Just a day after being hit with the biggest regulatory fine in U.S. automotive history, Toyota Motor Corp. said Tuesday that it would extend special sales incentives to lure buyers into its showrooms.
The promotions launched an industrywide incentive war last month and sent auto sales soaring in March, but they threaten to erode profits at a time when beleaguered automakers are starting to recover from a devastating 2009 that set off an industry restructuring and pushed General Motors Co. and Chrysler Group into bankruptcy reorganization.
“The length of the industry’s pricing battle hinges on Toyota’s next move, as the automaker has signaled recently that it will do whatever is required to achieve a 16.7% market share for the year in line with its 2008 performance,” said Brian Johnson, an analyst with Barclays Capital.
A “protracted breakdown” of recent efforts by the automakers to wean themselves from incentives -- and increase the average sales price -- could hurt profits, he said.
Toyota said it will continue its financing and lease specials through May 3.
Some of the other promotions vary by region, such as expanding its offer of two years of free maintenance to all buyers. (Previously, the deal was available only for current Toyota owners.)
“We are pleased by our customers’ continued vote of confidence and want to thank them for their loyalty by adding value to our products,” said Bob Carter, group vice president for Toyota Motor Sales USA Inc.
The expanded sales campaign follows the U.S. Department of Transportation’s disclosure Monday that it would seek the maximum civil fine of $16.4 million against Toyota for delays in notifying authorities about defects in its gas pedals.
The agency said it also is considering additional fines for other alleged legal lapses in Toyota’s handling of recent safety recalls.
“I think Toyota was safety deaf. I think they have a very bad business model,” Transportation Secretary Ray LaHood said at a news conference in Chicago.
Toyota was notified about the fine in a letter from the National Highway Traffic Safety Administration on Monday, Bloomberg News reported.
“We are considering how to respond to it,” Mieko Iwasaki, a spokeswoman for the carmaker in Tokyo, told Bloomberg on Tuesday.
The fines, if imposed, could result in millions of dollars in additional penalties for the auto manufacturer.
Toyota has issued nearly 10 million recall notices worldwide in recent months for problems related to sudden acceleration that it blames on sticky gas pedals and faulty floor mat design as well as braking problems in some hybrid models.
Last month’s incentive program helped Toyota “scoop up bargain hunters and loyalists” to achieve a 41% gain in sales over March 2009, said James Bell, an analyst with auto information company Kelley Blue Book.
But the increase was not as robust as it might seem, as results were tempered by the low sales in the same month a year earlier, he said.
“The question now is how many of those bargain hunters and loyalists are left. You have a finite number of people in the auto market at any one time,” Bell said.
Historically, Toyota has been among the stingiest automakers when offering incentives, helped by its historically high resale values and a reputation for building reliable cars, he said.
But its image has taken a hit from the recalls and federal investigations into safety defects.
The longer Toyota continues its promotions, the greater the risk that it is training consumers to expect a deal, Bell said.
Moreover, when manufacturers rely too heavily on incentives, their vehicles see greater depreciation three or four years down the road. Resale values take a hit, Bell said, and that “won’t make Toyota owners happy.”
Toyota’s promotion also is having a ripple effect on the rest of the industry. Honda and others have had to jump in with their own promotions recently to keep customers coming to their dealers.
“This is going to cost everybody,” Bell said. “The other manufacturers are going to have to pay to play for the next several months.”