Toyota offered what it called an “unprecedented” incentive that included 0 percent financing and other incentives in early March to sustain sales in the wake of its highly publicized recalls and congressional hearings to investigate complaints of unintended acceleration in its vehicles.
The move helped reverse a 12 percent sales decline through the first two months of the year. Through July, sales of Toyota, Lexus and Scion models rose 8 percent in a market that that was up 15 percent.
Now Toyota and its captive finance company face a fork in the road: the scheduled Sept. 9 end of the National Clearance Event.
“We're consistently evaluating the marketplace and competitive landscape to determine our incentive strategy, and we will continue to do what's needed to keep our dealers competitive as we move into the latter part of 2010,” Toyota Motor Sales said in a written statement on Monday. Still lower than average
Toyota acknowledges that its incentive level has risen, but says it's still only about 50 to 60 percent of the industry average.
Specials advertised through Sept. 7 on Toyota.com recently included 0 percent loans and low-cost leases on the 2011 Camry, special leases on the 2011 Sienna minivan, plus cut-rate leases and loans for several other 2010 models.
“It has cost Toyota a lot of money to maintain an even keel,” said Ernie Boch, owner of Boch Toyota in Norwood, Mass. “I don't think they're the only ones. None of the manufacturers wants to spend more than they have to on incentives. I was absolutely shocked they continued this level of incentives.”
Toyota Credit more than doubled its contract volume for loans and leases supported by incentives in the first quarter of its 2011 fiscal year, from about 86,000 to 221,000. That's according to the report filed with the SEC earlier this month, for the quarter ending June 30.
The increase meant contracts supported by incentives made up 58.6 percent of the total for the quarter, up from 35.5 percent a year earlier, the report said. The company also more than doubled the number of leases it bought from dealers in the quarter, to 98,000, or 26 percent of its total, vs. 43,000, or 17.8 percent of the total.
Leasing is ‘huge'
Leasing is “huge for us,” said Paul Atkinson, chairman of the Toyota National Dealer Advisory Council. He owns two dealerships in Texas, Atkinson Toyota in Bryan and one in Madisonville.
He estimates leases make up about 15 to 20 percent of his business. Texas has a reputation for a lower lease penetration than other regions, especially the Northeast and Southern California.
Atkinson said it might not be as costly as it looks for Toyota to support leasing, since interest rates are low, and Toyota's residual values are high.
“What's really surprising is the number of trucks and SUVs we're leasing,” he said.
According to the July-August edition of Automotive Lease Guide, Toyota's average predicted residual value at the end of a 36-month lease was 48.5 percent of sticker price for 2010 models, compared with an industry average of 44 percent.
Larry Kull, the owner of Toyota of Vineland in Vineland, N.J., said Toyota is smart to take advantage of low rates and high residuals: “If you combine those factors, for the same money you put in last year, you get a much better (monthly) payment this year.”