota loyalists -- those who only research Toyota -- are about the same," he said. "But fewer of those who research multiple brands include Toyota now."
JM Family and Southeast Toyota executives said it probably will be several months before Toyota will move away from incentives.
"Once the public is more comfortable and realizes these are not bad people, things will change," Brown said. "Right now the public thinks it is rewarding bad behavior."
Toyota Division moves into June with the same 0 percent financing and subsidized leases that it has offered since March -- some of the most generous spiffs in the industry. This month the offers will be on 2011 models. In the previous months, the offers covered 2010 models.
Toyota Division, including the Scion brand, increased sales 4 percent in May to 140,597 cars and trucks. It was the third straight month that Toyota sold more retail vehicles than any other brand.
Bob Carter, general manager of Toyota Motor Sales U.S.A., said during a sales call last week that Toyota Division must keep the incentives flowing. But he added: "The effectiveness of promotions do run their course. That's why we're going back to brand and product ads. But we will stay aggressive with leasing and 0 percent."
Luring customers with incentives gets harder as consumers become jaded by the offers, said Edmunds.com CEO Jeremy Anwyl.
"Toyota's sales bounced up in March with those heavy incentives," Anwyl said. "The Toyota base responded to the bargain, but that pool is shrinking so sales get tougher."
Brown of JM Family Enterprises said Toyota is preparing an ad campaign that will emphasize the brand's safety features and advantages over the competition. The campaign, being produced in the United States, is scheduled to debut in the third quarter.
In Brown's mind, the image hit Toyota has taken is unjustified -- but for now, at least, it's a fact of life.
"There was always a halo effect on Toyota," he said. "Now we're a bit below that. The question is, are we able to ever get that back? That's a big question."
Kathy Jackson and Jesse Snyder contributed to this report