Toyota, rivals in 'dogfight' for wary shoppers

[NINETY EIGHT REGENCY]

Toyota, rivals in 'dogfight' for wary shoppers

Kathy Jackson

and Mark Rechtin

Automotive News -- March 8, 2010 - 12:01 am ET

A battle is raging for the tens of thousands of customers Toyota has lost since its recall crisis erupted six weeks ago -- "a dogfight," says one analyst who sees Toyota losing market share over the long term.

Toyota has piled on record incentives this month, trying to claw back some of that market share. But any March gains could come at a huge cost in terms of pricing power and resale value.

Incentives or not, competitors say many Toyota customers are up for grabs.

A Ford Motor Co. insider said last week that plenty of loyal Toyota buyers are ripe for conquest. And John Krafcik, CEO of Hyundai Motor America, says Hyundai is winning cross-shopping battles for on-the-fence Toyota shoppers.

Hard numbers back up the anecdotes: Toyota has gone from being the top-selling brand on Jan. 1 -- with 14.3 percent share for all of 2009 -- to No. 3 through February with 11.0 percent. That translates into about 50,000 lost sales in the first two months of the year.

The brand's loyal customers have sat out the crisis, although dealers say Toyota's biggest-ever incentive program is pulling some of them back into showrooms. But they also say that non-Toyota owners are staying away.

The incentives, which include 0 percent financing for five years, cut-rate lease deals and two years of free maintenance, are having an impact. Edmunds.com says purchase intent for the brand -- defined as enough interest to configure a vehicle online -- hit a 14-month high last week of 18 percent.

But while dealers expect a strong March, Toyota still faces major headwinds.

Pricing problem

"Toyota now needs these big incentives to move the product and keep the dealers going," says Peter Morici, a business professor at the University of Maryland. "There's a shadow over the company, and once that sets in people's minds, the brand begins to lose some premium.

"They could always get good prices on their cars, but I don't think they will get those prices going forward. Toyota will have to continue with the incentives or be content with selling fewer cars."

Even before the record March spiffs, Toyota's incentives were climbing.

Edmunds.com says Toyota Motor Sales U.S.A. Inc. increased incentive spending by 26 percent from January to February, the biggest increase of any major automaker.

Toyota's average $1,833 in spiffs per vehicle sold last month put it ahead of Hyundai-Kia, which spent an average $1,676 in February, down 27 percent from January.

Krafcik says Hyundai has benefited from Toyota's problems.

"Because Toyota was so strong, it was the No. 1 cross-shopped brand of most companies," he says. "But before the issues with Toyota, we would lose a lot of those shoppers to Toyota. Now we are winning those cross-shoppers."

Ford insiders also say the company is moving to seize an opportunity. The company is spending incentive money on direct marketing in areas where Toyota loyalty is weakest, such as Kansas City, St. Louis, Texas and in some areas in the Southeast.

Among Toyota-brand customers, about two-thirds will never stray from the brand, says a Ford source, citing Ford research. But about one-third have had their faith in Toyota shaken and might shop other brands, he says. "If Toyota really spends $2 billion in incentives in the second quarter to retain share, all that does is hit the resale values of their existing customers," he says.

Job 1: Keep the regulars

Toyota dealers say their No. 1 mission is to keep current customers, and the extra money will help.

David Maus, owner of Toyota of Deerfield Beach in Deerfield Beach, Fla., says he has never seen anything like March's incentives. His store sold 45 new and 100 used vehicles in February, off 30 percent from last February.

"It's not like it used to be, but we are making money," Maus says.

"We're finding out that Toyota customers are not leaving. These incentives will help buyers keep confidence in the brand, and people looking at other models may come back."

Southeast Toyota Distributors, the brand's largest distributor, has gone well beyond the incentives offered nationwide: leasing deals as low as $119 a month with $2,735 down for the Corolla; $149 with $2,710 down for the Camry; and $169 with $2,700 down for the Prius.

And it expects results. Southeast aims to sell 18,000 retail units this month, up from 13,119 in January and 13,604 in February.

Garson Rice, who owns Rice Toyota in Greensboro, N.C., also says Toyota owners are staying with the brand.

But he sees few first-time buyers, who normally make up about 10 to 15 percent of his sales.

"I'm sure Toyota will be proactive about it and will get the conquest buyers back," he says. "The first thing is to get our buyers back."

Neale Kuperman, president of Rockland Toyota in Blauvelt, N.Y., says Toyota should know by April 1 if it is making a comeback.

"We don't know where the conquest buyers are right now," Kuperman says.

"But March has always been a big month for Toyota. They may start to come in again once we get out of the headlines."

Adam Simms, owner of Toyota Sunnyvale in Sunnyvale, Calif., is gearing up for the fight. He says he sold 15 vehicles on March 2, the first day of the incentives. He normally sells 10 a day.

"I feel encouraged," Simms says.

Indeed, Toyota's February performance -- down 9 percent in a market up 13 percent -- looks better when only retail sales are counted.

In an internal memo, Toyota points out that only 13 percent of its sales were to fleet customers, while fleets represented 40 percent of Ford volume. That put No. 1 Ford and No. 3 Toyota roughly even in sales to retail customers.

Permanently scarred?

Although many Toyota dealers choose to think the company's problems will fade when the grim headlines go away, not everyone agrees.

George Magliano, an analyst at IHS Global Insight, says Toyota will be permanently scarred.

"The big (incentive) money will attract people, and there will be a dogfight with all the other automakers coming in with the big money as well," Magliano says. "Toyota will be down, then up. But the long-term pattern is that they will lose share.

"They will lose a lot of the younger generation and a host of conquest buyers. That will cost them share."

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