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Toyota pulls Honda into a price war

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Toyota pulls Honda into a price war

Christine Tierney / The Detroit News

Honda Motor Co. has been one of the most disciplined automakers when it comes to sales practices, steering clear of splashy deals and incentives that can erode brands and profits.

But Honda is being pulled into a price war now by its archrival Toyota Motor Corp.

The two Japanese automakers are fiercely competitive, tending to fight over the same customers. After Toyota raised incentives recently to counter bad publicity over big recalls, analysts said Honda was bound to respond.

Honda's discounts are still below the industry average of around $2,700 per vehicle, but in the first two months of 2010, they rose nearly 30 percent to $1,641, according to Autodata Corp.

Forecasting firm TrueCar predicts Honda's incentives will reach $1,929 this month, up 8.3 percent from last March. It estimates the industry average at around $2,800, and Toyota's incentives at $2,318 per vehicle.

In comparison with its rivals, Honda seems restrained. But its incentives are high for the company, which normally shuns sales tactics that erode the residual value of vehicles and brands.

It's now offering deals, such as no-money-down lease plans with no deposit required on models such as its flagship Accord sedan.

"This Honda program snuck in very quietly," said James Bell, analyst at used car pricing specialist Kelley Blue Book. "Their huge new lease program is proof that Toyota's recent flood of incentives might just be impacting Honda as well."

Because of Toyota's size, its actions are exerting pressure on the entire industry. It's hurting Detroit's automakers, which have been struggling to wean themselves off incentives for years.

Honda said it had increased its incentives, but not by a huge amount. "It's probably a little bit higher than it has been in the past few years," said company spokesman Chuck Schifsky. But he said last year's discounts were low. Demand for small cars was high, and Honda was short of supplies.

Art Spinella, president of CNW Research of Bandon, Ore., says he thinks the rise in Toyota and Honda incentives is less dramatic than it appears.

The two automakers have always provided cash to their dealers to help them close deals. Japanese automakers prefer "hidden" incentives, which don't evoke the same desperation as cash offers scrawled on windshields.

The companies are taking some of that cash now and making it more visible to draw customers into showrooms, Spinella said. "They've never needed to drive floor traffic before."

But, he said, "Honda's incentives aren't up very much at all."

TrueCar analyst Jesse Toprak agrees. "Their spending is up, but not as much as it appears," he said. "It's very well calculated."

From The Detroit News: http://detnews.com/article/20100325/AUTO01/3250480/1148/auto01/Toyota-pulls-Honda-into-a-price-war#ixzz0jEXlQMkv

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