The news is flying thick and fast out of Detroit this week, as the annual conclave at the don’t call it The Detroit Auto show puts hundreds of journalists in close proximity to corporate newsmakers and spinmeisters. Automotive News [AN, sub] is doing the do. First up: Toyota’s admission that its “Saved by Zero” didn’t save the automaker from a humiliating December; trucks sank by 50 percent and they lost critical U.S. market share. So ToMoCo’s reaching deeper into its deep pockets.”The shift that you’ll see in January from December is more consumer cash and less APR and lease support through our dealers,” Toyota USA Prez Jim Lentz told AN. Jimbo didn’t offer any specifics, but AN rightly points out that Priora are stacked up like cordwood. “One of the largest sellers of Priuses in the country, Earl Stewart Toyota in North Palm Beach now has about 70 on the lot that it can’t get rid of. ‘Any kind of Prius anybody wants — any color, any anything — I’ve got it,’ Stewart says. ‘And if I don’t have it I can get it because there are several hundred in the port. Dealers don’t want them.'” Note: “According to Edmunds.com, Toyota had the biggest percentage boost in incentive spending in December at an average $1,995 per sale. That was up 87 percent from what the brand spent in December 2007.” The implications of all this are pretty clear…
Uncle Sugar can throw as much of your money as he wants at The Big 2.8, but Toyota’s experience shows that the idea that the feds can manipulate the law of supply and demand through cheap credit has been shot down. Nor can they change the fact that everything sells– at a price.
Toyota has an enormous war chest. They can afford to sell cars at a loss. Chrysler and GM have no money (except yours). They can’t afford a price war with Toyota, and neither can mortgaged up to its eyeballs Ford. Political concerns and commercial realities meant that Toyota has never really played the “cheap as chips card.” When they do, there will be blood everywhere.
Won’t it suck when Toyota buyers over the last few years go to trade, only to find that Toyotas now suffer the same depreciation as the those horrible domestics!
I got my oil changed at Earl Stewart Toyota a few weeks ago and all the Prius laying around was truly a sight to see. I wasn’t around at the time, but I imagined that’s what Oldsmobile 98’s looked at an Oldsmobile dealership in January, 1974.
Toyota people are religiously opposed to serious incentive behavior. $2k is mild by comparison to the Bigish3.
I guess they’d be betting that domestic depreciation should still rapidly outstrip their own product.
Deflation in recession is very bad, just ask the Japanese of the 1990s. Get on and print some money Obama.
This isn’t going to let up until GM or Chrysler are gracefully winding down in C11.
Also, Toyota is using this as a stopgap until they get inventory down, as they are doing SERIOUS production cutbacks as well.
I think we’ve finally have gotten to the point where the cars being produced toaday are “good enough” for most people. With the way reliability is now cars are lasting longer so there’s no real reason to need a brand new car unless you want to keep up with the latest fashion trends in styling. All those appliance driving Toyota owners are just keeping what they have now until it completely dies. It’s not even fashionable anymore to lease a luxury car to try and make your neighbors and coworkers think that you have more money than you really do because everyone is afraid of losing their jobs if the economy keeps getting worse in ’09.
Well thank God that Honda is showing up to the party just in time to thrill us with the new Insight.
What if Toyota consumers get hooked on incentives?
B-Rad asks:
What if Toyota consumers get hooked on incentives?
We won’t. We keep the cars long enough to not worry about them.
The incentives are there to lure in the domestic owners, since they are used to having them. Once hooked, they realize that a reliable vehicle is worth the extra money. When the time comes to upgrade, no problem paying msrp.
I know, it happened to us recently.
It is only a matter of time before Toyotas begin to see falling residual/trade in values. As a matter of fact, I bet that appraisals being done today on used Toyotas are back of average book in the Black Book. The reasons are: 1)too much new product in stock 2)too many program cars on dealer’s lots 3)incentives on new vehicles depressing the sales of late model used Toyotas 4)the coming resurgence of domestic manufacturers (I actually said that).
Also, as values drop, the worth of Toyota’s leasing portfolio will drop further putting stress on their profits. Wait a minute, I thought these were domestic industry problems only! What goes around comes around.
I said earlier this month, I think on this board, that Toyota and GM will be the “winners” in Q1 as they heavily discount everything they have to clear inventory. Ford and Honda have the most to lose since their inventory is in the best shape (it’s quite a day when we can say days supply of 90 and 100 days for Ford and Honda, respectively, is good shape). They likely won’t play the cheap and dirty game on most car lines (Ford will on the 2009 Mustang and Fusion, Honda will on their crossovers).
Congratulations to Toyota to recognizing the market. It recognizes that its cars are priced too high, and so will in effect lower the prices.
Too bad the domestics haven’t got this message, and still offer only the same old incentives that they offered 3 years ago, in effect not lowering their prices at all.
This means that Toyota will compete all the better, forcing domestics to lower price or die (or get their prices propped up via free taxpayer money).
Does this mean the residuals values of Toyota will drop? Note that Toyota does not set residual values, the market does. As Toyota effectively reduces its new car prices to meet the market, the market might also say the used values also go down. It may not be cause effect, it may be all values are reduced by the same wave going out.
Deflation is a wonderful thing if you are not in debt. It means the dollars you have are now worth more than they were last year.
@ RF
My information this morning is that Toyota will not participate in large incentives (or a destructive price war if you wish to label it that way) unless they have built some supply chain security. That isn’t secured yet, but it’s being worked on.
There’s no point in attempting to pressure a weak Bigish3 if, as everyone has been claiming, common suppliers fail.
It makes sense to me…..
PeteMoran:
So far, Toyota has shown considerable forbearance in NOT pulling the rug from under Detroit. Nibble, nibble, nibble. Safe. Do-able. Under the radar.
That was fine when they were making money. Now that they aren’t, all bets are off. ToMoCo will not take in the shorts to keep the D2.8 afloat.
If they see Motown’s demise as inevitable– which everyone but a few die-hards do– Toyota won’t wait forever to protect their profits.
Mark my words.
@ RF
Oh, I agree. Something is cookin’ no doubt.
The impression I get is they won’t get started unless all the ducks are in row behind the scenes however….
@ ronin
Too bad the domestics haven’t got this message, and still offer only the same old incentives that they offered 3 years ago, in effect not lowering their prices at all.
I think you’ve had your answers on this a few times, but your still repeated theory is still broken. The Bigish3 are losing money. Lowering prices by incentive is causing them to lose more money. Permanently reducing prices with their fixed costs structure is impossible as demonstrated by their own near destruction right now.
Toyota does not set residual values, the market does.
Residual value is a function of; new model replacement price, mileage, condition and yes, some element of market price. Value calculation starts with a ratio of the replacement model’s price, which is SET by the manufacturer. If they change that set price down, then yes, there is a ripple effect all the way down the line.
Deflation is a wonderful thing if you are not in debt. It means the dollars you have are now worth more than they were last year.
Deflation is an extremely difficult problem to deal with during recession. You might be able to buy more with your money, but your “asset” values are falling, limiting leverage against those assets and stopping growth dead.
Recognise anything in that? Just ask the Japanese.
Different people have different theories. But I don’t think the “lost decade” in Japan was due to deflation.
Japan had serious asset bubbles in both stocks and property. The Nikkei average peaked at 36,000. Housing and commercial properties peaked at up to four times their worth. These bubbles had to burst. But politically, the Japanese did not want to suffer.
The message I take from Japan is that you cannot keep companies, banks or people on life support if they are bankrupt. Let the market work. Then emerge from the ashes.
That’s my take at least.
@ tesla
I think it’s believed the Japanese prolonged their “lost decade” by not directly dealing with deflation. I’m not sure what the other tools are; they tried to expand credit too.
The Japanese parallels to the current US situation are not encouraging.
Weird how all these things are prescient. Someone was awake at FDIC, sometime in the recent past…..
I’m no expert, but manufacturer driven deflation is not a good strategy for a recession economy.
The message I take from Japan is that you cannot keep companies, banks or people on life support if they are bankrupt. Let the market work. Then emerge from the ashes.
Most definitely.